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What does it mean to bend the cost curve?

February 16th, 2011

By jeremy.engdahl-johnson

Weiss Ratings is reporting that commercially insured medical spending in the United States totaled $234.9 billion over the first nine months of last year, a decrease of $3.7 billion (or 1.6%) from 2009. This is the first decrease in these numbers in 10 years.

What does this mean?

The Weiss Ratings research indicates that total insured enrollment declined slightly in 2010, which may be a driver behind the decrease in overall spending. This enrollment decrease may reflect an ongoing transition in the healthcare system. The ratio of commercially insured people to those either uninsured or in government programs appears to be shrinking. And there are other possible explanations. Increases in deductibles might have influenced utilization, or the risk mix may have changed.

One thing we are reasonably sure of: While the total dollar count for commercially insured medical services has (according to these findings) declined, that is different from the cost trend declining. The S&P Healthcare Economic Composite Index reported that for the 12 months leading up to September 2010 (roughly the same period covered in the Weiss Ratings analysis), the commercial cost trend stood at 8.54%, a figure that marked a deceleration from the prior month. More recently, the analysis of the 12-month average as of the end of November stood at 7.79%. Even more encouraging is a similar period of deceleration in Medicare costs—the trend on Medicare was 3.74% at the end of November. The trend has been slowing down, and this is indeed good news. What needs to be kept in perspective is that a decelerating cost trend is not the same as a reduction in healthcare costs. As we have noted before, it’s important to consider both dollar amounts and percentages when looking at cost increases—not to mention the various undercurrents that can affect these numbers. 

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