WASHINGTON, June 19, 2007 (PRIME NEWSWIRE) -- The nation's employers can expect a return to single-digit increases in health benefit expenses in the year ahead, reports PricewaterhouseCoopers LLP, which today released the first reported projections of health care cost trends for 2008. Unlike health plan premium forecasts, medical cost trends reflect the underlying numbers for actual medical costs by plan design. They are used by private insurers and employers to compare health plan costs year over year, ultimately to set premium levels and design the benefit packages that will be offered to employees in the fall.
According to PwC, private insurers are anticipating an average increase in medical costs by 9.9 percent for preferred provider organizations (PPOs), 9.9 percent for health maintenance organizations (HMOs)/point of service plans (POSs)/exclusive provider organizations (EPOs) and 7.4 percent for consumer-directed health plans. This compares to increases of 11.9 percent, 11.8 percent and 10.7 percent, respectively, in the prior year.
While too early to evaluate the long-term impact of consumer-directed health plans, says PwC, it appears that their cost trend is running about 2.5 percentage points below cost trends in HMOs and PPOs. For 2008, PwC has identified four major trends driving the deceleration of health care cost increases:
* Slower spending growth for prescription drugs, which accounted for 14 percent of benefit premiums in 2007 * Increased transparency and cost sharing with employees * Total-health management approach to benefits, such as wellness programs * Broadening of the digital backbone in health care, including greater use of information technology and electronic medical records
"Unfortunately, health care costs continue their upward trajectory, and the annual increase is reason for concern by all Americans," said Jack Rodgers, managing director of the Health Policy Economics Group at PricewaterhouseCoopers. "But we're seeing that the trends behind the numbers are positive. The growth rate has started to decline and is running nearly parallel to the overall rate of inflation. While national health spending has outpaced GDP growth for nearly two decades, the gap between these two measures has been narrowing since 2004."
A detailed analysis of medical cost trends can be found in the report by PricewaterhouseCoopers Health Research Institute, entitled "Behind the Numbers: Health Care Costs Trends for 2008." This is the second consecutive year that PwC has provided an estimate of year-ahead medical costs trends. Its findings are based on a survey of the nation's five largest private health insurance carriers, representing more than 30 million members, as well as proprietary research and extensive analysis of publicly available reports and government data. A full copy of the report is available at http://www.pwc.com/costtrends.
Each year, the nation's employers must analyze and estimate their employee benefit plan costs as part of their overall operational costs. Much of their budgeting is based on what they expect as an increase in the cost of medical care. Using medical cost trend projections, employers can adjust the health benefit packages they offer to mitigate the impact on their corporate bottom lines and their employees' pockets. For example, they can decide to switch to a lower cost plan, or to offer the same plan but increase the co-pay or share more of the premium costs with employees.
"It's important to note that an increase in the medical cost trend does not necessarily correlate to an increase in premiums," said Michael Thompson, Global Human Resource Services principal, PricewaterhouseCoopers. "In general, employers tend to be cutting back the benefit levels of their plans so medical cost trends tend to be higher than what the health insurance premiums increases are."
Health insurance premiums have been declining since 2003, when they peaked after an eight-year period of double-digit increases. Last year, the annual growth rate of health insurance premiums flattened at 7.7 percent for the second year.
Four Trends Influencing the Deceleration of Medical Cost Trends
* Slower spending growth for prescription drugs. According to PwC, this trend is being driven by a convergence of factors including the introduction of fewer blockbuster drugs, acceptance of tiered formularies which is driving increased use of generic drugs, and transition of some drugs to over-the-counter status. As one indicator of slower growth, the percentage growth in per capita spending on prescription drugs has now dropped below the percentage growth in national health expenditures for the first time since the mid-1980s. * Increased transparency and cost sharing with employees. It's clear that health care's movement into consumerism is real and affecting medical costs. Increased transparency and broader cost-sharing are cornerstones of health care consumerism that are making consumers more price sensitive, more willing to invest in preventive care, but also more demanding of greater information and value for their money. * Total-health-management approach to benefits. Employers are finding that individuals who lead healthier lifestyles typically are more productive, file fewer medical claims and have lower medical costs. Thus, an increasing number of U.S. employers are investing in wellness programs and developing incentives for employee adoption of healthier lifestyles. Typically employers have received a $3 to $1 return on their investment in this area. * Broadening of the digital backbone in health care. As more of the health care system becomes electronically connected through computers, electronic health records, wireless systems, biometric devices and digital imaging software, the improved efficiencies are helping to slow health care cost increases.
About the PricewaterhouseCoopers Health Research Institute
PricewaterhouseCoopers Health Research Institute provides new intelligence, perspective and analysis on trends affecting all health-related industries, including health care providers, pharmaceuticals, health and life sciences and payers. The Institute is part of PricewaterhouseCoopers' larger initiative for the health-related industries that brings together expertise and allows collaboration across all sectors in the health continuum.
About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 140,000 people in 149 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
"PricewaterhouseCoopers" refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.