Mellon: Health Insurers See Double-Digit Cost Increase in 2004

December 8, 2003 ( - Health insurers, Health Maintenance Organizations (HMO) and third-party administrators (TPA) are forecasting employer's health-care costs will continue their double-digit rate of increase into 2004.

Good news could be found in Mellon’s Human Resources & Investor Solutions Group’s 11 th National Health Care Trend Survey in 2004’s rate of increase being slightly less than the previous year’s results. Whereas the 10 th annual survey showed an increase of 15.2% for Preferred Provider Organizations (PPO), 2004’s forecast increase was 14.8%. Likewise the forecast for Point-of-Service (POS) plans was 15% in 2003, 14.3% in 2004 – and HMOs – 14% increase in both years.

“It’s encouraging that many insurers have lowered their trend factors, even if only slightly,” said survey co-author Harvey Sobel , a Mellon principal and consulting actuary. “However, some insurers have cited difficulties in negotiating their fees with hospitals and physicians.”

Following this trend are the prices of pharmacy benefits. Pharmacy benefit managers predict a 14.7% hike in 2004’s costs compared to a 14.9% increase the previous year. Similarly, insurers say drug programs will be up 17.6% in 2004, compared to 20% in 2003 and the combined figures shows pharmacy cost increases of 15.2%, down from 16.2% last year.

“Insurers have seen a moderation in their drug trends and are finally reflecting these drops in their pricing,” said Brian Stitzel , ASA, a Mellon consulting actuary and survey co-author.