Record Share Of Economy Spent on Health Care

By Marc Kaufman and Rob Stein
Washington Post Staff Writers
Tuesday, January 10, 2006

Rising health care costs, already threatening many basic industries, now consume 16 percent of the nation's economic output -- the highest proportion ever, the government said yesterday in its latest calculation.

The nation's health care bill continued to grow substantially faster than inflation and wages, increasing by almost 8 percent in 2004, the most recent year with near-final numbers.

Spending for physicians and hospitals shot up considerably faster than in recent years, while drug costs grew at a slower rate than over the past decade.

Even as health care costs continue to escalate, however, many Americans -- especially minorities and the poor -- still do not receive high-quality care, according to two other federal reports yesterday. The quality of health care is improving slowly and some racial disparities are narrowing, the reports found, but gaps persist and Hispanics appear to be falling even further behind.

"We can do better," Health and Human Services Secretary Mike Leavitt said at a Washington conference on racial and ethnic disparities in health care. "Disparities and inequities still exist. Outcomes vary. Treatments are not received equally."

Political, medical and economic leaders and experts have long warned that health care cost trends will gradually overwhelm the economy, and many companies now complain that employee and retiree health costs are making them less competitive. Yesterday's report added new reasons to worry.

The overall cost of health care -- everything from hospital and doctor bills to the cost of pharmaceuticals, medical equipment, insurance and nursing home and home-health care -- doubled from 1993 to 2004, said the report from the Centers for Medicare and Medicaid Services. In 2004, the nation spent almost $140 billion more for health care than the year before.

In 1997, health care accounted for 13.6 percent of the gross domestic product.

"Americans rejected the tougher restrictions of managed care in the late 1990s, and yet they want all the latest advances in medical technology," said Drew Altman, president of the nonpartisan Kaiser Family Foundation, which researches health issues. "Since government regulation of prices and services is not in the cards, the inevitable result is higher costs."

The health care increase of 7.9 percent in 2004 was almost three times the overall national inflation rate, which was 2.7 percent. The average hourly wage for workers in private companies was essentially unchanged that year, according to the U.S. Department of Labor.

After a sharp jump in health care costs earlier in the decade, the health inflation rate appears to be plateauing, officials added.

The best news involved spending on pharmaceutical drugs, which increased by less than 10 percent for the first time in more than a decade.

Cynthia Smith of the Centers for Medicare and Medicaid Services, lead author of the health spending report, attributed the slower increase in drug spending to greater use of generic drugs and mail-order pharmacies, a slowdown in the introduction of costly new medications, and the impact of higher drug co-pays. Mark Merritt, president of the Pharmaceutical Care Management Association, which represents drug benefit managers, said the trend was also a result of their "work over the past decade to change the way consumers, clinicians and purchasers think about prescription drugs."

Although the fast rise in drug spending in the past decade attracted great attention from officials and health policy experts, it remains a relatively small part of the health care bill -- about 10 percent.

Defenders of increased drug spending have often argued that those added costs would keep people healthier and reduce the amount spent on hospitals and doctors. The 2004 statistics told a different story, however, with an increase in doctor costs of 9 percent from 2003 and an increase in hospital costs of 8.6 percent. The report's authors said the jumps appeared to be associated with higher Medicare reimbursement rates for some doctors and, anecdotally, to an upswing in construction of new hospitals.

"This is an alarming situation, but it's more like a creeping infection than a broken bone, and so people get used to it," said Edward Howard, executive vice president of the Alliance for Health Reform, a nonprofit education group chaired by Sens. John D. Rockefeller IV (D-W.Va.) and Bill Frist (R-Tenn.). "Frankly, I don't see major change until people who have some sort of organized political influence start hurting a little more."

In addition to the report on costs, a different agency yesterday released two new annual reports mandated by Congress on the quality of health care and disparities in care. Officials called them the most comprehensive assessments of their kind.

For the report by the Agency for Healthcare Research and Quality, researchers compiled data from dozens of sources collected by the federal government and others to create 179 quality measures, including 46 "core" measures.

The researchers concluded that the overall quality of care in 2005 had improved at a rate of 2.8 percent from 2003. That was the same increase as the year before, and many measures showed no improvement or even decreases.

For example, there was improvement in the percentage of patients with high blood pressure whose condition was under control, but no improvement in providing speedy treatment to people having heart attacks.

In the second report, the National Healthcare Disparities Report, researchers found more measures on which the quality gap between whites and racial minorities was shrinking than widening. But the report found that major disparities remained for all groups and that the gap had widened for Hispanics.

Of disparities experienced by blacks, 58 percent were narrowing and 42 percent were widening, the researchers found. For Hispanics, 41 percent of disparities were narrowing, whereas 59 percent were becoming larger.

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