US Healthcare Costs & The Economist

The January 26th issue of The Economist had a short article about growing healthcare costs in the US. It pointed out (referencing CMS as a source), that healthcare costs had increased 6.7% from 2005-2006, but that Medicare spending had increased 18.7% What these numbers reflect, (but the Economist article only implies), is that because Medicare Part D started in 2006, spending growth shifted from private spending (and Medicaid) to Medicare. Looking at the actual data shows this to be the case:

  • Public sector healthcare spending increased 8.2% in 2006 compared to 2005; Greater than the 7.1% the previous year
  • Private sector healthcare spending o increased 5.4% in 2006 compared to 2005; Less than the 6.1% the previous year

Looking closer at the data is even more interesting. For 2006 compared to 2005:

  • Medicare spending increased 18.7% compared to the prior year’s 9.3%
  • Medicaid spending declined by 0.9% (the first decline in the history of the program) compared to a 7.3% increase the prior year
  • Spending on private health insurance increased 5.5% (the slowest rate of growth since 1997) compared to 6.2% the prior year
  • Out-of-pocket payments increased 3.8% compared to 5.2% the prior year

However, although total Medicare spending has increased, Part D spending has been tens of billions of dollars per year lower than originally projected.

What do you think this all mean for:

  • Longer term spending within the US healthcare system?
  • The political fighting over Part D?
  • Changes to Part D’s structure (e.g. donut hole), and financing?
  • Medicare’s contracting with managed care plans in Medicare Advantage (formerly Medicare+Choice)?

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