Health Care Spending Slows, Still Completely Ludicrous

Look, I know I can be hard on the U.S. health care system for leaving too many individuals and families behind, costing too much, and not providing the quality care we deserve.  Criticizing it is how I show my love.  But who isn't proud to see the lede in this morning's New York Times?

"National health spending grew in 2007 at the lowest rate in nine years, mainly because prescription drug spending increased at the slowest pace since 1963, the government reported Monday."

YEAH!!!  Fruit smoothies for everybody!  U.S.A.!  U.S.A.!

Oh wait, hold on.  It still grew, but at its slowest rate in years?  And we still spent $2.2 trillion in 2007, or $7,421 per person?  And because our economy also contracted a bit in 2007, health care expenditures are 16.2% of our GDP -- another record?

Um, waiter... I think I'd like to cancel that smoothie order.

In fact, what's remarkable is what hasn't changed from 2006 in the latest numbers from the Centers for Medicare and Medicaid (check out the NY Times' chart).  The share of spending for the various categories is not that much different than what we saw for the past 5 years.  The two categories where we see the breaks being applied to growth are prescription drugs and administration costs, with each about half the growth rate.  Notice -- every category still went up.  Some just went up more than others.

Why prescription drugs?  A lot of factors, but one big one:  use of generics.  Some very popular brand name prescriptions went off-patent, and cheaper generic equivalents flowed into the market.  We also saw companies like Walmart offer heavily discounted generic drugs through its stores (which, by the way, has induced groups like Giant Supermarkets to start giving them away for free.)  A change of 63 % usage of generics in 2006 to 67% usage in 2007 is not much, but it bodes well for 2009 since the new President and Congress have been talking up increased use of generics in Medicare every chance they get.

Why administrative costs?  Well, no one's done the analysis on this yet, but the CMS numbers have basically gone from 7.2% of our total health expenditures to 7.0% -- big whoop.  Germany -- a universal health care system that utilizes private insurance -- was at 5.6% in 2006.  Canada -- our much-maligned single-payer neighbor to the north -- was at 2.6%.  So I wouldn't go hanging this on the refrigerator door.

And turning to value for quality, Japan and France by most metrics are tops in health outcomes.  The latest WHO numbers on their per capita health care spending is from 2004 -- $2,358 for Japan, $3,374 for France.  The U.S. in 2007?  $7,421.

No smoothie for you.

(Photo credit:  Tracy O on Flickr.)

Update: 12:38 PM

Kaiser's Daily Health Policy has the answer on administrative costs.  In 2006, with Medicare Part D fully phased in, administrative costs for Medicare shot up 62.5%.  This year, they only grew 10.7% -- hence, the lower overall growth rate.  So there you have it.