Private Health Care Spending Slowing

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June 10, 2004 -- A new study revealed that private health care spending grew by 7.4 percent in 2003, down from 9.5 percent in 2002. It marked the second year in a row that increases have slowed. The slowdown comes as good news, as it should point to a slower rise in health insurance premiums as well.

The study, put out by the nonprofit research group Center for Studying Health System Change, found that spending decelerated across all major health care categories, including hospital care, prescription drugs and physician care.

Though a slower increase in health care spending is encouraging, it doesn't entirely belie the fact that this expense has grown at an average of three times the pace of the U.S. economy the last three years.

Because premiums are tied directly to spending, as spending slows, so should premiums. However, that has not been the case, as premiums rose 13.9 percent in 2003, up from 12.9 percent in 2002, according to the Kaiser Family Foundation.

Prescription drug costs slowed the most, increasing 9.1 percent in 2003, the first single-digit increase in 8 years. The category grew 13.2 percent in 2002. The study said the deceleration was a result of both slower price and utilization growth. Drug prices grew at 3.1 percent, largely because more incentives were given by insurers to use generic drugs, according to the study.

Hospital spending grew at 9.0 percent, almost solely due to higher prices. This was the sixth straight year that hospital price increases accelerated. The study cited a shortage of hospital workers, which has driven up wages, as the main reason for this surge.

Physician care spending increased the smallest amount for the third straight year, growing only 5.1 percent.

Matt Quinn

Matt Quinn contributes to the Wall Street Journal's corporate finance blog. He has also written extensively about banking and corporate finance for publications including Inc., American Banker, and Financial Week. He lives in Brooklyn, New York.