Full implementation of the new Medicare prescription drug benefit contributed to an 18.7 percent increase in Medicare spending in 2006, the fastest rate of growth since 1981 and double the rise in 2005, the federal government reported today. In 2006, Medicare spending rose to $401.3 billion, up from $338.0 billion a year earlier, says the government’s annual health spending report appearing in the January-February 2008 issue of Health Affairs.

Meanwhile, Medicaid spending fell slightly for the first time since its inception in 1965, to $310.6 billion in 2006 from $313.5 billion in 2005. The 0.9 percent drop was largely attributable to the transfer of drug coverage for people who are dually eligible for Medicare and Medicaid coverage, say analysts from the Centers for Medicare and Medicaid Services (CMS).

The report, by economists from the National Health Statistics Group in the CMS Office of the Actuary, examines national health spending trends in the public and private sectors. The annual report provides the most current and comprehensive data on the health care sector. The report’s authors discussed their findings at a January 7 media briefing. For some of the coverage of the report and the briefing, go here, here, and here.

Despite the growth in Medicare spending, overall health care spending in the United States grew 6.7 percent in 2006 to $2.1 trillion, or $7,026 per person — a slight acceleration over the 6.5 percent rate in 2005, which marked the slowest growth since 1999. Health spending accounted for 16 percent of gross domestic product (GDP) in 2006, outpacing overall nominal GDP growth by 0.6 percentage point.

After a six-year slowdown, retail U.S. prescription drug spending rose 8.5 percent in 2006, compared to 5.8 percent in 2005. Still, the 2006 growth rate was well below the average annual rate of 13.4 percent between 1995 and 2004.

Implementation of the Medicare Part D drug benefit shifted the funding of retail drug purchases and impacted the rate of overall drug spending growth,” said lead author Aaron Catlin, an economist with the CMS.

The impact on the sources of funding that paid for prescription drugs varied. The public share of drug spending increased from 28 percent in 2005 to 34 percent in 2006, while the private share fell from 72 percent to 66 percent. The shift in funding was most dramatic for Medicare and Medicaid. Medicare’s share of total retail prescription drug spending surged from just 2 percent in 2005 to 18 percent in 2006, following Part D implementation. Meanwhile, Medicaid’s share fell from 19 percent to 9 percent.

Most other major health services and public payers experienced slower spending growth in 2006. Personal health care spending grew 6.6 percent in 2006, compared to 6.8 percent in 2005. Health care price growth accounted for more than half of the growth in 2006.