Double-Digit Health Care Cost Increases Expected to Continue

By Stephen Miller Feb 3, 2010

Costs for the most popular types of health care coverage are projected to increase again at double-digit rates for 2010, according to a cost trend survey of U.S. insurers and administrators.

In its 21stNational Health Care TrendSurvey, Buck Consultants measured the projected average annual increase in employer-provided health care benefit costs. The study analyzed responses from over 100 health insurers and health maintenance organizations (HMOs). Insurers providing medical trends for the survey cover a total of approximately 78 million people.

Costs for the most popular medical plans are projected to increase by more than 10 percent and are in line with the trends reported in the prior two surveys, as shown in the chart below:

Type of Plan

Average Annual Cost Increase Projections

21st Survey

(data: second half 2009)

20th Survey

(data: first half 2009

19th Survey

(data: second half 2008)

Preferred Provider Organization (PPO)




Point-of-Service (POS)




Health Maintenance Organization (HMO)




High Deductible/

Consumer-Driven Health Plans (CDHPs)




Source: Buck Consultants, an ACS company.

Among other findings:

Prescription drugs.Health insurers report an average cost trend for prescription drugs of 10.9 percent, up 0.1 percent from the 10.8 percent reported in the prior survey.

Medigap.For plans that supplement Medicare, health insurers project an increase of 5.8 percent excluding prescription drug coverage, down from 7.4 percent in the prior survey. This lower trend reflects the impact of federal controls on Medicare fees and the lower increases expected in Medicare deductibles and co-pays.

“Health insurers are concerned about higher costs due to federal mental health parity, as well as an increase in COBRA enrollment,” says Harvey Sobel, a Buck principal and consulting actuary who directed the survey. “There is also uncertainty due to health care reform and its impact on all sectors of the health care industry.”

Health insurers use trend factors to calculate premium rates, and large self-funded employers use trend factors to budget their health care costs. In general, trend factors provide for price increases that might result from such variables as inflation, utilization of services, technology, changes in the mix of services and mandated benefits.

Employer Cost Concerns with Health Reform

A significant majority of U.S. employers believe that enactment of health care reform will lead to higher costs for both employer-sponsored benefit programs and health care services overall, according to results from an employer survey conducted by Towers Watson and the not-for-profit National Business Group on Health (NBGH). A separate Towers Watson survey of U.S. employees found that a majority of workers think health reform will not only lead to higher costs, but decrease the quality of care and reduce the benefits available to them.

“It’s clear that employers and employees alike are concerned over the potential impact reform could have on health costs and their benefit programs,” said Ron Fontanetta, Towers Watson's health and group benefits practice leader for intellectual capital development. “While health reform could ultimately provide greater access to health care to more Americans, there is a fair amount of skepticism over whether health reform will be able to curb rising health costs.”

The Towers Watson/NBGH survey found that:

Nearly three-fourths (71 percent) of employers believe health reform will increase the overall cost of health care services in the U.S., while 69 percent believe it will increase the cost of their benefit programs.

More than one-third (35 percent) say health reform will lead to fewer employers offering subsidized benefits.

Nearly half (46 percent) of employers believe it will decrease employer-sponsored offering of retiree medical benefits, while very few — only 5 percent — say it will increase, and just 27 percent of employers say it will cause no change.

“These survey data confirm quantitatively what many people — employers, employees and policy pundits — have been talking about for the past four months. That is, whatever else a health care reform plan might do, it is unlikely to control health care costs, which has everyone worried,” said NBGH President Helen Darling.

The separate Towers Watson survey of approximately 1,000 workers at midsize and large U.S. companies found similar concerns over health reform. Two-thirds (67 percent) believe health reform would result in higher benefit costs, while more than one-half (54 percent) believe it would reduce their available benefits and lower the quality of health care (53 percent).

“Employers will continue to look for ways to control rising health care costs and provide high-quality health care for their workers and families,” said Steve Raetzman, senior consultant for Towers Watson.

Stephen Miller is an online editor/manager for SHRM.​

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