Health care spending slows; up 4.8% in 1997

Both public and private spending decrease

Health care spending in the United States rose only 4.8% in 1997, the slowest increase in almost 40 years, according to a new report released by the Health Care Financing Administration (HCFA) in Baltimore. Spending totaled $1.1 trillion, with average per person spending at just under $4,000. HCFA’s longer-term estimates, however, project spending to grow more rapidly in the coming years.

The report shows that the gap between spending paid for by public and private sources inched closer in 1997, continuing a trend that began in 1990. Private funding paid for a little more than half of health care — $585.3 billion — down from nearly 60% in 1990, while public programs, including Medicare and Medicaid, paid for 46.4% in 1997, up from 40.5% in 1990. (See pie charts showing where funding came from and where it went, p. 13.)

The overall slowdown in spending has been driven largely by rapidly falling growth in private spending, which reached an all-time low of 2.3% in 1994. In addition, the rate of spending from public funding sources (Medicare and Medicaid) has slowed since 1994, contributing to lower overall spending growth.

Total Medicaid spending increased only about 4% in 1996, to $160 billion, the slowest growth since Medicaid’s inception nearly 30 years ago. Preliminary data suggest the slowdown also can be attributed to decreases in enrollment in the past three years.

In 1997, Medicare financed $215 billion in health care spending for its 38.4 million aged and disabled enrollees. However, annual Medicare spending growth slowed from 12% in 1994 to 7% in 1997. This reduction reflects four influencing factors:

• a slowdown in medical price increases;

• the impact of legislation intended to reduce the growth in Medicare provider payments;

• changes in provider practices due to fraud and abuse enforcement activities;

• a small but steady decline in the growth of the overall Medicare population.

In 1997, personal health care expenditures reached nearly $970 billion, 89% of overall health spending. While spending on hospitals and physicians usually accounts for the majority of personal health care expenditures, the percentage being spent on these services has been declining and is offset by increased spending for home health and other health care services. The largest increase has been in the costs of prescription drugs, which have risen at double-digit rates during the past few years.

Expenditures for hospital care accounted for nearly 40% of personal health care spending and were the slowest-growing service, increasing only 3% to $371 billion in 1997. Spending for physician services increased 4.4% in 1997, continuing a trend of single-digit growth started in 1992.

Of the $585 billion spent by private sources for health care in 1997, about 60% ($348 billion) was paid by private health insurance premiums. The slowdown in premium growth in the 1990s can be attributed in part to the move from more expensive fee-for-service health plans into managed care. In 1997, 85% of the insured work force was in some type of managed care plan.

Medicare spending grew 4% faster than private health insurance (7% compared with 3%) in 1997. When examined on a per enrollee basis, Medicare and private health insurance benefits have actually grown at comparable average annual rates from 1969 through 1997 — 10.4% and 11.4% respectively. The average growth in private health insurance per enrollee spending slowed between 1994 and 1996, while growth in Medicare per enrollee spending continued. In 1997, Medicare per enrollee spending grew 6%, compared with 4% for private health insurance.

While growth in health care expenditures over the last few years has remained slow, HCFA projected last fall that growth in public health spending over the next 10 years will nearly double, reaching $2 trillion in 2007.