Human Capital & Careers

U.S. Health-Cost Hikes Slow Down Again This Year

The increases are still high, though, and they're accelerating globally.
David McCannMay 15, 2014

The rate of increase in costs of employer-sponsored health-care plans is continuing to moderate this year in the United States, according to research released today by Buck Consultants. But it’s a different story abroad, as evidenced by another report issued today by Towers Watson.

Health Care Costs

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The moderation is evident across all types of plan structures, says Buck, which surveyed 126 U.S. insurers and health-plan administrators whose products and services cover 119 million people.

Costs for preferred-provider-organization (PPO) plans are up 8.7 percent in 2014, lower than last year’s 9.0 percent growth and 2012’s 9.2 percent.

High-deductible health plans (HDHPs) show the biggest decline in cost increases, rising 8.6 percent this year compared to 9.1 percent in 2014. Hikes for health-maintenance-organization (HMO) and point-of-service (POS) plans ticked down as well. For plans that supplement Medicare, though, the health-cost hike has spiked to 5.5 percent from 4.1 percent last year.

The average prescription-drug cost increase for this year is 9.2 percent, down from 9.9 percent a year ago.

[contextly_sidebar id=”66fd3cfabbf598198687b9e086682733″]One reason for the multiple-year slowdown is that consumers are increasingly foregoing medical treatment, says Harvey Sobel, a Buck principal and consulting actuary who co-authored the survey. That’s been a theme since the recession was in mid-swing several years ago.

It’s too soon to tell what impact public and private health-insurance exchanges are having on costs. That may take a few years, according to Buck.

But while the trend is better than higher cost increases, plan-sponsoring companies aren’t necessarily jumping for joy. Health costs are rising more than four times faster than the current U.S. inflation rate. “Even though the decline is good news, most plan sponsors still find 8 to 9 percent cost increases unsustainable,” says Sobel.

Factors keeping cost increases high include health providers’ continuing high use of diagnostic tests and treatments; revenue pressure on providers from lowered Medicare and Medicaid reimbursements; increased regulatory scrutiny of providers, raising their administrative costs; and the consolidation of hospitals into hospital systems, giving them greater negotiation leverage with managed care organizations.

Another big cost driver is research and development for new medical technologies, of which there’s more all the time. “While technology may ultimately be the key to containing health-care cost increases, [R&D] costs often result in higher initial costs for services,” Buck wrote in its survey report.

Meanwhile, cost increases for employer-sponsored health plans outside the United States are heading in the other direction, according to Towers Watson. Its research shows costs rising globally by an average of 8.3 percent in 2014, up from 7.9 percent last year and 7.7 percent in 2012. The trend is worst this year in the Middle East/Africa region (10.0 percent) and best in Europe (5.4 percent).

Costs are up this year by 9.7 percent in the Americas (other than the United States) and 9.3 percent in the Asia-Pacific region.

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