Employers’ Health Costs Projected to Rise 6.5% for 2016

Making plan design changes could reduce increase to 4.5%

By Stephen Miller, CEBS Jun 15, 2015

Medical costs for employers in the U.S. will increase 6.5 percent for 2016, slightly lower than the 6.8 percent projected for 2015, predicts Pricewaterhouse Coopers’ Health Research Institute (HRI).

According to the consultancy’s June 2015 report Medical Cost Trend: Behind the Numbers 2016, the net growth rate for employer-provided health care costs in 2016, after accounting for benefit design changes such as higher deductibles and narrow provider networks, is expected to be 4.5 percent.

For this research, HRI interviewed industry executives, health policy experts and health plan actuaries whose companies cover more than 100 million employer-based members. HRI also analyzed results from PwC’s 2015 Health and Well-Being Touchstone Survey of more than 1,100 employers, and a national consumer survey of more than 1,000 U.S. adults.

The new report identifies three factors expected to “deflate,” or reduce, the rate of growth for health care costs in 2016:

Looming “Cadillac tax” accelerates cost-shifting. The Affordable Care Act’s nondeductible excise tax on high-value plans, set to begin in 2018, is already influencing employers’ benefit design. To avoid paying the 40 percent tax on health plan premiums over $10,200 for individual coverage and $27,500 for self and spouse or family coverage, employers are upping the amount that employees must pay, thereby reducing their costs.

Virtual care. New technology is rendering virtual health care visits more efficient and convenient than traditional medical care. Hospitals are already using remote monitoring to improve outcomes and bring down treatment costs. Large companies now see telehealth as a valuable tool for primary care.

New health advisors.Advisory services provided through insurers or third-party vendors are increasingly providing information and tools to assist employees with making good choices when seeking health treatment.

Going the other way, the report cites two factors expected to “inflate,” or boost, the spending trajectory in 2016:

Specialty drugs. Because of their high cost, the expanding use of specialty drugs will require employers find new ways to identify, manage and pay for these treatments, as well as to quantify their value in reducing other types of health care services.

Cybersecurity. Large-scale security breaches add a new layer of expense to the health business, as companies move quickly to secure and protect the vast amount of personal health data they possess. The sophistication of attacks means health providers need to spend money on both prevention and, if a breach occurs, remediation.

More to Be Done

“More Americans with health insurance and an improving economy have not increased the medical spending trajectory,” the HRI consultants report. “Structural changes have helped keep costs in check. But there is still much to be done as long as health spending continues to outpace gross domestic product and individual consumers and companies struggle to afford services.”

Employers are advised to “pursue strategies that not only strengthen their bottom line but better equip workers to make informed health decisions—or they will likely pay a high cost in the long run,” the report stated. On a positive note, “User-friendly technology offers opportunities for greater transparency, remote care delivery and true comparison shopping.”

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

Related SHRM Articles:

Cost Control, Behavior Change Top Health Agendas for 2016, SHRM Online Benefits, August 2015 (National Business Group on Health foresees a 6 percent increase in health costs for 2016, held to 5 percent with design changes)

Insurers Expect Larger Premium Rise for 2016, SHRM Online Benefits, May 2015

Large Employers Holding the Line on Premium Increases, SHRM Online Benefits, April 2015

Cost-Shifting to Cost-Sharing: Small Business Health Maneuvers, SHRM Online Benefits, April 2015

CDHP Cost-Savings Maintained over Time, Researchers Find, SHRM Online Benefits, March 2015

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