PwC: Health Costs Headed up in 2007 10% to 11%

November 15, 2006 ( - Preferred provider organizations (PPO) costs are expected to rise 11.9% in 2007, health maintenance organizations (HMOs) by 11.8% and consumer-driven health plans by 10.7%, according to a new study.

APricewaterhouseCoopers report about the health care costs survey notes that rising medical costs have been borne largely by employers and the government in recent years. According to PwC, Americans spent 6% of their personal budgets on medical costs in 1960 – the same percentage as in 2004.

“Medical costs continue to grow faster than wages and this trend is an important driver of insurance company premiums,” said Jack Rodgers, managing director of the Health Policy Economics Group at PricewaterhouseCoopers , in a news release. “The fact that medical costs are expected to increase by double digits, however, does not mean that health insurance premiums will increase at the same rate. Employers have the ability to influence premiums through strategic and creative benefit plan design.”

Using medical cost trend projections, employers can customize health benefit packages, offering incentives and increasing the level of cost sharing in the form of co-payments, deductibles and premiums, the PwC news release said. Consumer directed health plans offer employers greater flexibility to make adjustments than traditional plans such as HMOs and PPOs.

According to PwC, the following were inflators of health spending:

  • new treatments and technologies, including the increased use of new prescription drugs and diagnostics. While these contribute to early diagnosis and treatment and in many cases are worth the increased cost, their availability obligates some physicians to order more tests as defense against potential litigation.
  • Increased demand for services by workers shielded from true costs who may overuse or inappropriately use the services.
  • An aging population and declining health status due to such rising problems as obesity.
  • Cost-shifting, where private insurance must fill the gap for patients unable to pay for services.

The PwC report also identified the expected deflators of health spending, including:

  • Cost sharing – When workers absorb more of the cost of their care they respond by using fewer or less expensive services and drugs.
  • Price transparency – When consumers see prices, they may reduce costs by shopping around for better values.
  • Digital backbone – electronic records and auto-adjudication can lower administrative costs and duplicative testing which can amount to as much as one-third of health spending.
  • Health and wellness programs – employers are starting to see a return on investment in health promotion activities such as smoking cessation programs that address costly health conditions.

A full copy of the report is available at . A free registration is required.