Mellon: 2005 Medical Cost Increases to be 8.7% – 14.9%

The expected rate of increase depends on the type of medical coverage, according to the study from the first half of 2005. At an 8.7% expected increase over the next year are Medicare Supplement plans (without Rx), followed by Medicare Supplement (with Rx) at 11.5%, HMOs (12.1%), POSs (13.3%), PPOs (13.4%), and high deductible consumer driven plans (14.2%). The plans with the highest expected increases are Indemnity plans, at 14.9%.

Medical care cost trends continue to be high due to increased utilization of health services, medical inflation, increases in the intensity of services and continued government mandates, according to Mellon.

For stand-alone prescription drug plans, Mellon expects that the average cost increase will be 14.7% in 2005, which is 0.1% higher than the expected increase given six months ago (See Mellon Health Cost Increases Projections for Second Half of 2004 Down Slightly ). The expected increase varies by whom Mellon asks, however: Pharmacy Benefits Managers expect a 14.25 increase, while Health Insurers expect an increase of 15.9%.

Dental and vision care cost increases are slightly more reasonable from the buy-side perspective, with the average cost increase for the former expected to be 7.2%, and for the latter, 3% (for scheduled care). For dental care, HMOs are expected to have a smaller increase in cost (4.6%) than PPOs (6.6%).

All in all, the average cost for each employee for all coverage is expected to be $4,120 in 2005, up from $3,918 in 2004.

The National Health Care Trend Survey summarizes the trend factors by 93 HMOs, Blue Cross/Blue Shield plans, health insurers and other plan administrators to project the rate of increase in employers’ medical, dental, prescription drug and vision plans. Copies are available to clients free of charge from their Account Executives. Nonclients may obtain copies for $100 from Mellon’s HR&IS Benefits Survey Department at 201-553-6400.