Plan Sponsors Still Working to Reduce Health Benefit Costs

Faced with this reality, plan sponsors are becoming increasingly more progressive and creative in their efforts to manage costs while delivering high-quality, cost-effective health care, the survey report says. Many plan designs, for example, now include greater levels of participant out-of-pocket costs.

Plan sponsors are encouraging participants to seek care for minor illnesses at lower-cost settings, such as telemedicine and walk-in clinics. Reference-based pricing, in which the plan makes a defined contribution towards covering the cost of a particular service, with the goal of steering participants towards higher-quality hospitals or physicians for specific procedures or conditions (e.g. , the California Public Employees’ Retirement System’s use of maximum allowance for hip and knee replacement), is also expanding.

Segal explains that the trend is a forecast of per capita claims cost increases that takes into account various factors, such as price inflation, service utilization, government-mandated benefits, and new treatments, therapies and technology. Although there is usually a high correlation between a trend rate and the actual cost increase assessed by a carrier, trend and the net annual change in plan costs are not the same. Changes in the costs to plan sponsors can be significantly different from projected claims cost trends, reflecting such diverse factors as group demographics, changes in plan design, administrative fees, reinsurance premiums and changes in participant contributions.

According to the survey, health benefit plan cost trend rates show the slowest growth in 14 years of trend forecasts. While this decline in the trend rate is positive news, it is important to note that medical health plan cost trends still outpace the consumer price index for all urban consumers (CPI-U) by a margin of at least three to one, which means health costs continue to serve as a drag on real wage growth, Segal notes.

All medical plan types are projected to experience trend rate declines in 2014. Health maintenance organization (HMO) trend rate projections for 2014 are three percentage points lower than HMO projections for 2011. Prescription drug benefit trends for retail and mail order combined are forecasted at 6.3% for active participants and early retirees. These projections are relatively consistent with last year’s trend rate projections of 6.4%.

Medicare-eligible retiree plans are also anticipating trend rate declines for Medicare Advantage (MA) preferred provider organizations (PPOs), MA HMOs and Medicare Supplemental plans. MA PPO trends are projected to decrease almost two percentage points below 2013 levels to their lowest point in 17 years. This predicted rate decrease for Medicare-eligible retiree plans is more than double the rate decline projected for PPOs for active workers and pre-65 retirees. In 2014, Medicare-eligible retirees can expect lower trend rates for medical coverage compared to prescription drug coverage.

For the first time, Segal asked insurers to indicate 2014 expected medical PPO cost trends by group size. Results indicate individual and small groups will trend approximately one percentage point higher than large group plans.

The survey also looked for regional variations in trend rates. Projected 2014 trend rates for PPO and point-of-service (POS) plans combined show regional variations, with the lowest rate of 5.8% in the South and highest rate of 10.0% in the West.

The 2014 Segal Health Plan Cost Trend Survey was conducted in May and June of 2013. Health plan providers were asked to provide the trend factors they will be applying to historical claims to predict expected claims for 2014. Segal received 99 responses to the survey. The survey report is available here.