Healthcare Cost Growth Up Slightly

The average per capita cost of healthcare services covered by commercial insurance and Medicare grew 5.58% over the 12 months ending in May.

The slight uptick in cost growth ends what had been 11 consecutive months of deceleration, as measured by the Standard & Poor's Healthcare Economic Indices.

Even with May's uptick in cost growth from the all time low of +5.37% posted in April, the rate of cost growth remains 3.16 percentage points below the highest rate for the Composite index, which was up 8.74% over the 12-months ending May 2010.

A further breakdown for the 12-month period ending in May 2011 shows that annual claims costs covered by commercial insurance increased by 7.35%, in the S&P Healthcare Economic Commercial Index. Medicare claim costs rose 2.64%, in the S&P Healthcare Economic Medicare Index. The Commercial and Medicare Indices are respectively 0.25 and 0.16 percentage points above their April annual rates.

"Over the past 12-15 months, the story has been a moderation in the rate of increase in healthcare cost, as indicated by the decelerating growth rates across the S&P Healthcare Economic Indices," David M. Blitzer, Chairman of the Index Committee at S&P Indices, said in a media release. "In fact, the Composite, Medicare and Hospital Indices all posted record low annual rates in their six-year history with April's report. Since May's data covers only one month, we need more time to determine if the trend is changing or if this is a temporary blip, like we saw in January.

Cost growth for commercial plans continues to outstrip cost growth for Medicare despite Medicare's older, sicker population and higher use of services.

"Unlike Medicare, throughout the past year the Commercial Index has remained well above its low annual growth rate of +6% posted in September 2005. Its May 2011 reading was +7.35%.," Blitzer said.

Lower volumes may be driving the deceleration in cost growth.
"In terms of what we are hearing from market participants, both office visit and hospital admission trends are relatively low, which may be a reflection of the overall consumer pullback in medical treatment," Blitzer said. "Furthermore, many participants have indicated that providers are trying to address healthcare reform and are looking for ways to control costs. If true, this combination certainly would be a contributory factor to the moderation in cost we have witnessed since early 2010."

S&P's Hospital and Professional Services Indices also reported increases of 5.08% and 5.91% respectively, slightly higher than the respective +4.85% and +5.71% posted in April.

Even with the deceleration, healthcare costs grew at nearly double the 3.4% growth in overall inflation as measured by the Consumer Price Index for the same 12-month period ending in May, Bureau of Labor Statistics data show.

The S&P Healthcare Economic Indices estimate the per capita change in revenues accrued each month by hospital and professional services facilities for services provided to patients covered under traditional Medicare and commercial health insurance programs. The annual growth rates are determined by calculating a percent change of the 12-month moving averages of the monthly index levels versus the same month of the prior year, S&P said.