Industry Market Trends

2009 Health Care Costs to Increase the Lowest in Years

Sep 09, 2008

Recent studies predict health care costs rising to nearly 10 percent in 2009, but employers are finding ways to facilitate the growth by passing some of the cost to employees, offering alternative health plans and adding wellness programs.

New reports about health care costs from PricewaterhouseCoopers (PwC) Health Research Institute, Aon Consulting Worldwide (via Workforce Management) and a preliminary survey result from Mercer have been published as employers recently finalized their 2009 health care plans. Aon predicts double-digit costs increases while Mercer indicates employers will be able to temper the rise in cost to approximately 5.7 percent.

The good news is, all reports point to a continued slowdown in health care cost increases and reflect the lowest increase in 10 years.

PWC surveyed more than 500 employers and health plans providing coverage to 11 million people and found that medical costs are anticipated to increase by 9.6 percent next year — down from the 9.9 percent increase in 2008.

Two major factors contributing to the cost increase are new construction in the health care industry and cost-shifting from the uninsured, PwC cites (registration required). Construction has been booming due to consumer demands and if a recession hits in 2009, PwC expects the health care industry to grow even more. "During past recessions, health care has increased its portion of gross domestic product and medical prices have risen faster than other prices," the report says.

Aon paints a gloomier picture, forecasting a 10.6 percent average increase in health care costs. After analyzing the responses of more than 70 health care insurers, representing more than 100 million insured individuals, actuaries expect costs to go up by 10.6 percent for health maintenance organization (HMO) plans, 10.5 percent for point of service plans, 10.7 percent for preferred provider organizations (PPO) and 10.5 percent for consumer-directed health care plans.

The study also predicts prescription drug costs to rise 9.2 percent, down from 9.5 percent a year ago.

Tracy Watts, a principal with Washington D.C.-based consultancy Mercer, tells MarketWatch that employers are expecting an increase of about 10 percent but are planning to manage the increase through the renewal negotiation process. Based on the 1,317 employer health plan sponsors who responded to its survey by Aug. 25, Mercer indicates that health care costs will climb by only about 5.7 percent.

Mercer's complete survey results will not be released until the end of this year. By then, about 3,000 employers will have participated. Thus far, however, 59 percent of respondents say they will reduce their 2009 cost increase by raising deductibles, copayments, co-insurance or employee out-of-pocket spending limits.

"These survey results provide further evidence that our health care system is fundamentally broken and that employers, stressed by rising health care costs, are once again seeking to shift a larger share of the cost burden to employees," Alan Cohen, executive director of Boston University's Health Policy Institute and professor of health policy and management at the BU School of Management, tells IndustryWeek. "Rising deductibles, co-pays and out-of-pocket spending limits will put painful pressure on many workers and their families."

Conversely, others have found that employers are trying to keep from passing on the costs to their employees or keep the burden minimal by implementing consumer-directed health plans (CDHP) with health savings accounts (HSA) and wellness programs.

"It appears employers are trying to give employees a choice between paying more out of their paycheck to keep first-dollar coverage or paying less out of their paycheck but being a little bit more at risk when they need care — the latter being more like how one might buy car insurance," Watts explains.

CDHP is a high-deductible plan with an employee-controlled spending account that enables employees to take cost into consideration when seeking health care services. Employees can save account dollars in an HSA on a tax-advantaged basis to use for future needs. These are significantly less expensive than PPOs or HMOs and 19 percent of respondents in the Mercer report plan to use CDHPs in 2009 to lower costs.

Kerri Mansberg, second vice president of group medical with Guardian — which covers about 100,000 employees in more than a dozen states — tells MarketWatch that high-deductible plans with HSAs are gaining support.

"We've seen a big emphasis on HSAs and high-deductible plans as a way of lowering upfront costs but having a good catastrophic plan," Mansberg said. "Once you hit your deductible pretty much everything's covered after that."

Other cost-reducing strategies include prevention and wellness programs. Two-thirds of employers surveyed by PwC contract with disease management programs that focus on reducing and eliminating hospitalization and another two-thirds adopted wellness programs. Nearly half claim these programs are effective at reducing costs.

A rising number of employers are embracing incentive programs that reward workers who take health risk assessments, attend health fairs or participate for biometric screenings. Rewards can consist of breaks on premiums or cash.

Michael Kramer, a principal with professional services firm Towers Perrin in San Francisco, tells MarketWatch that "employers have figured out that it's in their interest to present these financial incentives as messages encouraging healthy behavior rather than as penalties for doing something bad."

Though wellness programs may not completely offset the cost increase, employers and employees still benefit. Plus, the slowing growth rate of health care costs hopefully will alleviate further stress that can adversely affect a person's wellbeing.

For more on PwC's recent report, see last month's Growth of Employers' Health Care Costs to Level Off.

Resources

Behind the Numbers: Medical Cost Trends for 2009

PricewaterhouseCoopers Health Research Institute, June 2008

Double-Digit Rise in Health Plan Costs Projected

by Kristin Gunderson Hunt

Workforce Management, Aug. 12, 2008

Health Benefit Cost Growth Predicted to Ease Slightly in 2009 as Employers Shift Cost

Mercer, Sept. 4, 2008

Hammering Out Health-Care Benefits

by Kristen Gerencher

MarketWatch, Aug. 14, 2008

Health Benefit Costs Will Increase 5.7% in 2009

by Adrienne Selko

IndustryWeek, Sept. 4, 2008