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Per Capita Health Cost Increases Slowing, Especially in Medicare, S&P Reports

By Dena Bunis, CQ HealthBeat Managing Editor

December 16, 2010 -- The rise in the average per capita cost of health care services has slowed marginally over the past year due to a moderation of prices and less use of health care—not as a result of any impact of the new health care law, says the Standard & Poor's analyst in charge of the data released.

The S&P Healthcare Economic Composite Index indicates that the average per capita cost of health care services covered by commercial insurance and Medicare programs rose 6.7 percent from October 2009 to October 2010. That contrasts with a 7.1 percent increase S&P reported for the 12 months ending in September 2010.

For people covered under private insurance plans, costs rose 8.2 percent over the past year. But Medicare claim costs rose at about half that rate—4.2 percent. S&P officials said that is the lowest annual growth rate for Medicare claims costs since January 2008, when it was 4 percent.

David M. Blitzer, chairman of S&P's Index Committee, said he doesn't have an easy answer for why Medicare cost increases are slowing down so much faster than commercial costs. "The long term trend is that commercial costs rise faster than Medicare costs," he said. One answer could be found in the different populations who are insured under Medicare compared with private insurers, Blitzer suggested.

America's Health Insurance Plans, the health insurance lobby, explains the difference in cost increases "by the cost shift from public programs to those with private coverage," said spokesman Robert Zirkelbach. "Medicare simply dictates the prices they pay for medical services. When doctors and hospitals receive less money from Medicare and Medicaid, they pass those costs along to families and employers with private coverage."

Zirkelbach said that according to the Milliman actuarial firm, an average family of four pays $1,500 more in premiums each year to cover the shortfalls of Medicare and Medicaid.

Blitzer said S&P's report shows "some slight improvement in health care expenditures. Despite that, it's still several times higher than the general rate of inflation or any other broad economic measures. And . . . we see a continual split between expenditures related to providing health care through Medicare and the private sector. That gap over the last six months has gotten bigger, not smaller."

Blitzer said that given the publicity surrounding the recent legal battle over the health law, he believes people on both sides of the debate will try to read more into these numbers than would be accurate.

He added that the growing number of privately insured Americans under the law "will initially cause an increase in spending. That doesn't say whether it will or will not push prices higher." Much will depend, he said, on what happens both on the commercial-insurance side and on the level at which the Department of Health and Human Services sets Medicare rates and how Congress reacts to those rates.

S&P's data is based on economic models, not actual claims data. The company has been doing these monthly studies for about a year and a half, Blitzer said, and is still working to refine their accuracy.

He also cautioned that it will take some time to see whether cost moderation continues.

"As we go into the implementation of a huge new law and we pass a key date and the next couple of months are still good I'd smile and be pleased but not declare that we've won the war," he said. The "numbers look a little bit better, but let's not get carried away."

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