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Fifth consecutive month of health cost increases in September

November 17th, 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 5.75% over the 12 months ending September 2011. This is a slight increase over the +5.71% annual growth rate posted in August 2011 and the fifth consecutive increase since the index hit its lowest 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 8.03% over the year ending September 2011 , also increasing for the fifth consecutive month. On the other hand, growth rates in Medicare claim costs hit yet another low, rising at an annual rate of +1.97% as measured by the S&P Healthcare Economic Medicare Index. The S&P Healthcare Economic Hospital Medicare Index also posted a record low annual rate of +0.71% in the year ending September 2011. This is a staggering 7.59 percentage points lower than the highest annual growth rate of +8.30% recorded for this index just two years ago in August 2009.

The Hospital and Professional Services Indices posted increases of 5.51% and 5.78%, respectively, from their September 2010 levels. These are marginal changes from the +5.40% and +5.83% respective annual rates posted in August 2011.

“As we enter the fall, we continue to see the summer trends of a deceleration in the annual growth rates of Medicare costs, while those of commercial costs continue to moderately accelerate,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “The Composite Index posted an annual rate of +5.75%, the Commercial Index +8.03% and the Medicare Index +1.97%. With September’s data, both the composite and commercial indices posted five consecutive months of accelerating annual growth rates.

“The three Medicare and the professional services indices saw a deceleration in their annual growth rates in September 2011; all other headline indices saw their annual rates increase. The Professional Services Index rate was +5.78%, down 0.05 percentage points from its August rate. The Medicare index was up 1.97%, which is not only a new low in this series’ almost seven-year history, but is now less than one-fourth the +8.02% high rate it posted in November 2009. The Economic Hospital Medicare Index posted a new low annual growth rate of +0.71%, well below its August 2009 highest rate of +8.30%.

“The widening gap between Medicare and commercial costs can possibly be attributed to a few factors that affect their trends. First, Medicare sets payment updates that are established by law, whereas commercial insurers must negotiate or set prices that providers will accept. In essence, after Medicare and Medicaid establish their payments, healthcare providers try to negotiate contracts with commercial insurers that will satisfy their budget increases. Secondly, Medicare insurance payments have a higher proportion of chronic diseases and commercial insurance plans have a higher proportion of acute cases. When the utilization and price trends on these types of cases are different, their trends can be different. Third, the economy has a different impact on commercial versus Medicare insurance. Medicare is an entitlement and continues despite the economy. Commercial insurance members are subject to being employed for coverage. So, members can either accelerate or defer non-emergency care for months when there is an economic impact that results in the potential for losing insurance.”

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 in the United States. 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.

The S&P Healthcare Economic Composite Index is a weighted average of the S&P Healthcare Economic Commercial Index and the S&P Healthcare Economic Medicare Index.  Alternatively, it is a weighted average of the S&P Healthcare Economic Hospital Index and the S&P Healthcare Economic Professional Services Index, as each of these indices has the analogous commercial and Medicare component.

The table below summarizes the year-over-year change in the S&P Healthcare Economic Indices for the 12-month period ending September 2011. With each monthly release, the index levels, including the 12-month moving averages, are recalculated for the full history of the indices, whenever there are revisions to underlying data used in the models. The entire revised history, as well as full results for the underlying S&P Healthcare Economic Indices, is available from S&P Indices as a subscription service.

S&P Healthcare Economic Indices

 

(12-Month Moving Average)

 
Index

1-Year Change (%)

 
S&P Healthcare Economic Composite Index

5.75%

 
S&P Healthcare Economic Commercial Index

8.03%

 
S&P Healthcare Economic Medicare Index

1.97%

 
S&P Healthcare Economic Hospital Index

5.51%

 
S&P Healthcare Economic Hospital Medicare Index

0.71%

 
S&P Healthcare Economic Hospital Commercial Index

9.27%

 
S&P Healthcare Economic Professional Services Index

5.78%

 
S&P Healthcare Economic Professional Services Medicare Index

3.56%

 
S&P Healthcare Economic Professional Services Commercial Index

6.74%

 
Source: S&P Indices    
Data through September 2011    

 

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