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Slower Health Care Cost Growth Expected in 2013
Plan design features seek to control costs further

By Stephen Miller, CEBS  6/4/2012
 

The cost of health care in the U.S. is expected to grow at a historically low rate of 7.5 percent in 2013, according to the latest Behind the Numbers report on the medical cost trend by consultancy PricewaterhouseCoopers (PwC).

The projection continues a pattern of slower medical growth reflecting the sluggish economy, lower use of services by cost-conscious patients and efforts by employers to hold down expenses.

Medical inflation has been lower than expected for the past three years, and recalibration of previous estimates shows a low range of 7 percent to 7.5 percent from 2010 through 2013, according to PwC. Historically, health care spending bounces back up as the economy recovers. But the report identifies structural changes that might temper that pattern. A fourth year of relatively low growth suggests that the gap between health care spending and overall inflation might be narrowing to a more sustainable level.

Medical cost trend projections help insurers and self-funded employers set premium rates for the following year. For U.S. employers, the net impact of the 2013 increase could be as low as 5.5 percent after accounting for changes in benefit design by purchasers, PwC estimated.

Cost-Control Strategies

Employers are focused on two primary strategies to control medical costs in 2013: expanding health promotion programs and increasing employees' share of costs, according to a report on PwC's 2012 Health and Well-Being Touchstone Survey of 1,400 U.S. employers of all sizes, across a broad range of industries.

Wellness programs are offered by nearly three-quarters of employers (72 percent) in 2012, and half of those said they are considering expanding their programs in 2013. Among them the most common offerings include:

Employee assistance programs (provided by 84 percent of employers that offer wellness programs).

Health risk assessments (80 percent).

Biometric screenings (71 percent).

Tobacco cessation (67 percent).

Weight management (56 percent).

In addition, 58 percent of employers offer disease management programs in 2012; the most common are related to:

Diabetes (63 percent).

Cardiac disease (56 percent).

Asthma (54 percent).

Cancer (39 percent).

Plan design features with the most significant changes in 2012 include a considerable increase in in-network deductibles, emergency room co-pays and prescription drug co-pays, the survey revealed. Among the findings:

Nearly six in 10 employers (57 percent) are considering increasing employee contributions to health plans.

Half of employers are considering increasing cost sharing through plan design, such as higher deductibles. The average emergency room co-pay, for example, is $125 or more.

More than half of employers are considering raising employee prescription drug plan costs.

40 percent of survey participants are offering high-deductible plans with a health savings account (HSA), up from 38 percent in 2011, while 17 percent offer a high-deductible plan with a health reimbursement arrangement (HRA), down from 19 percent in 2011. An additional 4 percent offer an HRA linked to a traditional health plan.

HSAs must be coupled with a high-deductible plan; HRAs typically are linked to a high-deductible plan but there is no statutory requirement to do so. (To learn more, see the SHRM Online article "
Consumer-Driven Decision: Weighing HSAs vs. HRAs").

Cost-Controlling Solutions

 

Already implemented

Under consideration

Not under consideration

 

Increase employee contributions.

31%

57%

12%

 

Increase prescription drug plan cost-sharing through plan design changes.

21%

52%

27%

 

Expand and improve wellness inside the U.S.

38%

50%

12%

 

Increase medical plan cost-sharing through plan design changes.

34%

50%

16%

 

Implement a value-based design.

6%

45%

49%

 

Implement a high-deductible plan as a full replacement  for medical benefits.

13%

42%

45%

 

Implement a performance-based network.

4%

41%

55%

 

Offer a health savings account.

33%

40%

27%

 

Implement a high-deductible plan as an additional option among medical benefits.

32%

40%

28%

 

Consolidate vendors.

15%

36%

49%

 

Expand/offer flexible work options.

26%

32%

42%

 

Offer a health reimbursement arrangement.

21%

32%

47%

 

Source: PricewaterhouseCoopers, Health and Well-Being Touchstone Survey Results, May 2012.

“Slower growth in health care costs could be the ‘new normal,’” said Michael Thompson, principal, human resource services, at PwC. “We’re seeing long-term trends that could keep cost increases in check. As employers shift expenses to their employees, for example, these workers are pursuing lower-cost alternatives. Even as the economy strengthens, changes in behavior by employers and consumers may help limit medical growth.”

Conflicting Cost Pressures

Factors expected to inflate health care costs in 2013 include:

An uptick in the consumption of health care as newly hired workers obtain coverage and as patients who postponed elective procedures feel more confident about spending.

Medical and technological advances that provide more specialized, sophisticated and expensive treatment are expected to push up overall health care spending.

Factors expected to deflate costs include:

Market pressure to reduce medical supply and equipment costs.

Increased availability of comparative cost information.

Accelerated savings as pharmaceutical patents for popular drugs expire and generics become available.

Source: PricewaterhouseCoopers, Behind the Numbers report, May 2012.

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Health Spending Growth Projected to Average 5.7% Annually Through 2021

Aggregate health care spending in the U.S. will grow at an average annual rate of 5.7 percent for 2011 through 2021, or 0.9 percentage points faster than the expected growth in the gross domestic product (GDP), according to new estimates from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS). The estimates are in a study published online in June 2012 by the journal Health Affairs, "National Health Expenditure Projections: Modest Annual Growth Until Coverage Expands and Economic Growth Accelerates."

For 2011–13, U.S. health spending is projected to grow at 4 percent on average—slightly above the historically low growth rate of 3.8 percent in 2009. Preliminary CMS data suggest that growth in consumers’ use of health services remained slow in 2011, and this pattern is expected to continue into 2013.

However, in 2014, health spending growth is expected to accelerate to 7.4 percent as the major coverage expansions from the Patient Protection and Affordable Care Act (PPACA) begin, assuming that the PPACA is not overturned by the U.S. Supreme Court or repealed by Congress.

The health care share of GDP by 2021 is projected to rise to 19.6 percent, from its 2010 level of 17.9 percent. In addition, by 2021, federal, state and local government health care spending is projected to be nearly 50 percent of national health expenditures, up from 46 percent in 2011, with federal spending accounting for about two-thirds of the total government share.

Rising government spending on health care is expected to be driven by faster growth in Medicare enrollment, expanded Medicaid coverage, and the introduction of premium and cost-sharing subsidies for health insurance exchange plans.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related Articles:

Typical Health Costs for American Family Now Exceed $20,000, SHRM Online Benefits Discipline, May 2012

Rand Study: CDHPs Could Save Billions in Spending, SHRM Online Benefits Discipline, May 2012

Unnecessary ER Visits Linked to Low Co-Pays, SHRM Online Benefits Discipline, May 2012

Survey: Employers Controlling Costs with Wellness Programs, SHRM Online Benefits Discipline, May 2012

Half of Employer Health Plans Have No In-Network Deductible, SHRM Online Benefits Discipline, April 2012

Screenings and Early Intervention Can Reduce Medical Costs, SHRM Online Benefits Discipline, April 2012

Costs Vary Widely for 'Shoppable' Procedures, SHRM Online Benefits Discipline, March 2012

Applying Effective In-Network Incentives at CalPERS, SHRM Online Benefits Discipline, March 2012

Behavioral Economics Improve Health Decisions, SHRM Online Benefits Discipline, January 2012

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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