Healthcare Cost Increases to Continue in 2011

As a number of healthcare reform provisions go into effect for employer plans in 2011, costs for the most popular types of plans are projected to increase by more than 10%, according to a national survey of more than 120 insurers and administrators by Buck Consultants, Xerox Company.

Due to economic uncertainty, insurers may be projecting higher claim costs because employees who remain after layoffs tend to be older and more expensive to insure.” The study measured the projected average annual increase in employer-provided healthcare benefit costs. Insurers providing medical trends for the survey cover a total of approximately 150 million people.
Costs are projected to increase at slightly increased rates from the trends reported in the prior two surveys, as shown in the following chart:

Type of Plan	22nd survey	21st survey	20th survey
PPOs	11.6%	11.1%	11.0%
Point-of-service plans	11.3	10.9	10.2
HMOs	10.6	10.3	11.0
High Deductible Health Plans	11.3	10.3	10.4

“Health insurers anticipate higher claim costs under healthcare reform. Also, due to current economic uncertainty, insurers may be projecting higher claim costs because employees who remain after layoffs tend to be older and more expensive to insure,” said Harvey Sobel, FSA, a Buck principal and consulting actuary who directed the survey.
The trend increase for high deductible health plans (HDHP) is projected to be at or near those for PPO, POS, and HMO plans. “One reason for this is the more pronounced deductible leveraging effect for HDHPs,” said Sobel.
He provided this example:
•    A $10,000 medical bill in a plan with a $100 deductible results in a cost to the insurer of $9,900. If the trend rate is 10%, that medical bill rises to $11,000 and, after the $100 deductible, the cost to the insurer rises to $10,900 – or a 10.1% increase over the previous $9,900 cost.
•    Now consider the same $10,000 medical bill in a high deductible plan with a $1,000 deductible, resulting in a cost to the insurer of $9,000. With the same 10% trend rate, the medical bill again rises to $11,000 and, after the $1,000 deductible, the cost to the insurer rises to $10,000 – or an 11.1% increase over the previous $9,000 cost.
Health insurers reported an average prescription drug trend of 11.3%, up 0.4 points from the 10.9% reported in the prior survey. This is almost twice the 5.8% reported by pharmacy benefit managers (who generally do not take any underwriting risk).
For plans that supplement Medicare, health insurers reported a projected increase of 6.4% excluding prescription drug coverage, up from 5.8% in the prior survey. This lower trend reflects the impact of federal controls on Medicare fees and the lower increases expected in Medicare deductibles and co-pays. For more information, visit .

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