Use of Generics Reason for Health Care Spending Decline

January 10, 2006 ( - A report in the Journal of Health Affairs says the rate of increase in US health care spending in 2004 was at its lowest level in four years, thanks to an increase in the use of generic drugs.

The report, National Health Spending in 2004: Recent Slowdown Led by Prescription Drug Spending, said the rate of increase in US health care spending slowed from 8.2% in 2003 to 7.9% in 2004, fueled by “a significant decline” in prescription drug spending, according to news reports. Total health care spending in the US reached $1.87 trillion in 2004, or $6,280 per person.

The growth in retail drug sales slowed to 8.2% in 2004, compared to 10.2% in 2003 and 14% in 2002. Overall, hospital spending accounted for 30% of the aggregate increases in health care spending between 2002 and 2004 and prescription drugs accounted for an 11% share – “smaller than its share of the increase in recent years and much slower in absolute terms,” according to the report.

Report authors attribute the decrease in prescription drug spending to efforts of health plans to encourage the use of generics or over-the-counter medications. Health plans have been urging the purchase of generic drugs through lower co-payments and other mechanisms. In addition, plans have urged consumers to purchase over-the-counter drugs by moving the prescription form of comparable drugs to the third co-payment tier, by mailing coupons to enrollees for the over-the-counter product, or by no longer covering certain prescription drugs.

The report said these factors contributed to the decrease in private health insurance spending on drugs to 6.5% in 2004 from its average growth of 13.3% in the years 2000 through 2002.

In 2004, Medicare spending grew while Medicaid spending declined, the report also found. Medicare spending increased by 8.9% in 2004 to reach $309 billion, compared to its 6.6% increase in 2003, while growth in total Medicaid spending – federal plus state and local – slowed from 8.8% in 2003 to 7.9% in 2004.

Additionally, the report found that the out-of-pocket share of total health spending dropped for the sixth consecutive year. Households spent $557 billion on health care in 2004, of which about $236 billion represented out-of-pocket spending, which grew at a 5.5% rate compared with 7.9% for overall health spending.

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