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Healthcare Costs Soar Above Overall Inflation

John Commins, for HealthLeaders Media, October 22, 2010

The average, per capita cost of providing healthcare services in the United States rose by 7.32% for the past 12 months ending in August, a rate of inflation wildly above the 1.1% overall inflation for the same period, according to new study by Standard & Poor's.

The new numbers are consistent with a trend that from August 2000 to August 2010 has seen healthcare inflation rise 48% while overall Consumer Price Index has risen 26% for the same period, U.S. Bureau of Labor Statistics data show.

"Given the last 10 years, no we are not surprised," Maureen Maitland, vice president of S&P Indices, says of the findings in the new report. "If you look at the public data that are out there and have been out there, the national health expenditure data, what we have seen is not only healthcare costs have basically risen over the last 10 years at a 7% rate. But the percentage of GDP has gone up dramatically too, because we are outpacing not only inflation but the rate of growth in GDP."

Maitland attributes the rise in healthcare costs to supply and demand; healthcare providers are charging more because they can. "Basically the demand for healthcare is high, and physicians and hospitals are trying to meet their budgets, and are able to put these rate increases through," she said.

A further breakdown of the data from the S&P Healthcare Economic Composite Index show that physician and hospital claims costs associated with commercial plans rose 8.66% for the 12-months ending in August, while similar claims associated with Medicare rose 5.08%—a 70% difference in the rate of increase, despite Medicare's sicker, older population.

Robert Zirkelbach, press secretary for America's Health Insurance Plans, said comparing medical inflation to overall inflation is not an accurate measure for explaining premiums increases. "There is inflation, but there is also utilization, new technologies, and price increases above that, particularly when it’s the result of hospital consolidation," Zirkelbach says. "A lot of studies recently [show] that hospital consolidation is leading to higher healthcare costs, meaning that some hospital systems are able to basically dictate the prices they charge for their services. That is why our members in some parts of the country are seeing rate increase requests from hospitals by as much as 40% and 50%."

Zirkelbach says commercial health plans are also bearing increased cost shifting from Medicare/Medicaid because of the recession. "We have seen that trend in both Medicare and Medicaid, particularly in a weak economy when you see more people relying on Medicaid -- that is shifting the costs to the private sector," he said.

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5 comments on "Healthcare Costs Soar Above Overall Inflation"


John kircher (10/4/2011 at 9:15 AM)
Comparisons of health care inflation with the over-massaged consumer price index just confuses the issue. Any measure of inflation that counts the devaluing of a major asset (such as real estate)as a reduction of the cost of living cannot be used as a realistic basis for a rational comparison. For example, an individual's ability to borrow to cover a large medical bill is critical to any discussion of medical inflation because the [INVALID]native is a possible default with the impact THAT has on the health care provider. Also to the extent that the new health care legislation depresses employment, it stresses the health care system as much as medicare underpayments. Speaking of which, how can we honestly discuss 'healthcare inflation' without carving out the hidden medicare tax burdening the system? If we don't use these factors to discount healthcare inflation, we will never be able to assess it, much less deal with it.

Jerry Scherer (10/22/2010 at 1:32 PM)
It is unfortunate that we have not come to grips with the healthcare cost conundrum that plagues Americans and that to-date "efforts" toward resolution have exacerbated this crisis. It seems that there are numerous opportunities judge and point blame including service access and quality issues; provider and payer greed; fraud and abuse; legal costs; duplication of services; aging population; technology; uninsured individuals; ... and the list goes on. Our culture and healthcare delivery model have been impervious to multiple attempts in the last 40 years to control and manage these factors. The history speaks for itself and current prominent reform initiatives are equally ill advised. Because healthcare costs have risen to a level that threatens the health delivery system and the entire economy, we are forced to consider cultural and delivery model changes ... abdicating these responsibilities to government is no improvement. Culture and delivery model solutions need to be identified by and controlled by consumers and not by special interests that include government, the health industry, and consultants; "experts" driven by their self-interests rather than the consumer's. The healthcare industry creates a significant portion of its own demand by marketing to consumer fears, not managing patient expectations, encouraging dependencies, catering to patient misconceptions, and focusing on healthcare rather than health. Consumers need to engage and acknowledge accountability for their health. Business has started some positive initiative and can provide the lead. Public education is an essential first step.

Donald First (10/22/2010 at 1:29 PM)
Sorry Sir, your conclusion is faulty. This descerpancy between CPI and Health insurance increases is not caused by discounts. It has been going on for Decades. There have been periods of time in the 70;s 80's and 90's when the trends for Medical care were in excess of20%. In fact in 1983 Great West offer no rate guarantee to atract business. It is caused by a number of factors, mostly greed and gaming the system. New technology and too much access has increased the cost!