Human Capital & Careers

Medical-cost Growth Slows, but Hold Your Applause

PwC survey sees costs rising 9.6 percent, only a shade less than this year's 9.9, and last year's 11.9.
Stephen TaubJune 17, 2008

How out-of-control have health care costs become? Total medical costs are expected to grow by 9.6 percent in 2009, according to a new report from the PricewaterhouseCoopers Health Research Institute.

If that sounds bad, however, consider that it’s been at least a tad worse in recent years. The report calculates that the growth rate is running 9.9 percent this year, and was 11.9 percent last year.

“With medical cost growth already exceeding the overall inflation rate, and inflation heating up in so many other sectors, health care providers, insurers, and employers will have to monitor medical costs carefully if we are to avoid a resurgence of the double-digit annual increases seen in the past,” says Dr. David Chin, leader of the institute. It surveyed more than 500 employers and provider-based health plans for the report.

The report also stresses that cost-shifting from the uninsured, Medicare, and Medicaid to private payers continues to increase, and will account for nearly one in every four dollars spent by private payers in 2009. “This trend is expected to continue because the federal government is underfunding public medical insurance programs while the number of uninsured is increasing,” the PwC report asserts.

Medical cost trends reflect the projected increase in the costs of medical services — PwC describes them as the “numbers behind the numbers” — and they are used by health insurers to estimate what it will cost to provide coverage in the coming year and to set premiums. Insurers and employers use the trend projections to design the benefit packages that will be offered to workers next fall.

PwC also notes that while medical cost trends are not a perfect predictor of increases in premiums, because employers make changes to plan benefits and add cost-sharing features rather than increase premiums, medical costs and premiums do tend to move in the same direction. In any case, the report points out a number of reasons for the anticipated decline in medical costs, even though the absolute rate is still quite high. The reasons include greater cost-sharing by workers, improved medical management, and substitution of lower-priced treatments.

Looking ahead, among the factors that will help at least slightly temper the rate of cost growth in 2009 are the continued use of generic drugs, which currently account for two-thirds of all prescriptions. In addition, improved medical management of high-cost patients, such as programs that improve adherence to medication regimens, is reducing hospitalizations and controlling costs.

“In the past, employers have tried to restrain increases in the insurance premiums their workers pay by changing their health plans or by increasing co-payments or deductibles,” said Michael Thompson, global human resource services principal at PricewaterhouseCoopers. “This has helped to keep insurance premium increases lower than the growth in medical costs. However, employers’ use of this strategy may be declining.”

The report notes that about one-third of employers surveyed said they expected to increase cost-sharing in their medical plans in 2009. And, according to the report, employers are instituting a number of programs to help hold down costs.

For example, they are increasingly instituting wellness programs and initiatives. Employers are relying on prevention and disease management programs to temper costs in 2009 rather than shifting higher levels of cost-sharing onto workers. There are also other wild cards that could affect cost projections, including the possibility of a recession, and changes in policy resulting from the presidential elections.