Healthcare Cost Growth Deceleration Continues

The average per capita cost of healthcare services covered by commercial insurance and Medicare grew 5.39% over the 12 months ending in April 2011, continuing an 11-month deceleration of cost growth, Standard & Poor's Healthcare Economic Indices show.

April's results represent the lowest cost growth in the six-year history of the S&P measure, and reflect a continuing deceleration in Composite healthcare cost growth from the +5.77% annual growth in March, +6.17% in February, and +6.31% in January 2011 for the composite index, S&P said.

"Historically, there has been a general pattern of healthcare trends declining on a lagged basis following economic downturns. Much of our spending on healthcare is related to supply-side factors – in particular, the supply of new technology and procedures," David M. Blitzer, chairman of the Index Committee at Standard & Poor's, said in the report. "It takes considerable time for investments in healthcare to translate into increased supply and, conversely, reduced investments often result in a reduction in trend a few years later. The decline in index growth rates that began in mid-2010 may be a result of trends slowing due to reduced capital spending during the recession that began in 2007."

Even with the deceleration, healthcare costs grew at nearly double the 3.2% growth in overall inflation as measured by the Consumer Price Index for the same 12-month period ending in April, Bureau of Labor Statistics data show.

A further breakdown of S&P's indices show that, over the 12 months ending April, healthcare costs covered by commercial insurance rose +7.13%, down from +7.57% for the 12-month period ending in March, as measured by the S&P Healthcare Economic Commercial Index. Medicare claim costs rose at an annual rate of +2.48%, for the 12-month period ending in April, down from of +2.78% for March, as measured by the S&P Healthcare Economic Medicare Index. This is also the lowest annual rate of growth posted for the Medicare Index in its six-year history, S&P 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%. With April's report of +5.39%, Composite claims costs growth rates have decelerated 3.35 percentage points in 11 months. In that same 11-month span, the Commercial index fell from a record +9.87% to +7.13%, a deceleration of 2.74 percentage points. The Medicare index posted a record high annual growth of +8.01% in November 2009. Since then, it has decelerated by 5.53 percentage points.

"The trend of deceleration in US healthcare costs, which started in May 2010, continues," Blitzer said. "Both the Composite and Medicare Indices posted record low annual growth rates with this month's report. But while we continue to see healthcare costs decelerate, all three rates are still above core inflation, significantly so for commercial healthcare costs."

The biggest slowdown in cost growth has been in the Hospital and Hospital Medicare indices, where annual growth rates hit new six-year lows of +4.86%, and +0.93%, respectively, which Blitzer said is "arguably the only healthcare costs that are in line with or below core inflation rates."

The Professional Services index grew +5.73% for the year ending in April, is only 0.05 percentage points away from its historical low of +5.68% recorded in February 2009

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.