Rising medical and prescription drug costs could crimp the health insurance industry's strong revenue and profit growth.
The Altarum Institute's Center for Sustainable Health Spending estimated that spending on hospital care jumped 9% from February 2014 to February 2015. That's a “giant” increase, said Paul Hughes-Cromwick, a senior health economist at Altarum. By contrast, hospital spending climbed only 3.1% from February 2013 to February 2014.
Deutsche Bank's hospital volume tracker also showed more inpatient discharges across commercial, Medicare and Medicaid patients, said Scott Fidel, a health insurance analyst at Deutsche Bank.
And last week, HCA, the nation's largest for-profit hospital operator by revenue, said it expects a 5.1% increase in same-facility admissions for the first quarter, and a 6.8% increase for same-facility equivalent admissions, which include outpatient activity. HCA's same-facility emergency department visits rose 11.5% over the same quarter in 2014, according to preliminary estimates.
Other for-profit hospital companies are also expected to report strong growth in the first quarter, thanks to a rebound in the economy, more paying patients as a result of the Affordable Care Act, and strategies to expand outpatient reach.
If growing medical costs turn out to be a broader trend, insurers will be paying more in medical claims to hospitals and health systems—leaving less cash for their own coffers and bucking the trend of the past four years when the U.S. healthcare system saw historically low spending growth.
That shift could trim the extremely bullish expectations for the health insurance industry.
“It is hard for us to see how, with these types of volume numbers from HCA, overall healthcare utilization did not increase during the (first quarter),” Fidel wrote in a research note. “We do see the HCA pre-announcement as a cautionary data point for managed care.”