U.S. Healthcare Costs Climb 5.73% Over 12 Months

The average per capita cost of healthcare services covered by commercial insurance and Medicare grew 5.73% over the 12 months ending in August, representing a fourth straight month of modest acceleration of cost growth, Standard & Poor's Healthcare Economic Indices show.

The index posted its lowest annual growth rate in its six-year history -- +5.37% in April 2011. Since then, the rate of growth accelerated slightly each month. Healthcare costs easily outpaced the 3.8% growth in overall inflation as measured by the Consumer Price Index for the same 12-month period ending in August, Bureau of Labor Statistics data show.

A further breakdown of the S&P data show that for the year ending August 2011, healthcare costs covered by commercial insurance increased by 7.89%, as measured by the S&P Healthcare Economic Commercial Index.

During the same period, Medicare claim costs rose at an annual rate of 2.16%, as measured by the S&P Healthcare Economic Medicare Index. This was the lowest annual growth rate recorded for the Medicare Index in its six-year history. The Medicare index reported its highest annual growth rate of +8.02% in November, 2009, but has consistently and sharply decelerated by about 5.86 percentage points since then, S&P said.

"As the summer of 2011 ended, we continued to observe the recent trend of a deceleration in the annual growth rates of Medicare costs and a sustained acceleration in the annual rates of commercial healthcare costs," David M. Blitzer, chairman of the Index Committee at S&P Indices, said in the report. "With this month's data, the Medicare index is almost one-fourth of its peak annual rate of +8.02% recorded in November 2009. This is a very sharp deceleration."

The Hospital and Professional Services Indices reported increases of 5.43% and 5.84%, respectively, from their August 2010 levels. For the Hospital Index, this rate is slightly higher than the + 5.31% posted in July 2011. The Professional Services Index is marginally lower than its +5.89% rate posted in July. 

"The increasing growth rate for hospitals is primarily due to rising rates of employment and wages," Blitzer said. "Professional services wages have also seen increasing rates during 2011; however, employment trends have declined over the same period."

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.

"As we caution every month, these indices represent total costs not just prices, so increased costs could be due to prices going up, increased utilization, or some combination of the two," Blitzer said.

The highest annual growth rate for the S&P Composite index in the past six years was during the 12 months ending May 2010, when it posted +8.74%.