Medical costs are expected to increase 9 percent in 2011, according to a report by PricewaterhouseCoopers. The report also found that wellness programs and increased cost-sharing are among the top planned design changes.
Two-thirds of employers plan to expand or improve their wellness programs. Forty-two percent will increase employee contributions for health insurance coverage, and 41 percent will increase medical cost-sharing. Only 26 percent will increase prescription drug cost sharing.
The report identified three "deflators" that will help beat down health costs. Employers are shifting away from co-pays in favor of co-insurance, and are increasing deductibles. High-deductible plans are the primary plan for 13 percent of employers, up from 6 percent in 2008. Additionally, generic drugs account for 80 percent of all prescriptions, according to the report. Furthermore, drugs worth about $26 billion in annual sales are expected to lose their patents in 2011.
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Finally, COBRA costs may go back to normal next year. Due to federal subsidies and rising unemployment, COBRA enrollment doubled in 2009 to 38 percent. Typical employers, with 1 percent of lives covered eligible for COBRA, would have seen a 2 percent increase in enrollment, and a 3 percent increase in costs. If employment returns to pre-recession levels, that trend should be reversed by about 0.5 percent. However, if the economy doesn't improve, the trend could increase another 0.5 percent in 2011, the report warns.
PricewaterhouseCoopers' analysis found that hospital and physician costs make up 81 percent of premium costs, and will be the biggest inflators of medical costs in 2011. The number one reason for increased costs will be hospitals placing more of the cost burden on private payers rather than Medicare, the report found.
IT will play another large part in medical cost increases. The government will spend $36 billion between 2011 and 2015 on incentives to implement health care IT, the report authors write, but to get the incentives, hospitals must have electronic health record systems, as well as established criteria to enable "measurable improvements in population health" through clinical information systems.
The report acknowledges that employers need to maintain a long-term view of changes as a result of health care reform, specifically, a reduction in cost shifting from the uninsured; changes in the way providers are compensated; new markets for health insurance; and an excise tax on high premium plans that will begin in 2018.
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