The new Medicare 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. In 2006, Medicare spending rose to $401.3 billion, up from $338.0 billion a year earlier, according to the government’s annual health spending report, which appears in the latest issue of Health Affairs (subscription required).

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 in 2006, outpacing overall nominal GDP growth by 0.6 percent.

After a six-year slowdown, retail US prescription drug spending rose 8.5 percent in 2006, compared with 5.8 percent in 2005. However, 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,” Aaron Catlin, an economist with the CMS, says in a statement.

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.