According to a study published in Health Affairs and reported by Fierce Healthcare, health care spending in the US rose by 7.9% in 2004, a slight decrease in the rate of increase from 2003’s 8.%. The US now spends 16% of GDP on health care; in comparison the next most profligate health care spender, Switzerland, spends a mere 11.1%.
By way of comparison, the overall US economy grew by 4.2% in 2004, so health care inflation was not quite twice as high.
Health care expenditures per person are now $6280…
One of the reasons for the drop in the rate of growth was a slowing in prescription drug inflation, which was up 8.2% in 2004. This was the first year drug cost inflation failed to break the double digits.
Conversely, spending on physicians increased by 9%, a significant bump up over historical rates. This was driven in large part by a big jump in Medicare’s payments to docs (11.1%). In turn, Medicare’s costs were driven by significantly higher utilization (docs ordered more tests, services, and procedures than the previous year).
Before we start jumping for joy at the slowing in overall medical inflation, consider this from California HealthLine:
“Paul Ginsberg, president of the Center for Studying Health System Change, said slowed spending increases in 2004 should be viewed within the context of abnormally high rates of growth in the immediately preceding years, when consumers forced insurers to ease restrictions on managed care.
This reminds me of the guy who is pounding his head into the brick wall, just because it feels so good when he stops. The relief we may be feeling is not the absence of pain, it is just a slight decrease. And we only feel it because last year’s pain was so bad.
What does this mean for you?
Most troubling is the increase in utilization for Medicare. The Medicare fee schedule has long been a bone of contention, and physicians may be increasing services as a way to make up for the poor per-service payment.
This cost shifting will affect private payers.

Several state legislatures are considering taking action in an attempt to force larger employers to offer health insurance to their employees. While there is considerable variation among the states, most appear to require large employers to dedicate around 10% of payroll dollars to health benefits.
I’m not sure this is Constitutional, legal or advisable, but it is clear that the level of frustration experienced by the middle class (read – voter) is growing. And their legislators are acting upon that frustration. According to the New York Times, the effort “underscores state lawmakers’ growing frustration with the progress of federal health care reform and the success of a union effort to turn Wal-Mart into a symbol of everything that is wrong with the system.”
It is remarkably easy to throw stones at Wal-Mart – while I won’t fault their desire to succeed in a capitalist economy, I do have problems with the company’s lobbying for state financial incentives, tax subsidies and abatements while thousands of their employees, who can’t afford or are not eligible for Wal-Mart-sponsored health coverage, receive their health insurance through Medicaid. This well-documented “double-dipping” at the taxpayers’ expense is highly unethical and inappropriate.
What does this mean for you?
While the effort to force employers to provide health insurance is doomed to failure, the larger message is clear – voters want health care reform. Expect this issue to finally rise to the top in elections this fall.