S&P: US Healthcare Costs Up 6% in 2010, But Growth Slowing

The average per capita cost of healthcare services covered by commercial health plans and Medicare programs rose 6.06% in 2010, matching the lowest growth rates in four years, and continuing seven consecutive months of cost growth deceleration, according to the Standard & Poor's Healthcare Economic Indices.

A further S&P breakdown shows that – even with its older, sicker population and higher utilization, Medicare’s growth in per capita costs – at 3.27% in 2010 – was less than half the rate of cost growth for commercial plans, which saw an increase of 7.75% for the year.

David M. Blitzer, chairman of the Index Committee at Standard & Poor’s, said the slower rate of growth in Medicare, doesn’t necessarily mean the federal government does a better job delivering healthcare. “The federal government does a better job than the private sector of legislating prices,” Blitzer said. “It’s a combination of the Medicare fee caps that are set by the government, even after they’re moderated from time to time by Congress. And, almost inevitably, there is cost shifting. I don’t think that Medicare is necessarily doing a better job of cost containment, but they are doing a different job of writing down the price list.”

The S&P monthly estimate for the 12-month period ending in December showed that medical inflation slowed 0.21% when compared with the 6.27% growth reported for the 12-month period ending in November 2010. The rate of growth has fallen 2.68 percentage points since May 2010, Blitzer says.

“The December year-end report shows that the trend of slowing annual growth rates in healthcare costs that started in early/mid-2010 continued through the end of 2010,” Blitzer says. “The Composite Index posted a new recent low in the annual growth rate (+6.06% in December), a level last seen nearly four years ago during the summer of 2007.”

Healthcare cost increases continue well above the rate of inflation in the larger economy, which grew 1.6% for the 12-month period ending in December as measured by the Consumer Price Index. Most of that growth was fueled by rising food and energy costs, the Bureau of Labor Statistics reports.

Blitzer says some of the reduced rate of growth in healthcare costs may be attributed to the recession and the slow recovery. “What we are seeing and what we are still benefitting from is that until very recently general inflation in the economy was slowing down,” he says. “Looking at trend over the last 12 months we are still benefitting of what has been a deceleration in inflation that goes back to the beginning of the financial crisis. We may also be seeing some moderation in terms of employment trends. Less growth in employment in physicians’ offices and hospitals will slow down expenditure numbers too.”

Whatever the reason, Blitzer says the new healthcare reforms are not a factor. “There is nothing we are seeing that we can either credit or blame on the healthcare reforms. It’s too early in the process,” he says. “While I’m sure one side would love to say costs are rising more slowly because of healthcare reform and the other side would like to say healthcare reform is going to ruin us, we can’t answer that question either way.”

• Claim costs associated with hospital and professional services for patients covered under commercial health plans rose 7.75% over the year ending in December, down from 7.79% for the year ending in November, and 8.19% for the year ending in October, but well above the historical low of +6% annual growth rate posted in September 2005.
• Medicare claim costs for the same services rose 3.27% over the year ending in December -- the lowest annual growth rate for Medicare claims in the six-year history of the S&P indices. In the year ending November 2010, Medicare claims costs rose 3.74%.

The S&P 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.

“The year 2010 was highlighted by a trend of deceleration in annual growth rates for all three headline indices – the Composite, the Medicare and the Commercial Indices. Especially since May 2010, most of the indices annual growth rates have declined month-to-month,” Blitzer says. “The S&P Healthcare Economic Hospital and Professional Services Indices also show a similar moderation in the rate of increase of annual growth rates, posting +5.60% and +6.34% rates for December 2010, respectively, versus May 2010 prints of +7.99% and +9.33%, respectively.”