US Healthcare Costs Grew 5.28% in 2011

John Commins, for HealthLeaders Media , February 22, 2012

The average per capita cost of healthcare services covered by Medicare programs and commercial insurance grew by 5.28 % in 2011, nearly double the rate of inflation in the larger economy, Standard & Poor's Healthcare Economic Indices show.

A further breakdown of S&P data shows that healthcare costs covered by commercial insurance plans grew by 7.11% in 2011, while Medicare claim costs rose by 2.51%, despite the government plans' older and sicker population.

Healthcare costs easily outpaced the 3% growth in overall inflation as measured by the Consumer Price Index for 2011, according to Bureau of Labor Statistics data.

Robert Zirkelbach, a spokesman for America's Health Insurance Plans, told HealthLeaders Media that commercial plans must contend with cost-shifting and other market forces that do not affect Medicare. He says the cost growth acceleration also could be link to the recovering economy.

"When the acceleration slowed in the last couple of years, a lot of it had to do with the slowdown in the economy," Zirkelbach said. "People were using fewer healthcare services. That also resulted in changes in the risk pool, where younger and healthier workers chose to forego coverage, or when employers were laying off employees it was often the younger workers that tended to be the first to go. So that resulted in a risk pool that tended to be older and have higher healthcare costs."

J.D. Kleinke, a healthcare economist with the American Enterprise Institute, says higher deductibles, co-pays and premiums have been slowing cost growth by forcing healthcare consumers to be frugal. 

"The 10-year trend is that healthcare is normalizing," Kleinke told HealthLeaders Media. "The standard deductible 10 years ago was $200. That was the same deductible as in the 1950s. The deductible for health insurance didn't change during a time when everything else in the economy went up by an order of magnitude. The health insurance industry accommodated a huge amount of waste. People used it more than they needed and physicians were more than happy to deliver more care than needed because it was somebody else's money."

"It took 20, 30, 40 years to get out of control. Then the reaction in the 1990s was to blame the doctors and the hospitals and beat them up and do this utilization review stuff, and that didn't work. Now for the last 10 years it's been the demand side," Kleinke said.

The S&P indices also show that month-to-month healthcare cost growth accelerated in December, up from +4.85% in November to +5.28% in December. Commercial plan costs increased from +6.63% in November to +7.11% in December, while Medicare costs increased from +2.15% in November to +2.51% in December.

David M. Blitzer, chairman of the Index Committee at S&P Indices, said in the report that costs are trending back toward acceleration after a lull in November.

"Since the end of the summer we have generally seen increasing annual growth rates, particularly with healthcare costs covered by commercial plans," Blitzer said in the report. "Last month's data, which was through November 2011, showed a modest deceleration; however, December's data has returned to the accelerated pace and this time it affected all types of healthcare costs.

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.

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.

Blitzer said healthcare costs began to accelerate in May 2009 and peaked in May 2010, before decelerating through the first half of 2011.

"Since then, growth rates started to once again accelerate, most notably for hospital costs and those covered by commercial insurance plans," Blitzer said. "In fact, our Hospital Commercial Index stands out as the one whose annual growth rate, +7.95%, is back to its May 2010 rate. We appear to be entering 2012 witnessing a renewed acceleration in healthcare costs."

Zirkelbach says health insurers should not bear the blame for rising healthcare costs.

"S&P is focusing on the price issue, not utilization," he says. "You're seeing healthcare cost growth not being has high as it used to be but that was due to decreased utilization, not prices. Prices continue to go up."

"As the trend of hospital consolidation continues we are seeing that it results in higher prices as more and more hospital systems attain dominant positions and are able to dictate terms," he says. "That is having a big impact as well."

Copyright © HealthleadersMedia, 2012