Deceleration in U.S. healthcare costs continues

Data released today by S&P Indices for the S&P Healthcare Economic Composite Index indicate that the average per capita cost of healthcare services covered by commercial insurance and Medicare programs increased by 5.39% over the 12 months ending April 2011. Since May 2010, annual rates of growth of healthcare costs have been largely decelerating.

At +5.39%, the Composite index posted its lowest annual growth rate in its six-year history. The highest rate for this index was during the 12 months ending May 2010, when it was up 8.74%. In less than a year, the index has seen a steep fall in its annual growth rate by 3.35 percentage points. Even steeper has been the decline in the Medicare index, with its April 2011 +2.48% annual growth rate down 4.36 percentage points since May 2010, and down 5.53 percentage points since its November 2009 high.

Over the year ending April 2011, healthcare costs covered by commercial insurance increased by 7.13%, as measured by the S&P Healthcare Economic Commercial Index. Medicare claim costs rose at an annual rate of 2.48%, as measured by the S&P Healthcare Economic Medicare Index. With April’s data, the Medicare index posted another record low annual growth rate in its six-year history.

“The trend of deceleration in U.S. healthcare costs, which started in May 2010, continues,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “The Composite index rose by 5.39%, the Commercial index by +7.13% and the Medicare index was up 2.48%, compared to their April 2010 levels. 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.

“Our three headline indices witnessed record high growth rates in late 2009/early 2010, and have sharply decelerated since that time, with two of them reaching new lows. The highest annual growth rates for the Composite and Commercial indices were during the 12 months ending May 2010, when they were up 8.74% and 9.87%, respectively. The Medicare index posted its high of +8.01% in November 2009. Since their respective highs the Composite has decelerated by 3.35 percentage points, the Commercial by 2.74 percentage points, and the Medicare by 5.53 percentage points.

“Additionally, both the Hospital and Hospital Medicare indices growth rates hit new six-year lows. The Hospital index posted an annual growth rate of +4.86% and the Hospital Medicare index was up a scant +0.93%, arguably the only healthcare costs that are in line with or below core inflation rates. With an annual rate of +5.73%, the Professional Services index is only 0.05 percentage points away from its historical low of +5.68% recorded in February 2009.

“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. 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.”

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