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S&P: Slight cost acceleration in 12-month period ending in August

October 20th, 2011

By jeremy.engdahl-johnson

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 5.73% over the 12 months ending August 2011. This is a marginal increase over the +5.69% annual growth rate posted in July 2011 and the fourth consecutive increase since the index hit its lowest annual growth rate of +5.32% in April 2011.

As measured by the S&P Healthcare Economic Commercial Index, healthcare costs covered by commercial insurance increased by 7.89% over the year ending August 2011, also increasing for the fourth consecutive month. Medicare claim costs, however, hit a new low, rising at an annual rate of 2.16% as measured by the S&P Healthcare Economic Medicare Index. The Medicare index recorded its highest annual growth rate of +8.02% in November 2009. It has consistently and sharply decelerated since then, by about 5.86 percentage points in under two years.

The Hospital and Professional Services Indices posted increases of 5.43% and 5.84%, respectively, from their August 2010 levels. These are minor changes from the +5.31% and +5.89% respective annual rates posted in July 2011.

“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,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “The Composite Index posted an annual rate of +5.73%, the Commercial Index +7.89% and the Medicare Index +2.16%. 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.

“In fact, all three Medicare indices saw deceleration in their annual growth rates in August 2011, while most of the other indices saw their growth rates increase. The Professional Services Index was the only other to record a modest deceleration in its annual rate, with +5.84% being down 0.05 percentage points from its July annual rate. The divergence between the rate of cost increases between Medicare and commercial plans has become larger over the summer months. The Medicare and Hospital Medicare indices both recorded record lows in the six-plus-years history of these indices, +2.16% and +0.81%, respectively. 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.

“If you further separate commercial plans’ costs into their hospital and professional services components, you can see that the August 2011 commercial hospital index is above the rate it posted at the beginning of the year—specifically +9.05% in August versus +8.68% in January. In contrast, the commercial professional services index has decreased to +6.68% from its +7.25% January growth rate. The increasing growth rate for hospitals is primarily due to rising rates of employment and wages. Professional services wages have also seen increasing rates during 2011; however, employment trends have declined over the same period.”

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