Data released late last month by S&P Indices indicate that the average per-capita cost of health care services covered by commercial insurance and Medicare programs increased by 6.2 percent during the 12 months ending in February. This is a slight drop from the 6.3 percent increase in annual growth rate posted in January for this index.
According to the S&P Healthcare Economic Composite Index, overall health care costs continue to increase at a declining rate. In its six-year history, the highest annual growth rate for the composite index was during the 12 months ending May 2010, when it posted an increase of 8.7 percent. With February's report of a 6.2 percent increase, claims-cost growth rates have decelerated 2.5 percentage points in just nine months.
Over the year ending February 2011, health care costs covered by commercial insurance rose by 8 percent, as measured by the S&P Healthcare Economic Commercial Index. Medicare claim costs rose at an annual rate of 3.2 percent, as measured by the S&P Healthcare Economic Medicare Index. This is the lowest annual rate of growth posted for the Medicare Index in its six-year history.
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 U.S. 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.
"After having picked up slightly in January, the annual growth rates in health care claim costs continued to decelerate in February 2011," says David M. Blitzer, chairman of the Index Committee at Standard & Poor's. "While all of the indices have seen their growth rates decelerate over the past year, Medicare claim costs, particularly those associated with hospitals, have witnessed the largest slowdown. Both the Medicare Composite and the Hospital Medicare Indices posted the lowest growth rates we have seen in their six years of history."
Blitzer says the slowdown in Medicare claim costs might be having some effect on other factors in the health care industry. In examining some of the variables S&P uses to calculate these indices, it observed some interesting trends in hospital and physician wages and employment that likely are a result of the changes in claims costs. While growth in hospital wages has remained relatively stable over the past year, in the range of 3 percent to 4 percent, hospital employment growth has slowed down significantly. Between 2008 and early 2009, annual hospital employment growth rate was in the 2 percent to 3 percent range; however, since the middle of 2009, the rate has been consistently below 1 percent.
With physicians, who might have more flexibility in their choice of insurance contracts, the impact isn't as severe, Blitzer says. Physician wages were growing by about 5.4 percent as of February 2011, almost double their pace of 12 months ago; employment has seen a slowdown, but still registered an annual growth rate of around 2.5 percent as of February.
"If the growth in insurance claim costs continue to slow down, whether due to contract negotiations for commercial insurance or Medicare regulations or both, we will likely see an impact on employment, wages, and benefits in the health care industry," Blitzer says.
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 S&P Healthcare Economic Indices were developed in consultation with Health Index Advisors, a joint venture between Aon Hewitt and Milliman Inc., and were derived from the former Milliman Inc. Health Cost Index, which was first published in 1987.