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Nationally, spending for health care grew by 5.6 percent in 1998 over the previous year, according to the report, marking the fifth straight year of growth below the 6 percent mark. The $1.1 trillion spent for health care in 1998 amounted on average to $4,094 per person.

"These encouraging figures reflect the progress we've made to make our programs more efficient and reduce waste, fraud and abuse while continuing to give beneficiaries the high quality health care they deserve," said HCFA Administrator Nancy-Ann DeParle.

Growth in government spending for health care continued to slow, as it has in most recent years, increasing only 4.1 percent in 1998. In contrast to the public spending deceleration, private health care spending, which had increased by 4.8 percent in 1997, grew by 6.9 percent in 1998. The 1998 figures marked the first increase since 1988 in the proportion of national health care costs paid by private sources.

The dominant factor in the slowing of growth in public spending for health care was Medicare, which was affected by the early impacts of the Balanced Budget Act (BBA) of 1997, as well as savings from reduced waste, fraud and abuse. Between 1996 and 1998, Medicare cut its payment error rate by almost half. Medicare spent $216.6 billion to deliver health care to nearly 39 million elderly and disabled beneficiaries in 1998. This produced a spending growth rate of only 2.5 percent for 1998, the slowest growth rate on record for the program. This compares to a 6 percent growth rate in 1997, when premiums grew more slowly than benefits.

The BBA provisions were enacted in response to a projected depletion of the Medicare Trust Fund and Medicare spending growth that had exceeded growth experienced by private health insurers in every year between 1992 and 1997, sometimes by wide margins. The first BBA payment reforms became effective in 1998, and included incentives to provide quality care efficiently. These and other BBA provisions to be implemented over the next few years were expected to control Medicare spending growth through 2002 and helped to extend the life of the Medicare Trust Fund until 2015, although additional changes enacted by Congress in the1999 Balanced Budget Refinement Act could affect that projection.

HCFA is proactively monitoring the impact of the BBA to ensure that beneficiary access to covered services is not compromised. HCFA continues to work with beneficiaries, providers, Congress and other interested parties to evaluate the access to quality care and develop appropriate responses.

According to the report, the acceleration in private sector spending growth in 1998 came primarily from private health insurance premiums that went from a 3.5 percent increase in 1997 to an 8.2 percent increase in 1998, more than twice the rate of the previous three years. Although the percentage of private out-of-pocket spending remained relatively stable between 1997 and 1998, the share coming from people with private health insurance rose for the first time since 1990. Private insurance benefit payments also grew at about the same rate as premiums, ending the trend for 1994-1997, when premiums grew more slowly than benefits.

Prescription drug spending continued to record the biggest increase of any health spending sector in 1998, up by 15.4 percent and now accounting for 8 percent of the national health care bill. The cost of prescription drugs has risen at double-digit rates for the past several years. Under current law, Medicare cannot cover most prescription drugs. However, President Clinton has proposed a fully-financed, meaningful, voluntary prescription drug benefit.

Hospital spending grew by 3.4 percent in 1998, continuing a long-term trend of slow growth. Spending on physician services was up 5.4 percent, marking a third year of accelerating growth. Nursing home spending grew at 3.7 percent, its lowest growth rate since 1961. And home health care costs had a negative 4 percent growth rate in 1998, compared to a high of 28.2 percent in 1990, a change attributed largely to cost containment provisions of the BBA.

Since 1993, economic growth approximately matched growth in health spending, the report said, resulting in a relatively stable health-spending share of the gross domestic product (GDP). In 1998 the share of GDP spent on health care was 13.5 percent, slightly higher than the 13.4 percent for 1997 but still below the 13.7 percent in 1993.

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