Healthcare Cost Growth Steamrolls CPI

The average per capita cost of healthcare services grew at more than three times the rate of overall inflation for the 12-month period that ended in June, with the cost of services covered by commercial health plans growing four times faster than those of Medicare, new data shows.

Standard & Poor's Healthcare Economic Indices show that per capita cost growth covered by commercial insurance and Medicare programs increased by 5.78% over the 12-months ending June. In the larger economy inflation rose by 1.7% as measured by the Consumer Price Index for the same period, federal data show.

A further breakdown shows that healthcare costs covered by commercial insurance plans increased by 8.09% over the year ending in June, down from the +8.4% annual increase reported for May. Medicare claim costs growth slowed to +2.27% when compared to May’s +2.5% growth.

"The remarkable thing we are seeing, no matter whether the prices have gone up or down over the years, has been how much has been shifted in terms of the annual rates of change into commercial usage as opposed to Medicare," Maureen Maitland, vice president of S&P’s Dow Jones Indices, told HealthLeaders Media.

"We've noted that for June they reached a difference of almost six percentage points. This is a trend we have seen for the last two years. We have seen costs deceleration across all indices in most of 2011 and then they reversed and accelerated at the end of 2011 and into 2012. What we have seen all along the way is the gap between Medicare and commercial plans has been fairly stable if not widening."

Robert Zirkelbach, spokesman for America's Health Insurance Plans, does not dispute the S&P data. "As far as why there are two big things to keep in mind," he says. "First, Medicare simply dictates the price they will pay for service. Those payments are often below cost. It gets shifted to consumers and employers and private coverage."

He pointed to a study from Families USA which estimated that the average family of four paid a "hidden premium" of $1,017 in 2008 to subsidize uncompensated care. "There is the situation where doctors and hospitals are losing money providing services to Medicare and Medicaid patients and as a result people with private coverage will cover that loss," he says.

Second, Zirkelbach says, provider consolidation is raising costs. "In some cases hospitals have the ability to simply dictate the prices that are charged to insurance. They are able to charge what they want and they do," he says. "There is a lot of research showing that the increase of provider consolidation leads to higher prices for services."

"Cost-shifting and consolidation both need to be looked at within the context of healthcare costs," he says. "What's important about this data is that is shows clearly that it's the rise in prices for medical services that are driving the rise in healthcare cost growth. There needs to be more focus on the prices that are being charged and why if we are going to have a system that is sustainable." 

Even though healthcare costs are easily outstripping the CPI, the S&P indices showed a slight deceleration in June. The 5.78% average per capita costs increase of healthcare services actually slowed slightly for the 12 months ending in June compared with +6.06% in May and +6.11% rate in April.

The Professional Services Index annual growth rate also slowed from its May +6.28% rate to June's +6.07%, and the Hospital Index annual growth rate fell to +5.22% in June from +5.56% in May, S&P reports.

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.

Healthcare costs began to accelerate in May 2009 and peaked in May 2010, before decelerating through the first half of 2011. An acceleration trend began again in October, 2011 but tapered slightly in June.    

In 2011 S&P reported that the average per capita cost of healthcare services covered by Medicare programs and commercial insurance grew by 5.28 %, including +7.11% for commercial insurance plans and +2.51% for Medicare.

Maitland says much of the deceleration in healthcare cost growth over the past two years was "a little lag effect on the recession of two years ago. In 2011 prices and utilization started increasing. The economy was getting better and people were using more healthcare."