National Health Spending for 2006
EACH YEAR, THE CMS OFFICE of the Actuary and the National Health Expenditure Accounts (NHEA) Team compile figures reflecting US health expenditures, and the results are published, with analysis, in Health Affairs.1 Because the methodology used to acquire and evaluate the data changes very little (if at all) from one year to the next, this annual snapshot of spending can be particularly valuable in tracking long-term trends.
It may be even more useful as an aid to strategic planning, since it shows health care providers how consumers and payors have reacted to recent economic trends. This knowledge, in turn, helps planners to extrapolate from a reflection of the market’s past behavior to a prediction of the ups and downs to come.
For imaging providers, it is important to remember that figures for total spending may be less relevant than those that focus on hospital and physician payment. This is especially true for 2006 because the implementation of the Medicare Part D benefit covering prescription medications had major effects on overall US expenditures (see figure), but could lead to deceptive forecasts for providers not heavily involved in the pharmaceutical market.
For example, the fact that the Medicare program spent more in 2006 should not be taken as implying that hospitals and physicians were the recipients of those extra dollars, many of which went to drug companies and to Medicare Ad vantage plans.
Total US health care spending reached $2.1 trillion in 2006, for a per-capita level of $7,026. This figure represents an increase of 6.7% over 2005 spending, but the effects of Medicare Part D, in part, caused a more rapid increase in drug expenditures (which rose 8.5% during the same period).
The part of the gross domestic product (GDP) that was spent for health care in 2006 was 16%, which was only a slight increase over the 2005 percentage of 15.9%. At the be - ginning of 2006, this percentage had been widely forecast at 20%, so there were clearly unexpected slowdowns in spending growth during the year.
Mild Growth
Spending grew more slowly in 2005 than in 2006 (and more slowly than at any time since 1999), with an overall increase of 6.5%. The 2006 increase of 6.7%, however, was only slightly more rapid, continuing a slowgrowth trend. In 2006, most of that growth was attributable to increases in the administrative cost of government programs and in drug spending.
Aggregate and per-capita national health expenses and their share of the gross domestic product (GDP) for selected years from 1970 through 2006, with selected expense categories. Adapted from data from CMS and the US Department of Commerce. 
As annual spending on health care has slowed and the GDP’s growth rate has remained stable, the health share of the GDP has been relatively unchanged, in what the NHEA Team described as a convergence. Until 1993, the percentage of the GDP ac - counted for by health spending increased sharply, but it stabilized from 1993 to 2000, in what may have been partly the market’s response to the pressures imposed by managed care.
By 2000, that was a less important factor, and spending (as a percentage of the GDP) grew significantly each year until 2003. At that time, and through 2006, a higher GDP offset spending increases so that the percentage spent on health care increased only slowly.
The part of total health spending paid for by Medicare increased to 19% in 2006; it was 17% in 2005, but 6 million people transferred their drug coverage from Medicaid to Medicare in 2006. Medicaid’s share of the 2006 total was 15% (down 1% from 2005), and the percentage paid by private insurers also decreased 1% (from 35% to 34%), as did out-of-pocket spending (from 13% to 12%). Household health spending (including insurance premiums) was unchanged at 31%.
Once Part D spending is removed from the Medicare totals, it becomes apparent that the program’s spending for most services grew more slowly than in prior years, possibly because inpatient admissions decreased and payments to physicians increased only 0.2%. Medicare Advantage spending increased 48%, but there was also a 25% increase in participants. On the fee-forservice side of Medicare, where enrollment decreased 3.8%, spending increased only 4% for 2006, down from 7.5% in 2005.
Total US spending on hospital services by Medicare plus all other payors accelerated only slightly, from 7% in 2005 to 7.3% in 2006. For physician and clinical services, the growth rate was 5.9% (the least acceleration seen since 1999), perhaps because some private insurers tied their payments to the year’s small Medicare update.
Muting a Downturn
According to the NHEA Team, the effects that changes in the general economic outlook and GDP exert on health care spending are both diluted and delayed. For providers trying to predict the economy’s impact on their businesses and plan appropriate responses, this may be good news: they need not worry as much as suppliers of discretionary purchases (since health care is always needed), and they have more time to respond to market changes than sellers of consumer goods can typically expect.
During the past three recessions, health spending has grown more (and, at times, at dramatically greater speed) than the GDP. Slowing in health care spending is seen only several years later because the effect of a recession is felt after a long lag—and the valleys are more shallow because the economy has usually improved by then, muting the force with which decreases are felt. As the NHEA Team notes, the infrastructure of the health sector acts as a filter, and it takes time for recessionary forces to make their way through that.
As annual spending on health care has slowed and the GDP’s growth rate has remained stable, the health share of the GDP has been relatively unchanged, in what the NHEA Team described as a convergence. Until 1993, the percentage of the GDP ac - counted for by health spending increased sharply, but it stabilized from 1993 to 2000, in what may have been partly the market’s response to the pressures imposed by managed care.
By 2000, that was a less important factor, and spending (as a percentage of the GDP) grew significantly each year until 2003. At that time, and through 2006, a higher GDP offset spending increases so that the percentage spent on health care increased only slowly.
The part of total health spending paid for by Medicare increased to 19% in 2006; it was 17% in 2005, but 6 million people transferred their drug coverage from Medicaid to Medicare in 2006. Medicaid’s share of the 2006 total was 15% (down 1% from 2005), and the percentage paid by private insurers also decreased 1% (from 35% to 34%), as did out-of-pocket spending (from 13% to 12%). Household health spending (including insurance premiums) was unchanged at 31%.
Once Part D spending is removed from the Medicare totals, it becomes apparent that the program’s spending for most services grew more slowly than in prior years, possibly because inpatient admissions decreased and payments to physicians increased only 0.2%. Medicare Advantage spending increased 48%, but there was also a 25% increase in participants. On the fee-forservice side of Medicare, where enrollment decreased 3.8%, spending increased only 4% for 2006, down from 7.5% in 2005.
Total US spending on hospital services by Medicare plus all other payors accelerated only slightly, from 7% in 2005 to 7.3% in 2006. For physician and clinical services, the growth rate was 5.9% (the least acceleration seen since 1999), perhaps because some private insurers tied their payments to the year’s small Medicare update.
Muting a Downturn
According to the NHEA Team, the effects that changes in the general economic outlook and GDP exert on health care spending are both diluted and delayed. For providers trying to predict the economy’s impact on their businesses and plan appropriate responses, this may be good news: they need not worry as much as suppliers of discretionary purchases (since health care is always needed), and they have more time to respond to market changes than sellers of consumer goods can typically expect.
During the past three recessions, health spending has grown more (and, at times, at dramatically greater speed) than the GDP. Slowing in health care spending is seen only several years later because the effect of a recession is felt after a long lag—and the valleys are more shallow because the economy has usually improved by then, muting the force with which decreases are felt. As the NHEA Team notes, the infrastructure of the health sector acts as a filter, and it takes time for recessionary forces to make their way through that.