Rising Health Benefit Costs Still Outpace Overall Inflation

Rate of insurers' cost increases is holding steady for U.S. employers

By Stephen Miller, CEBS May 12, 2017
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The pace of the rising cost that insurers charge for employee health benefits in the U.S., having slowed a bit last year, looks to be leveling off at about 7.5 percent for 2017.

That figure does not take into account benefit plan design changes that are helping keep down the cost increases that employers will actually pay, such as shifting to higher-deductible, lower-premium health plans, using plans that contract with smaller provider networks and requiring preapproval for scheduled inpatient services. But it does suggest why employers are taking those steps to control their health care spending.

"While progress is being made to stem costs, the vast majority of respondents continue to grapple with how to rein them in," said Cecil Hemingway, co-head of Willis Towers Watson's health and benefits practice. The consultancy issued its 2017 Global Medical Trends Survey Report on May 4. The survey was conducted in October and November 2016 and reflects responses from 213 medical insurers worldwide.

North American Cost Trends

The survey looked at insurers' health benefit cost increases for the  U.S. and Canada from 2015 through expectations for 2017.

Annual U.S./North American Health Benefit Cost Increase

 

 

2015

2016

2017
(projected)

U.S.

8.8%

7.8%

7.5%

Canada

8.2%

8.4%

9.4%

Source: Willis Towers Watson.

 


In the U.S., "employers expect their plan trend to increase 5 percent for both 2016 and 2017 after plan design changes, higher than the 4 percent rise in 2015 and much higher than the general inflation trend (about 1.5 percent to 2.0 percent)," the research found.

As in recent years, "employers continue to make changes to their plan designs to keep employee cost increases to a minimum," the report notes. "But in this prolonged period of relatively stagnant wage growth, they are increasingly concerned about affordability. By 2018, more than half will make changes specifically designed to lower premium contributions for low-wage workers and out-of-pocket costs at the point of service. Likewise, most offer account-based health plans with tax-advantaged health savings accounts, and many seed these accounts to help cover increased out-of-pocket costs."

At the same time, "a majority of employers focus their most aggressive cost cutting on minimizing the most expensive and commonly overused procedures," the report states. U.S. employers also are adopting cost-effective options to manage pharmacy spending—especially for high-cost specialty drugs—and redefining coverage for spouses who can obtain coverage from their own employers. In addition, more employers are offering telemedicine services.

The analysis tied this year's expected increase in Canadian health benefit costs, conspicuously outpacing escalating costs in the U.S., to factors such as rising behavioral health claims and greater use of high-cost drugs coming to market.

Global Cost Trends

The survey also looked at insurers' health benefit cost increases by global regions.

Annual Global Health Benefit Cost Increase

 

 

2015

2016

2017
(projected)

Europe

5.0%

4.3%

4.5%

North America

8.4%

8.2%

8.6%

Asia Pacific

7.1%

7.7%

8.6%

Middle East/Africa

9.0%

9.0%

9.8%

Latin America

12.5%

12.4%

11.5%

Global

7.5%

7.3%

7.8%

Source: Willis Towers Watson.

 


Cost Drivers

When insurers were asked what the most significant cost-driving factors are, they most often identified:

  • Overuse of care due to medical practitioners recommending too many services (cited by 74 percent of respondents).

  • The high cost of medical technology (63 percent).

  • Overuse of care due to employees seeking inappropriate care (54 percent).

  • Health providers' profit motives (40 percent).

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

Wellness Programs Prevalent

In the U.S., three-quarters of insurers offer wellness/well-being benefits programs as part of their standard medical insurance programs, while just about half of insurers in Europe do, the survey found.

The most popular offerings include personal health risk assessments, second medical opinions, and health education programs that address lifestyle choices such as smoking, poor eating habits and lack of regular exercise.

With concerns about employee stress continuing to rise, 61 percent of insurers globally now include treatment for mental health and stress in their programs.

Insurers worldwide report that cancer, cardiovascular disease and respiratory illness are the three most expensive diseases in terms of medical claims. Respondents don't expect the situation to change in the next five years.

Related SHRM Articles:

IRS Sets 2018 HSA Contribution Limits, SHRM Online Benefits, May 2017

Health Benefits Take Bigger Bite Out of Paychecks, SHRM Online Benefits, September 2016

Employers Project Health Premium Hike of 6% in 2017, SHRM Online Benefits, August 2016


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