- Posted by Chris Elvidge
- On July 12, 2019
Despite the fact that July 4th has come and gone (the midway mark of summer), there is still plenty of time to hold onto the sunshine and relaxation of the season – especially since for many of our clients, the preparation for another busy benefit season will soon be underway!
Much of the stress felt by an employer begins with anxiety around benefit premium increases—specifically associated with health insurance. At the core of it all and the basis for premiums is medical cost trend—defined as the projected percentage increase in the cost to treat patients from one year to the next—with the assumption that benefits remain the same. Insurance companies use this projection to calculate health plan premiums for the coming year.
The cost trend, or growth rate, is influenced primarily by:
- Change in the price of medical products and services and prescription medicines, known as unit costs (inflation)
- Changes in the number or intensity of services used, or changes in per head utilization
Cost trends are on the rise once again (on a national basis) as we look towards 2020. Based on a June PWC Health Research Institute report, it is price, not utilization or frequency of services, that is driving healthcare spending. Utilization seems to have been lessened by higher deductibles and other cost sharing pushed on to employees, but as you may have experienced as an employer, these changes come at the expense of the employee. According to the PWC HRI report research, deductibles for employer sponsored plans tripled between 2008 and 2018.
In addition to price escalation there are other forces that will drive increasing costs in 2020 – an aging population with the need for care, but more specifically, chronic diseases. Obesity and Type 2 diabetes continue to drive record rates of hypertension and cardiovascular disease. According to a May 2019 report released by the CDC on chronic conditions, 60 percent of adults have a chronic disease, with 40 percent managing two or more. As an employer, per capita spending on an individual with a complex chronic disease is eight times that of a healthy individual. It is easy to see why building (and continuing) a ‘culture of health and wellness’ with vigilance can be a critical element for an employer organization.
There is continued frustration with increasing deductibles, coinsurance, and health care premiums for employers and employees which has far outpaced growth in wages. This is ushering in a new and aggressive era of health care where consultants and employers eager to slow or drive down health care costs need to be aggressive and active with new and creative plans to address insurance options.