Medical costs to jump for employers

Employer medical costs

It's never the news employers want to hear - the news that something else is rising in price - but according to reports, more bad news is on the way in the form of medical costs jumping.

Companies that offer employee health insurance expect another steep jump in medical costs next year, and more will ask workers to share a bigger chunk of the expense, according to a new PricewaterhouseCoopers report, 'Behind the Numbers'.

For the first time, most of the American workforce is expected to have health insurance deductibles of $400 or more, PricewaterhouseCoopers said in a report released to The Associated Press.

The deductibles are the annual amount a patient pays out of pocket for care before insurance coverage starts. They are generally separate from co-payments and coinsurance.

PricewaterhouseCoopers compiled its report by analyzing e-mail survey results from 674 companies in 30 different industries across the country. Most of the companies participating had 1,000 employees or more. The firm also interviewed health plan executives and reviewed analyst reports.

Rise in medical costs

Two years ago, only 25 percent of companies participating in the annual survey said they asked employees to pay deductibles of $400 or more. That grew to 43 percent in 2010 and is expected to pass 50 percent next year.

Employees who are asked to pay more for things like higher deductibles help to keep cost growth in check because they use less healthcare.

The healthcare reform law passed by Congress and then signed by President Obama in March has just started to unfold and will have little impact on costs next year, said Michael Thompson, a principal with PricewaterhouseCoopers.

PricewaterhouseCoopers found that medical costs are expected to rise nine percent next year. But this doesn't mean workers will see their monthly premiums jump by the same amount.

Employers typically try to soften the impact of a cost increase by absorbing some of it, changing insurance plan designs or asking employees to pay higher deductibles or a larger coinsurance percentage.

The nine percent medical cost increase projected in 2011 is actually slightly smaller than the 9.5 percent jump PricewaterhouseCoopers is seeing this year. Thompson said several top-selling drugs will lose patent protection next year and become exposed to lower-cost generic competition. That will help temper the increase.

The PricewaterhouseCoopers report also found a steep drop in the percentage of employers who subsidize retiree health coverage. It said only 22 percent of employers with more than 5,000 workers subsidized retiree coverage after the age of 65 this year. That's down from 37 percent in 2009.

"It's a major cost and one that employers have for years now been moving away from," Thompson said.

The top drivers of increasing medical costs include:

• Hospitals shifting costs from Medicare to private payers and employers. This is the number one cause of increasing medical costs.

• Provider consolidation is increasing, which is expected to raise their bargaining power. More physicians are getting out of private practice and joining forces with local hospitals or larger physician groups.

• Because of stimulus funding that begins in 2011 and Medicare penalties that begin in 2015, hospitals will invest billions of dollars in certified electronic health record (EHR) systems. Electronic records are expected to eventually decrease medical costs.

The report also found that:

• Two-thirds or 67 percent of businesses plan to expand or improve wellness programs.

• Forty-two percent of companies plan to increase employee contributions for health insurance coverage.

• Forty-one percent plan to increase medical cost-sharing with higher deductibles and co-pays. Just 26 percent of employers intend to increase prescription drug cost-sharing.

• More employers are dropping health benefits for retirees.

Jodie Humphries

Jodie Humphries graduated from Bath Spa University with a BA Hons in Creative Writing in 2008. She has worked for GDS Publishing for the digital group since July 2009. She has previous experience with writing for the web, running her own website since April 2007.

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