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Successful cost-management initiatives have helped slow the rate of increase
Although health plan costs continue to rise, there is encouraging news for employers and other health plan sponsors: the rate of increase in health plan cost trends has fallen to the lowest level in 14 years, according to the 2014 Segal Health Plan Cost Trend Survey.
Medical health plan cost trends still outpace the consumer price index for all urban consumers by a margin of at least three to one, which continues to hinder real wage growth.
The cost trend is a forecast of per capita claims cost increases that takes into account various factors, such as price inflation, 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, the cost trend and the net annual change in plan costs are not the same. Changes in the costs to employers 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.
All medical plan types are expected to experience trend rate declines in 2014. For example, the trend rate projection for high-deductible health plans (HDHPs) without prescription drugs is 8.3 percent for 2014 compared to 9.1 percent projected for full-year 2013.
Figure 1. Summary of selected medical, prescription drug carve-out, and dental cost trends.
(click on graph to view enlargement)
Although it remains to be seen whether the deceleration in trends projected for 2014 have been influenced by short-term economic forces, the Affordable Care Act (ACA), or another unidentified factor, it seems likely that health care cost-management initiatives that employers have been using for years are paying off. Examples include the following:
Significant changes in the health care delivery system could have long-term implications for health care costs. These newer initiatives are expected to succeed over the longer term:
While medical plan cost trend continues to decelerate, overall health plan costs are still on the rise. Faced with this reality, employers are becoming increasingly more progressive and creative in their efforts to manage costs while delivering high-quality, cost-effective health care.
As the Affordable Care Act kicks into full gear in 2014 and as the economy continues to improve, it is unclear if health plan cost trends will continue to decline or return to the historic, inflationary underwriting cycle. Employers must be ready to implement new requirements introduced by the Affordable Care Act and to determine their impact on plan costs. It is important that they play an active role to continue to get the most for their benefit dollars.
Edward A. Kaplan is a senior vice president and leader of the national health practice for Sibson Consulting. He created the Segal Health Plan Trend Cost Survey. Christopher Calvert is a senior vice president and leader of Sibson Consulting’s health practice, New York. He has more than 20 years of experience working in the health care industry.
This article originally appeared in the November 2013 issue of Sibson Consulting's Perspectives and is reposted with permission from Sibson Consulting, a division of Segal. © 2013 by The Segal Group Inc. All rights reserved.
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