Employer Health Costs to Rise 9% in 2011

June 14, 2010 (PLANSPONSOR.com) – Employers can expect medical costs to increase by 9% in 2011, a decrease of 0.5% from 2010, according to a new report from the PricewaterhouseCoopers LLP (PwC) Health Research Institute.

A PwC news release said also in 2011 the majority of the American workforce is expected to have a health insurance deductible of $400 or more for the first time.

PwC found 67% of companies intend to expand or improve wellness programs inside the U.S.  Some 42% intend to increase employee contributions for health insurance coverage. Some 41% intend to increase medical cost-sharing, including higher deductibles and co-pays, while only 26% intend to increase prescription drug cost-sharing.  More employers are dropping health benefits for retirees.

A PwC report outlines three primary deflators that will help employers hold down medical costs:

  • Employers are moving toward pre-managed care benefit design by increasing deductibles and replacing co-pays with co-insurance. By requiring workers to spend more out-of-pocket at the point of care, employers believe they will rein in utilization of services and drugs. The number of employers using co-insurance for physician visits has nearly doubled, and one-third use co-insurance for brand-name drugs.
  • Drug costs are tempered by generics. Insurers are benefitting from the growing use of generic drugs.
  • COBRA costs are expected to return to more normal levels in 2011. COBRA subsidies passed by Congress in 2009 created a 1% increase in the medical cost trend, according to the PwC analysis. A combination of declining unemployment and expiration of the COBRA subsidies is expected to lead to reduced enrollment in COBRA.

The biggest inflators of the medical trend in 2011 will be in hospital and physician costs, which make up 81% of premium costs:

  • Hospitals shifting costs from Medicare to private payers and employers is seen as the number one reason for higher medical costs trends.
  • Provider consolidation is increasing, which is expected to increase their bargaining power. More physicians are getting out of private practice and joining forces with local hospitals or larger physician groups.
  • Spurred by stimulus funding that begins in 2011 and Medicare penalties that begin in 2015, hospitals will invest billions of dollars in certified electronic health record (EHR) systems. Health care CIOs surveyed by PwC said they will make their largest investments to meet the new EHR regulations in 2011. In the long term, EHRs are expected to help control costs.

"For more than 50 years, U.S. employers have used health benefits as a critical part of their compensation package to recruit and retain workers," said Michael Thompson, principal, Human Resource Services, PricewaterhouseCoopers. "The value of these benefits is becoming an even more visible part of overall compensation as medical costs grow, and, by 2014, health insurance benefits will shift from being a voluntary benefit to an individual mandate, enforced by new tax levies. Companies are now working with their health plan providers for new post-recession, post-health reform strategies to sustain their programs and promote health and well-being as their next competitive advantage."

The report includes findings of the PricewaterhouseCoopers' Health and Well-Being Touchstone Survey of more than 700 employers from 30 industries, as well as interviews with health plan actuaries and other executives whose companies provide health insurance for 47 million American workers and their families.

More information is available here and here


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