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February 13, 2004
Report: Healthcare Costs Grow, But at Slower Rate

Healthcare spending in the United States is projected to grow 7.8 percent in 2003, down from the 9.3 percent growth experienced in 2002, according to a report issued by the Centers for Medicare & Medicaid Services (CMS). A slowdown in health care spending growth in 2003 would follow six consecutive years of acceleration. As a percentage of Gross Domestic Product (GDP), healthcare spending is expected to continue to grow, reaching 15.3 percent in 2003, up from 14.9 percent in 2002, according to the report.

The deceleration in the healthcare spending growth rate is mainly due to slower rates of growth anticipated for Medicaid and Medicare spending, private health insurance spending per enrollee, and medical price inflation. In particular, hospital and prescription drug spending are projected to experience slower growth than they have in recent years.

Per-enrollee private health insurance premium growth is expected to fall from 11.4 percent in 2002 to 10.4 percent in 2003, 8.0 percent in 2004, and 7.1 percent in 2005. The deceleration is due to both the projected continued slowdown in underlying medical costs per-enrollee and the anticipated turn in the underwriting cycle in 2004.

Out-of-pocket spending is expected to grow slightly faster in the near-term of the projection period than over the previous four years, as employers continue to shift healthcare costs to employees. Out-of-pocket spending growth is projected to reach 7.3 percent in 2005 from 6.0 percent in 2002. Despite this acceleration, out-of-pocket spending is still projected to fall as a share of private health spending because private health insurance premium growth is projected to be higher than out-of-pocket spending growth.

Prescription drug spending is still projected to be the fastest-growing sector, but growth is expected to continue its slowdown that began in 2000. Prescription drug spending growth is expected to be 13.4 percent in 2003, 12.9 percent in 2004, and 12.4 percent in 2005. The deceleration is due to slower growth in drug prices, the scheduled expiration of patent protection for several top-selling drugs, and increased use of multi-tiered copays that have slowed demand.

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