Employers’ Health Care Cost Growth Has Plateaued

Rate of increase has slowed but still outpaces general inflation

Stephen Miller, CEBS By Stephen Miller, CEBS June 25, 2018
LIKE SAVE

Without benefit design changes, large employers again will see a 6 percent increase in health plan costs in 2019, the same rate of increase as in 2018, a new study is forecasting.

This is consistent with the previous five years, which have seen employers' health-benefit costs increase between 5.5 percent and 7 percent.

Although this predictability is a welcome change from the wild swings of the early 2000s, medical cost inflation remains unsustainably high, according to Medical cost trend: Behind the numbers 2019, a report from consultancy PwC's Health Research Institute, released in June. The institute conducted interviews from February through April 2018 with 16 health plan executives whose companies cover more than 130 million people, asking them about their estimates for 2019 and the factors driving those cost trends.

(Click on graphics to view in a separate window.)

Health_Care_Costs-02-2_tjqvgi.webp

PwC's companion 2018 Health and Well-Being Touchstone report, also released in June, draws on a survey of more than 900 employers in 37 industries across the U.S., conducted in the first quarter of 2018. The results show that:

  • Employers expected 2018 medical cost increases of 6.2 percent before health plan changes and 3.5 percent after plan changes.
  • Small employers anticipated higher medical cost increases: 8 percent before health plan changes and 4.9 percent after plan changes.
  • Large employers expected increases of 5.1 percent before health plan changes and 2.9 percent after plan changes.

Health_Care_Costs-03_res7at.webp

Reining in Costs

The researchers at PwC's Health Research Institute pointed to factors that can temper rising health care spending, such as:

  • Care advocacy. Employers and health plans are offering consumers new services that engage and guide the consumer to better-quality and lower-cost care.
"Health plans and employers may use health advocates to enhance existing disease-management and care-management programs," said Ben Isgur, the Dallas-based leader of the institute. "Employees are often unaware of health-advocacy offerings, so employers should consider investing in improved, targeted communications. This is especially true for employees with chronic conditions."


  • High-performance networks. Limited-provider networks emphasize high-quality care and customer satisfaction alongside cost savings. Some employers are using their buying power to negotiate directly with providers to create this type of network.

Isgur advised, "Employers should consider offering employees a value-plan option with a limited network" of health care providers and high ratings for quality and customer satisfaction.

Costs Still Steep for 'Typical' Family

Drawing on its claims cost analysis and industry sources, consulting and actuarial firm Milliman recently estimated lower increases than PwC. It forecasts that the 2018 cost of health care for a typical family of four receiving coverage from an employer-sponsored preferred provider plan (PPO) will increase by 4.5 percent, approaching the lowest rate on record.

The cost increase is up slightly from last year's 4.3 percent increase, but the 0.2 percent step up was the lowest in the Milliman Medical Index's 18-year history and points to the recent deceleration in health care cost increases. The index is an annual survey of health care costs for families in the U.S.

Health_Care_Costs-01_pyuukh.webp

"There are two ways of looking at this year's findings," said Chris Girod, a principal in Milliman's San Diego office and co-author of the report. "On the one hand, it's heartening to see the rate of health care cost increase remain low. On the other hand, we're still talking about more than $28,000 in total health care costs for the typical American family."

Among the factors that might be driving the decline in growth rates, he said, are:

  • More effective contracting between large employers and health care systems.
  • The adoption of value-driven plan designs, in which the plan pays—with little or no employee cost-sharing—for high-value medications and services, which can save money by reducing future expensive medical procedures.

For the third straight year, prescription drug costs increased slightly, though at 6 percent the rate of increase still exceeds other components of the Milliman Medical Index.

"Prescription drug costs have steadied, but this trend is volatile and hard to predict," said Scott Weltz, a Milwaukee-based Milliman principal and report co-author. "High-cost drugs can have a big impact on trends, as we witnessed a few years ago when hepatitis C treatments hit the market. Alternatively, point-of-sale rebates could push a consumer's costs in the other direction, particularly for people taking high-cost drugs."

[SHRM members-only toolkit: Managing Health Care Costs]

Health Costs Offset Pay Raises

"The bottom line is that costs are still at record levels," said Jim Pshock, founder and CEO of Cleveland-based Bravo Wellness, a corporate wellness-services provider. "Employers pay the majority of these costs, but the employees' share of these costs has been growing faster," creating a "hidden pay cut" for employees each year, he noted, since a worker's salary increase is offset by the increase in the cost of his or her health care premiums.

"Employees automatically and unknowingly enter the new year with a decrease in their take-home pay," he said.

A new white paper provides evidence that "the rising values of fringe benefits, such as health insurance, may have offset potential wage gains for middle-income workers," which have plateaued at about 3 percent despite falling unemployment. The authors, Jeff Larrimore of the Federal Reserve and David Splinter of the Joint Committee on Taxation, contend that when factoring in the cost of health coverage, "total compensation may be higher than previously believed, also implying that employer-sponsored health insurance benefits may represent a larger share of employee compensation."

Related SHRM Articles:

Self-Insurance Is Just the Start, Say Health Plan Innovators, SHRM Online Benefits, May 2018

Health Plans Shift Toward Paying Doctors for Value Provided, SHRM Online Benefits, January 2017


LIKE SAVE

Job Finder

Find an HR Job Near You
Search Jobs

SPONSOR OFFERS

Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 10,000 companies

Search & Connect

HR Daily Newsletter

News, trends and analysis, as well as breaking news alerts, to help HR professionals do their jobs better each business day.
temp_image