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S&P: Healthcare Costs Growth Slowing

By Jeff Elliott, for HealthLeaders Media  
   December 20, 2010

Continuing the recent trend of slower growth, average per capita healthcare costs rose 6.07% during the 12 months ending in October 2010, according to a research report issued by Standard & Poor's (S&P) Indices. This was a significant deceleration from a yearly peak of 8.40% recorded in the 12 months ending in May 2010.

"The annual growth rate of Medicare and commercial insurance costs has slowed significantly in the last five months and substantially dropped in the month of October," according David Blitzer, chairman of the S&P Index Committee. "The slowing growth appears to be both how the usage of medical care and overall inflation factors into the current economy."

Blitzer also noted the particularly "large and growing difference between commercial and Medicare growth rates." With a 4.18% rise during the year ending in Oct. 2010, Medicare claim costs recorded their lowest annual growth rate since January 2008, when it was 4.02%. This was nearly half the growth rate for claim costs associated with commercial health plans, which rose 8.21% during the same period, though it comes as no surprise to Blitzer.

"The general pattern that Medicare costs rise more slowly than commercial is well established," he said. "One factor is shifting costs from Medicare where fees are set by the government to other consumers of healthcare. However, there is not clear evidence on the importance of this factor compared to others including the size and makeup of the different patient populations."

According to the indices S&P tracks, professional services care costs continued to outpace hospital costs. "Comparing the 12-months-to-October with the 12-months-to-September, the Hospital Medicare Index showed the most moderation in costs, up 3.33% versus 3.96% reported for September, while the Professional Services Medicare Index showed the slightest decrease in the growth of expenditures, up 5.13% versus 5.41% in September," Blitzer said. "Both the Hospital and Professional Services Commercial Indices' annual rates decelerated by about 0.3% in October."

The statistics are based on the S&P Healthcare Economic Indices that estimate the per capita change in revenue each month by hospitals and professional service organizations for healthcare services delivered to patients covered by Medicare and commercial health insurance plans. Annual growth rates are calculated with the percent change in monthly index levels based on a 12-month moving average.

Based on recent trends, S&P expects healthcare costs to continue their significant month-to-month variations well into the future, according to Blitzer. "Looking over recent years, there are periods when the increases moderate as well as times when increases accelerate."

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