U.S. spending on health care rose 7.7 percent to 1.7 trillion in 2003, outpacing overall economic growth by nearly 3 percentage points, according to an annual government report released on Tuesday.

Still, the increase in spending on medicines, visits to doctors and other health care needs was the lowest annual increase in seven years, said National Health Statistics Group researchers.

The group, part of the agency that runs Medicare and Medicaid, published their findings in the January/February issue of the journal Health Affairs.

The slowdown was in large part due to states tightening their Medicaid budgets, triggering the program’s first spending deceleration since 1997, the report said. Program costs rose 7.1 percent to $267 billion compared to 12.1 percent in 2002.

States curbed payments for the program, which provides benefits for the poor and disabled, by limiting eligibility, restricting benefits and reducing hospital and nursing home payments for some services, the researchers found.

Many states faced budget shortfalls in 2003 as the U.S. economy struggled to regain steam after a recession sparked by the Sept. 11 attacks and other factors.

Medicaid and Medicare spending curbs were not likely to show up in 2004, when the “economy was in much better shape” and states felt less pressure to rein in payments, said lead researcher Cynthia Smith.

In the private sector, researchers found the rate of spending growth edged down slightly, rising 8.6 percent to $913.2 billion in 2003 compared with a 9 percent rise in 2002.

Private payments for health insurance premiums, prescription drugs, doctor services and other costs made up nearly two-thirds of the overall rise in 2003 health spending, the report said.

Consumer out-of-pocket spending grew faster than in recent years, researchers said, rising 7.6 percent compared to 6 percent in 2002.

Patients spent nearly a quarter their own health care dollars on medicine, which researchers said reflected the growing number of Americans without health insurance and pressure from employers for workers to pay more for coverage.

Private sector spending was tempered in part by slower insurance premium growth, as the number of consumers enrolling for insurance fell nearly one percent, according to the report.

“Although a modest recovery in job growth began in the latter half of 2003, most of the job growth was concentrated in industries that traditionally were less likely to offer health insurance,” researchers wrote.

Overall U.S. health care spending accounted for 15.3 percent of the gross domestic product, the report also found.