The 2003 Segal Health Plan Cost Trend Survey measures trends in medical care cost by examining factors such as medical price inflation, co-pay cost leveraging, cost shifting (one party absorbing costs of another), utilization (frequency of claims incurred by a medical plan), government mandates, and new technology, in addition to input from health care insurers and providers. These trends are the average forecasted change in the health plans’ per capita claims costs determined by insurance carriers. This year’s study provided insight into cost trends for Medical Plans, Prescription drug plans and dental plans.
Medical plan trends will see an increase of 16.2% for (Fee-for-service) FFS, 14.5% for (Preferred-provider) PPO, 14.9% for POS and 14.4% for (Health Maintenance Organization) HMOs in 2003. Managed care trends have nearly doubled in the last five years. The HMO trend has gone from 5.6% in 1999 to 14.4% in 2003. Additionally, the PPO trend was at 6.5% in 1999 and 14.5% in 2003.
However, the gap between managed and non-managed trend rates is decreasing. 1999 saw a gap between FFS and HMO plans of 4.0%. 2003’s gap has declined to 1.8%. Segal says that HMO enrollment may continue to dwindle as the relatively stable and low price increases, one of the historical drawing points of the HMO, continue to be more in line with that of non-managed plans.
The retiree (age 65 & older) medical trend for non-network FFS plans is 13.0%, down from 2002’s projection of 14.0%. The Medicare non-network FFS plan is lower than the corresponding non-retiree number at 13.0% as opposed to 16.2%.
HMO trends for the two plans are fairly consistent. Retirees 2003 projection is 14.5% and non-retirees trend is 14.4%.
Hospital service trends for managed and non-managed plans (12.6% and 13.3%, respectively) are catching up with outpatient trends for the same plans (12.9% and 14.7%, respectively). The recent trend of consolidations has led to higher fees being negotiated from health insurers and managed care organizations.
Segal says the rises in the medical cost trend can be attributed to price inflation in addition to:
- Consolidation of for-profit health care systems, enabling providers to negotiate higher fees from health insurers and managed care organizations
- Labor shortage for nurses and pharmacists pushing wages up at double-digit annual rates
- Increases in premiums for provider malpractice insurance
- Modest co-payment levels, causing more patients to seek unnecessary care
- Fixed dollar co-payments not being adjusted for increases in medical care
Prescription Drug Plans
Prescription drug trends are expected in increase nearly 20% in 2003, representing the fastest rising cost component of health care plans. Individual components of this trend show a 19.5% increase for active workers and retirees under 65 and a 19.0% increase for retirees 65 and older. Mail order prescriptions are expecting similar trends. Active workers and retirees under 65 can expect an 18.9% increase. Retirees 65 and older will see an increase of 19.3%.
Segal contributes this to:
- Increasing patient demand and education for pharmaceuticals due to direct to consumer advertising and marketing promotions
- The introduction of new and expensive drug therapies and a greater reliance on drug therapies by the physician community.
- Increasing preventative prescriptions, primarily in anti-lipid and anti-ulcer drug categories.
- Increasing obesity
- Aging workforce
Segal also noted that as major patents begin to expire, more generics will enter the market, helping to reduce the cost of some drug treatments in the near future.
Dental plans, such as FFS dental plans, Dental Provider Organizations (DPOs) and Dental Maintenance Organizations (DMOs) are expecting increases of 7.8%, 6.5% and 6.0%, respectively, in 2003 trends. DMOs will see the largest increase from 2002’s projections with a 1.3% increase. FFS and DPO plans will see trend projection increase of 0.3% and 0.1% from last year’s forecast.
2003’s trend projections see a narrowing of the gap between the three types of dental plans. The gap between the highest and lowest trends is 1.8%, compared to 2.8% in 2002. Additionally, the gap between managed and non-managed plans shrunk in 2003. The 0.5% gap is much narrower than 2002’s gap of 3.2%.
Rates in dental plans have historically been lower than those of medical and prescription drug trends. However, Segal notes that some dental trend rates will have doubled since 1999.
The 2003 Segal Health Plan Cost Trend Survey received responses from 60 major insurance carriers, third party administrators, medical care organizations and pharmacy benefit managers. A full copy of the report can be found at www.segalco.com/publications/surveysandstudies/2003trendsurvey.pdf .