Health Care Costs Expected to Rise in 2010

Even in the midst of a recession that experts say is shaping up to be the worst post-war contraction on record, health care costs continue to rise. In fact, a new study by PricewaterhouseCooper (PwC) suggests that U.S. employers can expect their health-care costs to increase by 9 percent next year. And though the projected rate of growth is slightly less than in previous years—9.9 percent in 2008 and 9.2 percent in 2009—medical cost increases continue to outpace inflation and wage increases, and is even higher than the health-care inflation rate for the nation as a whole, currently at 6.9 percent.

The firm says one of the drivers expected to increase medical costs in 2010 is that American workers concerned about losing their jobs—and potentially their health insurance—are using their health care more while they still have it. Other factors include rising unemployment, an increase in the uninsured and underinsured population, and a drop in membership in commercial health plans and a higher percentage of the population covered by Medicaid.

Despite the reasons, businesses confronted with increases are likely to pass a large portion of the burden to their employees. A total of 42 percent of employers surveyed by the Institute expect to increase the amount that employees must contribute to health benefit plans, and 41 percent expect to increase the amount of co-pays, deductibles, and other health costs the employee must pay. “If the underlying costs go up by 9 percent, employees’ costs actually go up by double digits,” said PwC’s Michael Thompson, adding that will have a “major, major impact” when many employers are also freezing or cutting pay. In the last five years, health insurance premiums have increased four times faster than wages.

Thompson says the health care reform legislation currently under debate in Congress is likely to have little impact on next year’s costs, but noted that the intense focus on health care may slow price increases. “Higher medical costs are getting even greater scrutiny in this down economy, and employers are squeezing dollars out of their programs to save money,” he said in a news release. “As the economy recovers, employers will refocus on more sustainable longer-term approaches to medical-cost containment based on an increasingly shared interest between employers and their workers.”

According to the PwC report, other trends, in addition to the prospects of health reform, are helping to deflate health spending:

• Ongoing decrease in the growth rate of drug spending with the increased use of generic drugs. According to the Centers for Medicare and Medicaid Services, 67 percent of all drugs were generic in 2007. In 2010, five more blockbuster drugs will go off patent, and the number of patent expirations will increase in 2011 and 2012.
• Increase in wellness and disease management programs, although participation among eligible employees remains low at around 40 percent for wellness programs and 15 percent for disease management programs, according to PwC. Employers are looking to health plans to provide greater education and incentives to increase participation.
• Increase in high deductible health plans, which are expected to lower utilization of health services. Twenty percent of employers surveyed said they would add a high deductible health plan as an option to their benefit plan design over the next two years.

Jean Mitchell, a Georgetown University health economist, said she sees one main reason behind any health care cost increase: overutilization. Mitchell, who was not involved with the survey, said health care costs have been rising at a rate faster than inflation because the payment system rewards care providers for doing more. “Until we fix that, we’re never going to be able to rein in health care costs,” she said.

This is the fourth consecutive year that PwC has provided an estimate of year-ahead medical costs trends. For the study, Behind the Numbers: Medical Cost Trends for 2010, PwC’s Health Research Institute surveyed more than 500 employers and numerous provider-based health plans. The report projects the expected cost increase per person for employee benefits plans, and it factors in things such as price increases, as well as utilization changes. The complete report may be accessed at www.pwc.com/medicalcosts2010.