No Recession Seen in Medical Costs

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Includes: IYH, XLV
by: The Burrill Report

Driven by increasing use of healthcare and other trends, U.S. medical costs are expected to grow by 9 percent in 2010, once again far outstripping the rise in inflation and employee wages, a new report says. The increase is expected to be lower than the 9.2 percent rise projected for 2009, but still will represent a growing burden on employees as well as employers, says the report from PriceWaterhouseCoopers. What’s more, the consultancy says that any healthcare reform, even if passed in 2009, is not expected to have much effect on cost until 2011 or beyond.

“The perplexing contrast of health spending growing amid a deflated general economy will present employers with unique challenges for their 2010 healthcare benefits strategies,” says the report. Among the surprising trends was that employees may be using healthcare services more frequently in the economic downturn, as many may be worried about losing their insurance if they are laid off. To conduct the report, PriceWaterhouseCoopers surveyed employers and hospital-based health plans as well as reviewed analyst reports.

The report finds that employers plan to shift more of the burden of paying for healthcare onto employees, with 42 percent saying they expect to increase employee contributions, up from 38 percent in 2008. Another 41 percent say the expect to boost medical cost-sharing by changing their healthcare plan designs. And PriceWaterhouseCoopers says more than two-thirds of employers say they plan to expand their wellness and disease-management programs. But, the report adds, few employers “are convinced that [these programs] are very effective at mitigating healthcare costs.”

Despite the common belief that prescription drugs make up a large share of health spending, the report says that only 15 percent of private health insurance benefit is spent on these drugs. The smaller growth in prescription drug spending comes as the generic dispensing rate rises—to 67 percent of all drugs in 2007, from 60 percent in 2005. The biggest portion of private health insurance benefit spending—35 percent—goes to physician services. The second largest expenditure, 30 percent, is for hospital services, followed by 16 percent on outpatient services.
Despite the slower 9 percent growth in medical costs projected for 2010—the growth rate was 9.9 percent in 2008—the increased cost-sharing could squeeze workers, the report says. In the last five years, health insurance premiums increased four times faster than wages—and the consultancy expects that trend to continue in 2009 and 2010. Some 6 million workers—an unprecedented number—were in high-deductible health plans in 2008, up from 1 million in 2005, according to America’s Health Insurance Plans.
Although the report says that health reform could eventually slow the growth of medical costs, these costs will continue to increase. Citing the Centers for Medicare & Medicaid Services, the report says the health industry is expected to represent 18 percent of the U.S. economy by 2010.