2011 Health Plan Cost Trend Projected to Outpace Inflation Again

By Stephen Miller Oct 7, 2010

As in 2010, medical and prescription drug cost trend rates for 2011 are expected to represent a substantial increase over core inflation, according to the 2011 Segal Health Plan Cost Trend Survey, The Segal Co. consultancy's 14th annual survey of health plan cost trends. Based on the survey data, Segal projects that all 2011 medical plans types will experience cost trends that are more than eight times higher than the consumer price index (CPI) for all urban consumers, which from August 2009 to August 2010 was 1.1 percent.

“After several years of declining trends, it appears that 2008 was the bottom of a downward pattern, with cost trend rates returning to an upward direction in 2009,” commented Edward A. Kaplan, Segal's senior vice president and national health practice leader. A new, potentially short-term driver of health plan cost trend, he added, is the cost of compliance with the health care reform legislation enacted in March 2010. More than three-quarters of those surveyed by Segal said that health care reform would result in an additional increase to the overall health plan cost trend of more than 1 percent.

Other key findings of the survey include:

  • Compared to 2010, cost trend rates for indemnity plans and high-deductible health plans (HDHPs) are expected to decrease (that is, grow slower) in 2011.
  • Trend rates for preferred-provider organizations and point of service plans will be slightly higher than in 2010.
  • Prescription drug trend projections have remained below 10 percent for the past three years.
  • Price inflation for in-patient hospital stays is the largest component of the overall plan cost trend.

Cost Controlling Steps

Segal determined that plan sponsors are seeking to mitigate cost increases by:

  • Using designs that generate wider use of generic drugs, eliminate waste and take advantage of step therapy programs that drive lower net prescription drug costs.
  • Focusing on aggressive network hospital negotiations to keep cost payment increases reasonable.
  • Implementing smarter design rules, which reduce emergency room visits and overuse of CT and MRI scans as well as better use of low-intensity provider services (such as visits to other qualified primary care providers such as nurse practitioners).
  • Investing in controlled preventive/wellness services and on-site clinics that move away from fee-for-service contracts.
  • Mining medical data to determine where the key cost drivers are and creating meaningful incentives and support services so that members engage in healthy behaviors and improve their health status.

The cost trend is the projected year-over-year change in health plans’ per-capita claims costs as determined by insurance carriers, managed care organizations, pharmacy benefit managers and third-party administrators. Comparing past health plan cost projections to actual increases indicates that insurers and pharmacy benefit managers (PBMs) tend to make conservative projections, according to Segal. Their forecasts have generally been higher than the actual experience, but forecasters are becoming more accurate in their projections.

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

Open Enrollment Brings Higher Premiums, Plan Design Changes, SHRM Online Benefits Discipline, October 2010

Steps to Hold Down Health Reform's Cost Increases, SHRM Online Benefits Discipline, September 2010

Family Premiums Up 3% in 2010, But Workers' Share Rose 14%, SHRM Online Benefits Discipline, September 2010

CDH Plan Growth Continued in 2010, SHRM Online Benefits Discipline, September 2010

Large Employers Project 2011 Health Plan Costs to Rise 8.9%, SHRM Online Benefits Discipline, August 2010

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Health Care Reform web page

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