NEW YORK, May 18, 2011 /PRNewswire/ -- U.S. employers can expect to see healthcare costs rise by 8.5 percent
The slow economic recovery, unemployment and reduction in disposable income have caused Americans to seek fewer healthcare services, which led to lower-than-expected growth in employers' medical cost trends in 2010 and 2011. Based on interviews with health plans, PwC 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.
Behind the Numbers includes findings from PwC's 2011 Touchstone Health and Well-being Employer Survey of approximately 1,700 U.S. employers from 32 industries, as well as interviews with hospital executives, health plan actuaries and other executives whose companies provide health insurance for more than 80 million covered lives.
Medical cost trend is the projected increase in the cost of medical services assumed in setting premiums for health insurance plans. To help employers design their health benefits, PwC's Health Research Institute provides annual estimates of how private medical costs will grow over the next year and what the leading drivers of the trend are expected to be.
In this year's report, PwC identifies three factors that are likely to inflate the medical cost trend in 2012:
At the same time, a number of factors will have the effect of deflating medical costs for health plans and employers in 2012, according to PwC. These factors are:
According to PwC, the health reform law will have minimal effect on the medical cost trend in 2012. 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. 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.
"Healthcare organizations are in state of flux over pending health reform provisions, an uncertain economic outlook and financial pressures, and the way they react will have significant implications for their own long-term health in this rapidly changing market," said Michael Galper, U.S. healthcare payer leader, PwC. "Health reform is pressuring employers, providers, insurers and pharmaceutical manufacturers to be more cost-conscious and accountable for costs, quality and performance, and they will need to work together to provide better, coordinated care, greater transparency in pricing and more patient-friendly practices."
Response from U.S. Employers and Health Plans
The medical cost trend is influenced primarily by unit cost inflation and changes in the volume of healthcare services used. PwC's projected medical trend does not reflect changes in benefit plans, which typically reduce the trend by 1.5 to 2 percentage points. Employers and health plans made benefit plan design changes in 2010 that reduced the medical cost trend from PwC's adjusted projection of 7.5 percent to 6 percent. But benefit changes in 2011 were able to reduce the trend by only 0.5 percent, from the projected 8 percent to 7.5 percent, because of mandates imposed by the health reform law.
As part of the 2011 Touchstone Health and Well-being Employer Survey, PwC asked employers about changes they are making in their benefit plans, particularly in light of health reform. The survey found:
"Employers continue to be concerned about the sustainability of healthcare cost increases especially in the long-term, and they are reacting by making changes now," said Michael Thompson, principal, human resource services, PwC. "Healthcare in the future will be very different than we know it today, and uncertainty about these changes complicates healthcare benefits strategies. However, the most proactive employers are planning for potential future scenarios and making incremental changes now toward a longer-term view of transformational change in the way healthcare is delivered and paid for and a more collaborative and integrated model aligned around health and wellness."
PwC's Behind the Numbers report and highlights of the 2011 Touchstone Employer Survey, including recommendations for employers, health plans, providers and pharmaceutical companies, are available at www.pwc.com/us/medicalcost2012. Full findings from the 2011 Touchstone Employer Survey can be downloaded from www.pwc.com/us/touchstone2011.
The 2011 Health and Well-Being Touchstone survey was completed in the first quarter of 2011. Survey participants included 1,700 U.S.- based companies across the country from 30 different industries. Companies ranged in size from small employers with fewer than 500 employees to large companies with more than 20,000 employees.
About PwC's Health Research Institute (HRI)
PwC Health Research Institute (www.pwc.com/hri) provides new intelligence, perspectives, and analysis on trends affecting all health-related industries. The Health Research Institute helps executive decision makers navigate change through primary research and collaborative exchange. Our views are shaped by a network of professionals with executive and day-to-day experience in the health industry.
About PwC's Health Industries Group
PwC's Health Industries Group (www.pwc.com/healthindustries) is a leading advisor to public and private organizations across the health industries, including healthcare providers, pharmaceuticals, health and life sciences, payers, employers, academic institutions and non-health organizations with significant presence in the health market. Follow PwC Health Industries at http://twitter.com/PwCHealth.
About the PwC Network
PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.
© 2011 PwC. All rights reserved. "PwC" and "PwC US" refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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