United Staes Health Spending Shows Record Rise

The country’s spending on healthcare reached an all-time record and grew at the fastest rate in a decade in 2001, in a trend that analysts said threatens the nation’s ability to finance medical care.

Spending on healthcare was up 8.7% from the year before, an upsurge not seen since 1990. Overall, Americans spent an unprecedented $1.42 trillion on healthcare in 2001, which averages out to $5,035 per person, according to a federal report released Wednesday.

Economists have seen rises in healthcare costs every year since 1970. But recent trends have analysts worried that costs may now be increasing too quickly for the sagging US economy to cover.

They warned that rising costs could foreshadow deep cuts to the Medicaid program and to drastic pullbacks in the amount of medical coverage employers are willing to finance for their workers.

The report noted that health spending accounted for 14.1% of the US gross domestic product in 2001, a 0.8% rise from the year before. The sharp rise comes after eight years in which healthcare’s share of the economy was slowly declining or flat.

Analysts had not seen such a large “spike” in health spending since 1990, when similarly increasing costs led to the rapid rise of HMO’s and a rationing of medical care in the US, said Katherine Levit, director of the National Health Statistics Group at the Centers for Medicare and Medicaid Services, the agency responsible for administering federal healthcare programs.

“We probably should be on the lookout for some policy changes or some private sector initiatives that put the brakes on spending growth,” she said.

Some of the changes have already begun to materialize. With states facing a total of $50 billion in budget deficits and faltering tax revenues this year, several governors have already announced that they will pare benefits or restrict enrollment in Medicaid and other state-run health programs for the poor.

“We’re on the verge of losing the access that Medicaid enrollees already have,” said Alan Weil, director of the Assessing New Federalism Project at the Urban Institute, a Washington think tank.

Many large employers have also forecast moves to cut the amount of health coverage they provide for current and former workers. More than one in five companies surveyed by the Henry J. Kaiser Family Foundation in December 2002 indicated they would soon bar current workers from future retiree health benefits.

Those companies also said that they had raised retirees’ insurance premiums by an average of 20% last year to help cover rising costs. Most firms also forecast plans to shift more healthcare costs to workers and retirees, raising their insurance deductibles, copayments, and other out-of-pocket costs.

Analysts said that they expected the latest figures to add to enthusiasm in the US Congress for reforms to publicly funded health programs. Lawmakers are expected to soon continue debate on how to add a prescription drug benefit to the Medicare program and to consider ways to stem rapidly rising costs among Medicare and Medicaid beneficiaries.

Spending on drugs rose 16% in 2001, making it the fastest growing part of healthcare expenses.

Congress is also likely to debate proposals that would allow the federal government to pay the prescription costs for elderly and disabled persons who are eligible for both Medicare and Medicaid. State officials have said that they are desperate for the transfer since patients who are eligible for both programs comprise on average a third of all Medicaid enrollees.

“The federal government needs to take back some of these responsibilities,” said Ray Scheppach, the executive director of the National Governors Association.

House Democrats announced an economic stimulus plan on Monday that included $10 billion designed to help cash-strapped states cover current Medicaid costs.

A stimulus plan unveiled by President Bush on Tuesday contained no new Medicaid money, but did include $3.6 billion in payments to help states pay for extended unemployment benefits.

Sen. Charles E. Grassley (R-IA), who chairs the Finance Committee, said Monday that he favors offering some short-term payments to help states cover their Medicaid programs.

Meanwhile, Republican congressional aides said that lawmakers would likely go beyond short-term Medicaid payments to states and consider ways to make the program more efficient.

According to one GOP aide, Republicans will move this year to enact laws that help states control their spending on prescription drugs and on long-term care for elderly and disabled Medicaid patients.

“It’s not sufficient to say that we simply need to throw money at Medicaid to fix its problems,” the aide said.