Healthcare Costs Soar Above Overall Inflation

John Commins, 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.

John Commins

John Commins is a senior editor at HealthLeaders Media.

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