Private sector spending growth decelerated only slightly as compared with public spending, growing 8.6 percent in 2003 compared with 9.0 percent in 2002.

Health expenditures in the United States grew 7.7 percent in 2003 to $1.7 trillion, down from a 9.3 percent growth rate in 2002. On a per capita basis, health spending increased by $353 to $5,670. Health spending accounted for 15.3 percent of Gross Domestic Product in 2003, outpacing growth in the overall economy by nearly 3 percentage points.

Private payers (primarily private health insurance and payments by individuals for co-pays, deductibles, and services not covered by insurance) funded more than half of national health expenditures in 2003, or $913.2 billion.

The public sector funded $766 billion, with the Medicaid program funding 16 percent of aggregate health spending, or $267 billion, nearly equaling the 17 percent, $283 billion, spent by Medicare.

Medicaid Spending Growth Down

Changes in public funding for health care greatly influenced overall health spending in 2003. Total public spending growth slowed significantly from 9.7 percent in 2002 to 6.6 percent in 2003.

Driving this was a slowdown in Medicaid spending growth -- from 12.6 percent in 2002 to 6.9 percent in 2003 -- along with the expiration of supplemental funding provisions in the Balanced Budget Refinement Act (BBRA) and the Medicare, Medicaid and SCHIP Benefits Improvement Act (BIPA) to Medicare providers.

Private sector spending growth decelerated only slightly as compared with public spending, growing 8.6 percent in 2003 compared with 9.0 percent in 2002.

Private health insurance premium growth decelerated for the first time since 1996, growing 9.3 percent in 2003, a 1.4 percentage point slowdown from the previous year. Out-of-pocket spending for health services grew 7.6 percent in 2003, at nearly the same rate as overall health spending growth. In 2002, out-of-pocket spending grew 6.0 percent.

Hospital Spending Growth Slows

Hospital spending, nearly one-third of total national health expenditures, also saw a slowdown in spending growth as it increased by 6.5 percent, down from 8.5 percent growth in 2002. Because hospital care comprises the largest single share of health spending, the impact of its slowing growth drove the deceleration in overall health spending.

Spending growth for prescription drugs decelerated significantly to 10.7 percent, down from 14.9 percent in 2002. Among factors contributing to this spending slowdown:

• a reduction in the growth of number of prescriptions dispensed;

• the conversion of a popular allergy drug to over-the-counter status;

• several drugs losing their patent protection; and

• the expanded use of tiered co-payment plans.

As a result, growth in the number of prescriptions sold per person slowed to 1.7 percent, about half the 2002 growth of 3.5 percent.

Spending Growth for Physician Services Up Slightly

Spending for physician services grew 8.5 percent, up slightly from 8.2 percent growth in 2002. Private spending, which accounts for two-thirds of payments for physician services, accelerated 1.2 percentage points to 9.4 percent. Public spending decelerated from 8.1 percent to 6.7 percent primarily due to slower Medicaid growth.

Spending growth for freestanding home health agencies, i.e., those not owned and contained within a hospital, increased by one percentage point to 8.5 percent in 2003, as private spending more than offset slowing Medicare payment increases. Legislation resulted in a 7 percent cut in Medicare home health payments, and the expiration of a 10 percent add-on to payments for rural home health care providers, causing Medicare spending growth to slow from 14.7 percent in 2002 to 9.9 percent by 2003.

Detailed national health spending estimates are available online.