US Healthcare Costs Continue to Rise, But at Declining Rates According to the S&P Healthcare Economic Indices

NEW YORK, May 19, 2011/PRNewswire/ -- 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 5.77% over the 12-months ending March 2011. After a temporary increase reported with January's data, healthcare costs have resumed their deceleration in annual growth rates – in the 12-months ending January and February 2011, this index had posted increases of 6.30% and 6.17%, respectively.

Healthcare costs continue to rise, but at a declining rate.  The Composite index, at +5.77%, is virtually back to the lowest annual growth rate in its six-year history, which was +5.76% in June 2007. The highest annual growth rate for the Composite index was during the 12-months ending May 2010, when it posted +8.74%.  In the 10 months measured from this peak, this index has gone through a sharp deceleration, down 2.97 percentage points.

Over the year ending March 2011, healthcare costs covered by commercial insurance rose by 7.57%, as measured by the S&P Healthcare Economic Commercial Index. Medicare claim costs rose at an annual rate of 2.78%, 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.

"The annual growth rates in healthcare claim costs remain positive, but with declining rates," says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. "The Composite Index rose by 5.77%, the Commercial Index by +7.57% and the Medicare Index was up 2.78%, compared to their March 2010 levels. These are down from their February 2011 annual rates of +6.17%, +7.94% and +3.22%, respectively.

"With March's report, both the Composite and the Medicare Indices hit new lows. The Medicare Index is at the lowest in its six-year history with an annual growth rate of +2.78%; and the Composite Index (up 5.77% in March) is virtually back to its June 2007 rate of +5.76%, its lowest in the six year history. The March 2011 Hospital and Professional Services Indices annual growth rates were +5.21% and +6.15%, respectively, down 0.28 and 0.51 percentage points from their February prints.

"If you look over the last year or so of data, it is apparent that the rates of increase in health care costs continue to slow down.  While there was some volatility within months, the general trend has been a slowdown across all nine of the indices we publish. Most of the annual growth rates peaked in the late winter/early spring of 2010.  Since then, most of these rates have fallen by 2 percentage points or more. The biggest slowdown has come from the Hospital Medicare Index, where the annual growth rate fell from +8.30% in August 2009 to +1.18% in March 2011.  On the other hand, we have not seen an equal trend for the Hospital Commercial Index, where the annual growth rate peaked at +9.36% in May 2010, and is still reporting a healthy +8.36% as of March 2011.  This phenomenon could be the possible result of two things: (1) costs for Medicare patients are being better contained than those covered under commercial insurance plans and (2) hospitals are using more procedures and services covered under commercial plans, contributing to the increase in total costs.  We see a similar differential across the Professional Services Indices, but not as severe."

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 March 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 Standard & Poor's as a subscription service.

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. The complete methodology, fact sheet and supporting research for the S&P Healthcare Economic Indices are available at www.healthcareindices.standardandpoors.com. A whitepaper introducing the S&P Healthcare Economic Indices has been published by Standard & Poor's and can be accessed here http://bit.ly/hhTvLb.

Standard & Poor's does not sponsor, endorse, sell or promote any S&P index-based investment product

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