S&P: Healthcare expenditures for commercial plans up 3.2% in the year ending February 2014

Data released today for the S&P Healthcare Claims Indices shows that healthcare costs rose 3.5% in the 12 months ended February 2014 compared to the 4.9% rise for the 12 months ended February 2013. Medical costs—inpatient and outpatient hospitalization plus professional services—rose 3.1% and prescription drugs rose 3.5% over the same period. All but prescription drugs rose at a slower pace than a year earlier.

Among the key components of medical costs, inpatient fee-for-service rose 2.6% compared to 4.3% in the earlier period while outpatient fee-for-service costs rose 4.9% compared to 6.3% in the earlier period. Prescription drugs expenditures were up 3.5% versus 1.5% one year ago. These figures, which represent the most current data available, are based on expenditures incurred in the 12 months ended February 2014.

“With the exception of prescription drugs, healthcare expenditures are growing more slowly than a year ago,” says David Blitzer, Managing Director and Chairman of the Index Committee and S&P Dow Jones Indices. “The overall trends in healthcare costs are lower than that seen a year or two ago, but remain one to two percentage points above the overall rate of inflation. The greater growth in prescription drug costs reflects a combination of higher prices for both generic and branded pharmaceuticals and shifting market shares between generic and branded.

“Among the principal lines of business, expenditures for large and small groups and administrative services only (ASO) plans show stable growth rates. Individual plans, where a participant is not part of a group plan based on employment, are the smallest segment as well as the most volatile. While the growth in costs moved down through 2013, the most recent data suggests a jump in expenditures for this category. Because this is the segment that the will be most affected by Obamacare going forward, it is likely to be closely watched as the new healthcare law is implemented in coming years.

“The rise in total healthcare costs at 3.2% over the 12 months ended with February 2014 is slightly greater than the increase in current dollar GDP from the first quarter of 2013 to the first quarter of 2014 of 2.9%. Moreover, the 2014 first quarter GDP was weakened by unusually severe winter weather and a small decline in consumer spending on health services. With healthcare cost trends moderating, the share of GDP devoted to healthcare may be stabilizing as well.”

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