Health Care Cost Increases to Return to Single Digits in 2008

According to a PwC press release, private insurers are anticipating an average increase in medical costs of 9.9% for preferred provider organizations (PPOs), health maintenance organizations (HMOs), point of service plans (POSs), and exclusive provider organizations (EPOs), and a 7.4% hike for consumer-directed health plans (CDHPs). Increases were 11.9% for PPOs, 11.8% for HMOs, POSs, and EPOs, and 10.7% for CDHPs in 2007.

According to the press release, PwC attributes the deceleration of health care cost increases to four major trends:

• Slower spending growth for prescription drugs, which accounted for 14% of benefit premiums in 2007.
• Increased transparency and cost sharing with employees.
• Total-health management approach to benefits, such as wellness programs, and
• Broadening of the digital backbone in health care, including greater use of information technology and electronic medical records.

“It’s important to note that an increase in the medical cost trend does not necessarily correlate to an increase in premiums,” said Michael Thompson, Global Human Resource Services principal, PricewaterhouseCoopers, in the press release. “In general, employers tend to be cutting back the benefit levels of their plans so medical cost trends tend to be higher than what the health insurance premiums increases are.”

PwC noted that health insurance premiums have been declining since 2003, when they peaked after an eight-year period of double-digit increases. Last year, the annual growth rate of health insurance premiums was 7.7% for the second year.

The report findings are based on a survey of the nation’s five largest private health insurance carriers, representing more than 30 million members, as well as proprietary research and analysis of publicly available reports and government data.

A full copy of the report is available at http://www.pwc.com/costtrends .