Health care cost trends – a new tool

With 18% of the economy driven by health care, cost inflation rates are vitally important. A just-released white paper reviews a new approach to measuring health cost inflation rates that will help employers, health plans, and workers comp payers assess overall trends, compare their experience to a benchmark, and forecast where things are headed.

The research, conducted by S&P/Dow Jones uses a series of indices to break out various cost areas.  The white paper is available for free here; while the statisticians amongst us (that does not include your faithful author) will find much to geek out over, this amateur’s take is:

• the methodology is sound and carefully constructed;
• it uses payment data from commercial health plans representing about 40% of all enrollees;
• the data is from fee-for-service plans;
• it is state- and in many cases area-specific; and
• it provides details on medical, inpatient, outpatient, pharmacy (brand and generic).

Any input from real analysts on the indices would be more than welcome.

Here are a few of the key highlights from the initial edition, which includes data from Feb 2010 to April 2013.

• Overall trend has been at or below 5 percent since August of 2010
• Trend as of April 2013 was about 4.3 percent
• Drug trend has been bouncing between 0 percent (!) and 2 percent since October 2010, with brand cost showing much less fluctuation while generic inflation was at 15 percent when last measured.
• Hospital trend is consistently 3 to 4 points higher than professional services trend
• There’s a LOT of interstate variation; for example as of February 2013, IL trend was around 1 percent while Texas’ was about 4.75 percent.

What does this mean for you?

All in all, a very valuable addition to the toolset available for regulators, businesses, and health plans.