6/14/07 6:45 AM

Double-Digit Health Care Cost Increases Forecast

By Kathy Gurchiek

The cost of providing health care is expected to increase as much as 11.2 percent in the next 12 months, according to a recent survey of more than 70 health insurers representing more than 100 million insured individuals.

However, compared to its fall 2006 trend survey, medical trend rates are down about half of 1 percentage point, according to Chicago-based Aon Consulting, a human capital consulting organization that conducted the survey of leading medical, dental, pharmacy and vision vendors.

A breakout by plan category found:

• Health maintenance organizations (HMOs)—rates are projected to rise by 10.9 percent. That’s down from 12.2 percent in spring 2006.

• Point-of-service (POS) plans—rates are projected to rise by 10.8 percent, down from 11.9 percent.

• Planned provider organizations—rates are projected to rise by 11.2 percent, down from 12.4 percent.

• Consumer-driven health plans (CDHPs)—rates are projected to rise by 10.7 percent, down from 12.5 percent.

“Although it is encouraging to see a continuing decline in health care trend rates, employers are still challenged by the fact that health care cost increases are more than four times general inflation rates,” said Bill Sharon, senor vice president with Aon Consulting and director of the study.

“For many businesses, health care costs continue to be their fastest growing expense,” he said in a press release.

Increasing patient demand for services, an aging population, increasing medical technology and hospital costs, increasing price and utilization of prescription drugs, poor lifestyle choices, cost shifting, and medical malpractice costs are blamed for the double-digit rate increases.

Among other findings of Aon’s Health Care Trend Survey:

• General prescription drugs are expected to increase in cost by 9.5 percent, down from 12.2 percent projected in spring 2006.

• Specialty drugs, which include biotechnology agents designed for complex and chronic conditions, will increase in cost by 15.1 percent, down from 17 percent projected in spring 2006.

• Health care rate increases for retirees over age 65 are projected to be 11.2 percent for Medicare Supplement plans with pharmacy coverage and 9.2 percent for Medicare Advantage plans with pharmacy coverage.

• Dental trend rates are down slightly from fall 2006 projections.

• The vision trend rate is up slightly to 3.1 percent.

The trends represent national averages and are the predicted increase in claims cost, the report cautions. It notes that “trend increases for a specific company may vary significantly” because of factors such as variations in regional cost, company plan design and demographics.

Employers have a number of strategies to reduce the rate of these increases, Aon’s Sharon pointed out.

“Some of the more successful strategies consist of implementing consumer-driven health care plans, chronic condition management programs and health promotion programs.

“Coupled with plan design changes and/or employee contribution changes, these strategies can reduce an employer’s health care cost increase by more than half.”

Employers of All Sizes Impacted

Reducing those costs likely will be a priority for most employers. The spring 2007 Employee Benefits Market Survey by The Council of Insurance Agents & Brokers found group medical care costs increased for employers of all sizes.

The council represents the country’s leading domestic and international insurance agents and brokers who annually place more than 80 percent of commercial property/casualty premiums in the United States and who administer billions of dollars in employee benefit accounts.

The survey, which the council describes as a sampling of the marketplace, found that the vast majority of employers paid significantly more for account renewals than in fall 2006. Among other findings:

• Rates for group medical plans rose as much as 15 percent since fall 2006 for some small and medium-sized employers.

• Rates for employers with 501 or more workers rose as much as 6 percent to 10 percent

Fewer than 30 percent of employers they deal with are shifting employees to high-deductible heath plans (HDHPs) coupled with either health savings accounts (HSAs) or health reimbursement accounts (HRAs), according to three-fourths of the 90 agents and brokers surveyed.

Instead of limiting options or discounting coverage, though, most employers are continuing traditional coverage plans, with employees shouldering the cost of higher deductibles and co-pays, the council found.

“The majority of our clients are beginning to increase the deductibles to reduce the overall increases,” the council quoted one unidentified broker from the Midwest as saying.

“The HSA plan designs have not provided enough savings to warrant making the change, so they are staying with a higher deductible with office visit and prescription co-pay.”

When the plans are added, most are provided as an option rather than the only choice on the benefits menu, the council found.

“Most groups are looking at high-deductible plans, but not many are implementing,” an unidentified broker from the Northeast said. “If they do, it is as an option, not a replacement.”

Kathy Gurchiek is associate editor for HR News. She can be reached at kgurchiek@shrm.org.

Related Article:

2007 Health Care Costs Still Outpace Inflation, SHRM Online Compensation & Benefits Focus Area, May 2007

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