MARGARET WARNER: A new report out yesterday confirmed what companies and consumers already know: That health care costs are soaring. In fact, said the Federal Centers for Medicare and Medicaid Services, overall health spending in the U.S. doubled between 1993 and 2004.
And in 2004, total health care spending amounted to $1.9 trillion. That represented 16 percent of the nation's GDP, the largest share on record. A one-year snapshot offers this picture: The rate of growth in 2004 alone was nearly 8 percent-- more than double the national inflation rate, and far exceeding overall economic growth.
Yet there was some encouraging news, too. The growth in 2004 wasn't as great as in the three previous years. For more on what's behind the numbers, and what they portend for the years ahead, I'm joined by NewsHour correspondent Susan Dentzer of our health unit. The unit is a partnership with the Robert Wood Johnson Foundation.
SUSAN DENTZER: Hi, Margaret.
MARGARET WARNER: Explain this to us. There were a couple of headlines. They were really all over the map. One today said health care grows faster than the economy. Another one said the growth of national health spending slows. Now was this a good news story or a bad news story?
SUSAN DENTZER: Margaret, it was a little bit of both. The good news is that as we just said health spending increases slowed in 2004 over the previous few years. And that's largely because in the early years of this decade, you may recall, managed care, HMO's and so forth, that whole system was kind of falling apart. And, as a consequence, health spending took off for several years. You saw this particularly in things like prescription drug spending where in 2000 it soared by 16 percent in one year alone.
That's been offset by a slowdown now in 2004, and the good news is we saw that in prescription drugs once again, that prescription drug spending rose only 8 percent in 2004 -- only 8 percent in 2004, which is up again about half the pace of several years earlier.
But we need to look at this against the larger back drop, which is that a health spending rate increase of 8 percent still is a recipe for health spending doubling again by 2013. So nobody is breaking out the champagne. And we still have some very serious problems on our hands.
MARGARET WARNER: So what is driving -- I mean, if you look at the charts just inexorably every year even if the different categories may change, drugs, versus doctors versus hospitals just up, up, up as a percentage of GDP, what is driving that?
SUSAN DENTZER: There are three major drivers of ongoing health care cost increases: One is new technologies, new drugs, new devices. A cancer drug like Urbatux extends life for colon cancer patients by at least a few months but it costs $100,000 a year -- enormous prices for these.
In addition to that, overall prices in the economy generally continue to go up, and they do in health care, hospital prices in 2004 rose 5 percent. Why? Well, in part because hospitals are having to pay more to hire nurses. That's one factor but they're also raising prices because they can. So prices are just going up.
And then finally we have the issue of ongoing increases in utilization. We know much more to do for people who are sick, and there are a lot of sick people, a lot of people who are chronically ill.
If we look at a child born today has a 50 percent chance of having diabetes over the course of his or her lifetime. That also is a recipe for ongoing, sustained increases in health care spending.
MARGARET WARNER: Now, you talked a little bit about this in your first answer but in terms of why at least the rate wasn't quite as fast, and you said it was because of lowered drug costs. Explain a little more why are people at least not spending 12 percent more a year for drugs?
SUSAN DENTZER: Well, paradoxically, even as managed care overall fell apart, the management of drug spending did get better. And it has gotten better over the last several years. And one sign of this is that many people are being either pushed or encouraged to convert from, say, brand name medications to generic drugs which are priced less.
You take an example of a drug like Prilosec, which is a drug for gastric reflux disease, a serious form of heartburn. An average month's supply of the brand name medication Prilosec is about $138. The generic version of that costs about $40.
If you get the over-the-counter version of that which is now available, it's $24. So you could save $1400 a year by switching from the brand name medication to the over-the-counter drug.
Now, that's the good news and that contains overall spending. The bad news for consumers is if you're buying the drug over the counter, you're paying that cost out of pocket. Your insurance company is not paying anything toward that.
And that's why paradoxically we also saw in 2004 out-of-pocket spending by consumers for prescription drugs rising even as the rate of increase overall was lower.
MARGARET WARNER: So, in other words, both employers and employees are paying these higher costs?
SUSAN DENTZER: Yes.
MARGARET WARNER: Now, this total amount for 2004 of $1.9 trillion represents over $6,000 for every man, woman and child in America. And there were a couple of other reports yesterday that spoke to the quality and equity of the care that we're getting for that $6,000. What's the headline there?
SUSAN DENTZER: Well, the headline is, I think as it has been for several years is that we're pretty comfortable that for all we're spending and keep in mind it's 50 percent more per capita than the next biggest spender -- which is Switzerland -- are we getting value for our money? And the answer unequivocally is, no, we're not.
One of the studies that was out yesterday is the National Health Quality Report, which looks at a number of indicators of quality in health care. Of 44 core indicators that it looked at, it said about half of them had gotten better since the previous report the prior year but half had gotten worse or stayed the same, no improvement.
And if you look at what underlies some of those indicators, take, for example, people with high blood pressure. One indicator is: Are those people getting the treatment for high blood pressure that they need to get?
The wonderful statistic is that 29 percent of them are. Now nationally we would like to -- we have had as a goal for several years to get to 90 percent. At the rate we're going we'll get there in about 20 years so quality falls far short of what we would expect to be getting or hope to be getting for the dollars expended on health care.
MARGARET WARNER: So back to the big picture and the spending picture, what do the experts you talk to think all this portends for the future? I mean, do they see any kind of diminishment of this at least rate of growth or in fact is it going to be worse because of the huge baby boomer population?
SUSAN DENTZER: Well, they think that there will continue to be efforts to make headway obviously on quality and certainly on cost containment. And it tends to go in cycles.
We attacked prescription drugs very vehemently over the last several years because we got the huge increases several years ago. We'll probably see a cycle where we go back at hospital spending, but overall I think people look at the big picture and say it's clear we're in a serious national cost, health spending crisis.
There isn't a corporate leader who doesn't believe that or a serious health economist who doesn't believe that. Rising costs are a driver of several things. They're a driver of declining affordability of health insurance coverage. They are a driver of declining employer-based coverage.
The Kaiser Family Foundation Survey shows that 69 percent of employers were offering coverage in 2000. That number is now down to 60 percent. And in addition to that, public health insurance programs are growing. 8 million people on Medicaid alone over the last -- since 2000.
MARGARET WARNER: New ones.
SUSAN DENTZER: New ones. If this were not happening, the overall rate of health un-insurance would be worse. We're now at 46 million uninsured. We know that but for the growth of public programs that number would be higher as well.
So everybody steps back and looks at that and says we have a problem. We don't have anything on the horizon that looks like it's going to solve it or attack it in a concerted way. And where it will all end, who knows?
MARGARET WARNER: Thanks, Susan.
SUSAN DENTZER: Thanks, Margaret.