National healthcare costs topped $2 trillion in 2006

Times Staff Writer

The nation’s healthcare bill climbed above $2 trillion in 2006, averaging a record $7,026 per person, according to a government report released today. The report is likely to intensify the presidential campaign debate over curbing costs and covering the nation’s 47 million uninsured.

Costs increased 6.7%, the report by Medicare’s actuaries said -- only slightly more than the 6.5% rate in 2005. But it was still well above the overall rate of inflation.

“Many people involved in healthcare will say, ‘Hey, wait a minute, 6.7% . . . things are moderating,’ but for average people around the country, they don’t see this as moderation,” said Ron Pollack, executive director of Families USA, a liberal advocacy group that promotes coverage for all. “People just see that healthcare costs are rising faster than their wages.”


Most of those costs are incurred by the sickest patients. For example, about 10% of the population accounts for more than 60% of healthcare costs.

Democratic and Republican presidential candidates agree on the need to curb costs, but there is little consensus on how. Democrats generally favor giving government a stronger hand, for example, by negotiating drug prices under the Medicare prescription benefit. Republicans want to foster greater competition in the health insurance market and are divided over the role of government.

Yet that role is growing -- and it doesn’t seem to matter whether conservative Republicans or liberal Democrats are in charge.

In addition to assessing overall costs, the report provides a look at the first full year of the Medicare drug benefit -- proposed by President Bush and passed by a GOP Congress -- and it found that the federal share of prescription costs increased significantly, while the shares paid by states, private insurance and consumers shrank.

In 2005, Medicare paid 2% of the total tab for prescriptions purchased at the retail level. That share grew to 18% in 2006.

“What we are seeing here is a blip on a path to the government being a larger and larger payer for healthcare, and in the long term, being the majority payer,” said health economist Jack Rodgers of the consulting firm PricewaterhouseCoopers.


Federal, state and local governments already pay almost 47% of the nation’s healthcare costs through public programs. Under current policies, the total government share would creep up to more than half the bill by 2017. The Democratic presidential candidates’ plans to expand healthcare coverage would accelerate the tipping point to 2011, according to a PricewaterhouseCoopers analysis.

The report did not provide a final verdict on whether the Medicare prescription benefit is a good deal for taxpayers, a topic of intense debate among Democrats and Republicans, as well as for fiscal conservatives.

On the negative side, it found that the private insurance plans that provide the prescription benefit were not able to obtain discounts from drug manufacturers as deep as those that state governments got through their Medicaid programs. About 6 million low-income elderly and disabled Medicaid beneficiaries were transferred into the Medicare prescription program, which has a total of about 24 million enrollees.

The private plans get discounts averaging 5% to 10%, Medicare officials said, compared to the 30% discounts the state Medicaid programs got for the low-income beneficiaries.

On the positive side, the report found that seniors who previously had to buy their own medications at list prices were now getting discounts.

As a result of the new coverage, seniors are buying more prescription drugs, the report also found. In the long run, greater use of medications could reduce costly hospitalizations among those with chronic conditions such as heart disease and diabetes.


On the bigger problem of trying to curb overall costs, the leading Democratic candidates would launch an extensive research effort to identify the most cost-effective treatments with the aim of persuading doctors and hospitals to stop providing services of little or questionable value.

Republicans, meanwhile, want to cut down on malpractice litigation.