Health Care Costs Rise More Than Seven Percent

The average per capita cost of healthcare services covered by Medicare and private insurance jumped 7.32 percent in the last year, vastly outdistancing the inflation rate.

Standard & Poor's reported the numbers in its S&P Healthcare Economic Composite Index for the 12 months that ended in August 2010.

Hospital and physician claims for patients covered under commercial health plans rose the most, gaining 8.66 percent. Medicare claim costs for services rendered by hospitals and physicians rose a more modest 5.08 percent, according to the Index.

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 index levels versus the same month of the prior year.

"Healthcare costs continued to rise in the month of August. The annual rates of change for the Composite, Commercial and Medicare Indices were +7.32 percent, +8.66 percent and +5.08 percent, respectively. August data shows that the most significant rise in healthcare costs was those covered by commercial health insurance plans," said David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. "If you look at these data by service provider, the annual change in hospital claims costs, at +7.41 percent, are only slightly above those for professional services, +7.01 percent.  This is far different than what we witnessed in the middle of 2009, when hospital claims costs were rising close to 8.0 percent per year, while professional services were growing at a more modest 6.0 percent."

Lower than previous year

While the costs are rising much faster than inflation, they are actually an improvement when you look at previous health costs.

"Looking across the family of S&P Healthcare Indices, we have seen a trend of moderation in the annual growth rates, particularly in the last 12 months," Blitzer said. "This is most prominent with Medicare claims costs.  In November 2009 those costs were rising at an annual rate of 7.94 percent.  With August's report we see that the rate has fallen to +5.08 percent." 

Blitzer notes two caveats to the figures: first Medicare is subject to different regulatory and market effects than the Commercial Index.  Second, these data, which are through August 2010, do not reflect any impact of the recently passed federal health care legislation.

"As the cost of healthcare is a daily topic of discussion, we expect many to use these indices to understand changes in healthcare costs for the insured population in the U.S., by both service provider and by benefits coverage," Blitzer said.