Rise in Medicare Spending owing to Drug benefits

Medicare spending grew at its fastest pace since 1981, jumping almost 20 per cent in 2006, driven by the drug benefits that were added to the federal health-insurance program for the elderly, according to a government study.

A government study revealed that total health cost of the nation was $2.1 trillion in 2006 -- or 16 per cent of gross domestic product. That was up 6.7 per cent from 2005, which had a growth rate of 6.5 per cent.

Aaron C. Catlin, an economist at the Health and Human Services Department, said, “the deceleration in employer payments for private health insurance resulted, in part, from the fact that Medicare now subsidized drug costs for many retirees.”

Costs for medical services continued to go up more rapidly than wages, and presidential candidates of both parties proclaimed that they would work to slow health-care inflation.
“The cost of health care continues to be a real and pressing concern,” said Kerry Weems, Medicare's acting administrator, in an e-mailed statement. “Making sure we are paying for high quality health-care services, not just the number of services provided is just one of the most critical issues facing the American public and the federal government.”

The report said there were other factors that drove up drug spending including the use of existing drugs for fresh purposes and the increased use of high-cost biotechnology products.

The data shows that expenditure on hospitals, doctors and nursing homes grew more in 2005 than in 2006.

Medicare spending went up 18.7 per cent in 2006, to $401.3 billion, while spending on Medicaid, which is mutually financed by the federal government and the states, declined 1 percent, to $310.6 billion, largely owing to the shifting of more than six million Medicaid enrollees to Medicare for their drug coverage.

Federal researchers, while considering the trends of the past two decades realized that government programs were paying a larger share of health costs, while households were paying a smaller share and private businesses were paying about the same proportion.