Healthcare Costs Continue to Climb, but Rate Slows

The average per capita cost of healthcare services covered by commercial insurance and Medicare grew 5.77% over the 12 months ending in March 2011, continuing a nearly year-long deceleration of cost growth, Standard & Poor's Healthcare Economic Indices show.

March's results represent the lowest cost growth in the six-year history of the measure, and reflect a deceleration in healthcare cost growth from the +6.17% in annual growth posted in February, and +6.31% in January 2011 for this index, S&P said.

Even with the deceleration, healthcare costs grew by more than double the 2.7% growth in overall inflation as measured by the Consumer Price Index for the same 12-month period ending in March, Bureau of Labor Statistics data show.

In its six-year history, the highest annual growth rate for the S&P Composite index was during the 12-months ending May 2010, when it posted +8.74%. With March's report of +6.19%, claims costs growth rates have decelerated 2.97 percentage points in 10 months, S&P said.

A further breakdown shows that, over the 12 months ending March, healthcare costs covered by commercial insurance rose +7.57%, down from +7.97% for the 12-month period ending in February, as measured by the S&P Healthcare Economic Commercial Index. Medicare claim costs rose at an annual rate of +2.78%, for the 12-month period ending in March, down from of +3.22% for February, as measured by the S&P Healthcare Economic Medicare Index. This is also the lowest annual rate of growth posted for the Medicare Index in its six-year history, S&P said.

"If you look over the last year or so of data, it is apparent that the rates of increase in healthcare costs continue to slow down," David M. Blitzer, Chairman of the Index Committee at Standard & Poor's, said in the report. "While there was some volatility within months, the general trend has been a slowdown across all nine of the indices we publish. Most of the annual growth rates peaked in the late winter/early spring of 2010. Since then, most of these rates have fallen by 2 percentage points or more."

Blitzer said the biggest slowdown has been in the Hospital Medicare Index, where the annual growth rate fell from +8.30% in August 2009 to +1.18% in March 2011. "On the other hand, we have not seen an equal trend for the Hospital Commercial Index, where the annual growth rate peaked at +9.36% in May 2010, and is still reporting a healthy +8.36% as of March 2011," he said. "This phenomenon could be the possible result of two things: (1) costs for Medicare patients are being better contained than those covered under commercial insurance plans and (2) hospitals are using more procedures and services covered under commercial plans, contributing to the increase in total costs. We see a similar differential across the Professional Services Indices, but not as severe."

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.