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May 18

Employer HC costs to rise 8.5 percent in 2012: PwC

Posted by Stephen Taub in PwChealth careCash

Stephen Taub

Now this is what you can call inflation.

US employers are likely to shell out 8.5 percent more on healthcare costs in 2012 on top of an increase of 8 percent this year, according to an annual report on medical cost trends published by PwC's Health Research Institute.

However, mitigating changes in health benefit plan designs, including increased cost-sharing with employees, could keep employers' costs increases to an average of 7 percent next year. Of course, that is still much higher than even the most pessimistic views on inflation overall.

Interestingly, the slow economic recovery, unemployment and reduction in disposable income have caused Americans to seek fewer healthcare services. This led to lower-than-expected growth in employers' medical cost trends in 2010 and 2011, according to the PwC report.

PwC said it had projected a 9 percent increase in employer medical costs for both years.  However, low utilization led to adjusted estimates in the medical cost trend to 7.5 percent for 2010 and 8 percent for 2011 before benefit plan changes.

"The end of subsidized COBRA coverage in 2010 is offsetting otherwise rebounding utilization growth rates so far in 2011, but employers and health plans expect pent-up demand to put upward pressure on the medical cost trend to continue into 2012," it notes in the report.

PwC surveyed about 1,700 US employers from 32 industries. It also interviewed hospital executives, health plan actuaries and other executives.

PwC says three factors that are likely to inflate the medical cost trend in 2012: Consolidation among hospitals and physicians, increasing cost shifting from Medicare and Medicaid and post recession stress builds up on workers.  

At the same time, a number of factors will likely deflate medical costs for health plans and employers in 2012, according to PwC.  These factors include increased cost sharing, blockbuster brand-name drugs go off patent, and tiering on out-of-network providers

PwC also says the health reform law will have minimal effect on the medical cost trend in 2012. It asserts provisions of the Patient Protection and Affordable Care Act that took place prior to 2012 were small changes for which employers already have fully accounted.

Rather, the Medicaid expansions, health insurance exchanges, subsidies to buy private insurance, mandates for employers to offer insurance and mandates for individuals to buy insurance take place in 2014 or later, although PwC notes that health reform could contribute to more cost shifting by further discounting Medicare rates for inpatient care.

Meanwhile, PwC asked employers about changes they are making in their benefit plans, particularly in light of health reform. The survey found:  84 percent of employers said they are likely to make changes in plan design to offset anticipated costs associated with the health reform law.

In addition, 86 percent of employers said they are likely to re-evaluate their overall benefits strategy, half are considering significantly changing or eliminating company subsidies for dependent medical coverage and 89 percent of employers will likely increase their health and wellness efforts.

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