Guide to spending in 2004

Health care spending slowed in the last year, growing at 7.9% (see more commentary here, here, and here). For policy buffs, heading over to the Health Affairs article itself is fairly enlightening. So here's your guide to trends in health care spending, 2004:

• This is the first year researchers included investment in medical equipment and software. Considering all the hype about increased health care spending due to expensive technology, I don't really understand why they wouldn't include this in the past. In any case, these sunk costs are now incorporated into the estimate.

• Private health insurance benefits stabilized as slowing drug spending offset faster hospital and physician spending growth

• Private spending actually increased at a slower rate than public spending, at 7.6 and 8.2%, respectively. The Medicare Modernization act increased payments for certain providers, which explains part of the public increase. Also some disparity can be attributed to the fact that fewer employers are offering health insurance and more people are being excluded from the private system.

• The largest shift comes from decreased spending on prescription drugs. This bit on Medicaid drug spending gives some insight as to why:

Historically one of the fastest-growing Medicaid services, drug spending slowed significantly in 2004. States have been intensifying efforts to contain the rise in drug spending by instituting prior authorization policies; imposing quantity limits on drugs dispensed; requiring use of generics; negotiating higher rebates, including supplemental rebates; and joining multistate purchasing pools.

Keep in mind, however, 2004 (and possibly 2005) will be an outlier year as the new benefit kicked in January 1.

• Insurance is remaining profitable on premiums: "Private health insurance premiums amounted to $658.5 billion in 2004, compared with $563.5 billion in benefits paid."

• Payers have been encouraging the use of generics, which increased at double-digit rates for the third straight year.

And there you go. While you're armed to impress with your intimate knowledge of health care spending in 2004, the bottom line is that costs still increased. They've been proceeding much faster than inflation, taking up a greater proportion of families' income. A slowing this year means little in the long run in the context of 6 years of rising costs. With the new Medicare drug benefit, growing rates of uninsured, and a hospital construction explosion, don't expect this trend to last.