Jan. 8 (Bloomberg) -- Medicare spending jumped 19 percent in 2006, the fastest rate of growth in 25 years, after a prescription drug benefit was added to the U.S. health-care program for the elderly and disabled.

Overall, the nation's health costs rose 6.7 percent to $2.1 trillion, or $7,026 per person, and made up 16 percent of the U.S. economy, according to a study by government economists published today in the journal Health Affairs.

Health-care outlays grew faster than the 6.5 percent increase in 2005 and outstripped economic growth by 0.6 percentage point. Costs for medical services continued to rise faster than wages, and presidential candidates of both parties have said they would work to slow health-care inflation.

``The cost of health care continues to be a real and pressing concern,'' said Kerry Weems, Medicare's acting administrator, in an e-mailed statement. ``Making sure we are paying for high quality health-care services, not just the number of services provided, is just one of the most critical issues facing the American public and the federal government.''

The continuing rise in costs illustrates President George W. Bush's failure to improve the health-care system, two Democratic lawmakers said in a statement.

`Sweeping Reforms'

``This report proves that protecting the health of the American people will require sweeping reforms, as well as an administration willing to make quality, affordable health care a top priority,'' said Representative Albert Wynn of Maryland. He issued the statement with Representative John Dingell of Michigan, chairman of the House Energy and Commerce Committee.

The increase in Medicare expenditures, to $401 billion, was partly offset by a first-ever decline in spending for Medicaid, the federal insurance program for the poor, which dropped 0.9 percent to $176 billion. This was largely due to 6.2 million low-income seniors being shifted from Medicaid's drug plans to Medicare's subsidized program, which began in 2006.

The Medicare benefit helped boost the nation's total spending on drugs by 8.5 percent, compared with 5.8 percent the year before, partly because elderly Americans filled more prescriptions once they had coverage, the study said.

``The source of payment for prescription drugs has changed, but the overall cost of drugs has changed very little,'' said Richard Foster, Medicare's chief actuary.

Medicare Drug Costs

Medicare spending on the drug benefit was $41 billion in 2006. The cost has been less than originally projected, helped by greater use of generic medicines and savings from competition among plans offering coverage, Foster said.

The drug benefit helped shift who pays for prescriptions in America, the study said. Public programs, including Medicare, covered 34 percent of the nation's drug bill, up from 28 percent in 2005. In 2006, 63 percent of prescriptions were for generic drugs, compared with 56 percent the year before.

Spending on private health insurance grew 5.5 percent, the smallest increase since 1997, partly because of a drop in insurers' costs for prescription drugs.

Health spending by businesses grew 5.7 percent to $497 billion, also the slowest rate since 1997, partly because employers paid less for private coverage as retired workers moving into Medicare's drug plans.

Hospital care took the biggest share of U.S. health spending, 31 cents of every dollar, followed by physician services, at 21 cents a dollar. Prescription drugs were 10 cents of every dollar, followed by program administration of 7 cents and nursing home care of 6 cents. The remaining 25 cents a dollar covered dental care, other professional services and durable equipment such as wheelchairs, the study found.

Spending on hospitals rose 7 percent, less than the 7.3 percent in 2005, thanks to a decline in hospital admissions under Medicare. Physician services grew 5.9 percent, a slowdown from 7.4 percent in 2005 attributed to a ``near freeze'' on Medicare payments that also affected pay schedules for private insurance, Medicare said in an e-mailed statement.

To contact the reporter on this story: Aliza Marcus in Washington at amarcus8@bloomberg.net

Last Updated: January 8, 2008 17:26 EST