Segal: 2004 Health Cost Hikes Start to Slow

December 3, 2003 (PLANSPONSOR.com) - While the rate of health-care cost hikes is expected to slow somewhat in 2004, prescription drugs remain as the key cost villain in employer health plans.

According to a new survey by The Segal Company, prescription costs are expected to shoot up by almost 18% next year – the fastest riser among health plan components. Cost trend rates are still three to five times the rate of general Consumer Price Index (CPI), Segal pointed out.

Meanwhile, according to Segal, the cost of medical plans is projected to increase at a slightly lower rate in 2004 than in 2003 for all coverage types surveyed. Segal projected 2004 medical plan (with prescription drugs) cost hikes compared to 2003 projections at:

  • Non-Network Fee for Service Plans – 15.6% (16.2% with prescription drugs)
  • Preferred Provider Organizations – 14.4% (14.5%)
  • Point of Service Plans – 13.9% (14.9%)
  • Health Maintenance Organizations – 13.7% (14.4%)
  • High Deductible PPO Plans – 14.7% (15.9%).

Segal’s 2004 predicted trend rates for all dental plan types are similar to or slightly lower than 2003 levels. For example, Dental Provider Organization cost hikes are expected to be 6.8% next year compared to 2003’s projected 6.5%. Dental Maintenance Organization hikes are projected at 5.2% in 2004, compared to 6% this year.

Finally, prescription drug plans for active workers and retirees under age 65 are projected to go up by 18.1% in 2004 on the retail level (compared with 19.5% in 2003) while a Mail Order program is expected to rise 17.4% in 2004 (versus 18.9% in 2003).

Segal cautioned plan sponsors that even though the rate of cost increases may be slowing, the still formidable employer expense requires continuing attention and creative solutions. “Health plan sponsors will need to make health care cost management a top priority and adopt a new round of strategies and tactics to met these needs,” Segal researchers wrote in their report. “For most plan sponsors, there will be no single solution. Successful management of health care costs depends on a combination of customized strategies, including vendor management, plan management, and individual health management.”

The report’s 2004 projections were obtained from a survey of major insurance carriers, managed care organization (MCOs), pharmacy benefit managers (PBMs) and third party administrators (TPAs), Segal said. For more information go to http://www.segalco.com/publications/surveysandstudies/2004trendsurvey.pdf .

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