Health spending up over drugs

By Kevin Freking , Associated Press

Wednesday, January 9, 2008

Seniors and the disabled flocked to the pharmacy counter in 2006 with their new Medicare drug cards, fueling a 6.7 percent increase in health spending, the federal government reported Monday.

In most other areas of health care, there was a welcome slowdown in spending. It still cost more to go to the hospital or doctor, but the increase was not as great as in the previous year.

The $2.1 trillion spent on health care in 2006 came to an average of $7,026 a person. Health care represents 16.1 percent of the economy.

The increase in drug spending occurred even as consumers relied more on generic drugs and as prices remained relatively stable for many brand-names. Nearly two out of every three prescriptions filled were generics, which helped restrain drug expenditures.

But that restraint was offset by the new Medicare benefit. Those with insurance are more likely to access the health care system.

Under the drug benefit, people who once had to forgo or cut back on medicine had the means to fill more prescriptions in 2006, thanks to the new government subsidy.

Also, under the drug benefit, many of the poorest beneficiaries were moved from Medicaid into Medicare, where private plans administer the drug benefit. Those private plans failed to negotiate discounts as large as those the states received.

Officials said the discounts drug manufacturers were required to give states typically lowered costs by about 30 percent. Meanwhile, the private plans typically negotiated discounts of 5 percent to 10 percent.

Spending on prescription drugs increased 8.5 percent in the drug benefit's first year - compared with 5.8 percent the year before.

Overall, health care makes up a growing share of the nation's economy - a trend that many analysts worry will eventually harm the economy as businesses, the government and consumers have to divert resources from other priorities to pay health bills.