Employers can expect medical costs to increase by 9 percent in 2011, a decrease of 0.5 percent from the 2010 growth rate, according to the PricewaterhouseCoopers Health Research Institute.
The annual "Behind the Numbers" report shows that, for the first time, a majority of the American workforce is expected to have a health insurance deductible of $400 or more, as more employers return to "indemnity style" cost-sharing by raising out-of-pocket limits, replacing co-pays with co-insurance and adding high-deductible health plans.
"For more than 50 years, U.S. employers have used health benefits as a critical part of their compensation package to recruit and retain workers," said Michael Thompson, a principal with the Human Resource Services section at PricewaterhouseCoopers. "The value of these benefits is becoming an even more visible part of overall compensation as medical costs grow, and by 2014, health insurance benefits will shift from being a voluntary benefit to an individual mandate, enforced by new tax levies."
The report includes findings from PricewaterhouseCoopers' Health and Well-Being Touchstone Survey of more than 700 employers from 30 industries, as well as interviews with health plan actuaries and other executives whose companies provide health insurance for 47 million American workers and their families.
Improving wellness programs and increased cost-sharing top the list of changes that employers intend to make to their benefit plans next year.
"Companies are now working with their health plan providers for new post-recession, post-health reform strategies to sustain their programs and promote health and well-being as their next competitive advantage," said Thompson.
According to the report:
- Two-thirds of companies intend to expand or improve wellness programs.
- 42 percent intend to increase employee contributions for health insurance coverage.
- 41 percent intend to increase medical cost-sharing, including higher deductibles and co-pays, while 26 percent intend to increase prescription drug cost-sharing.
- One-third of employers with more than 5,000 workers subsidize pre-65 retiree medical coverage, down from 47 percent in 2009.
- 22 percent of employers with more than 5,000 employees subsidize post-65 retiree medical coverage, down from 37 percent in 2009.
The report outlines three primary deflators that will help employers hold down medical costs in 2011:
- Employers are moving toward pre-managed care benefit design by increasing deductibles and replacing co-pays with co-insurance.
- Drug costs are tempered by generics. Insurers are benefitting from the growing use of generic drugs.
- COBRA costs are expected to return to more normal levels in 2011.
The biggest inflators of the medical trend in 2011 will be in hospital and physician costs, which make up 81 percent of premium costs.
"Health reform delivers only a minor impact on the underlying medical cost trends in 2011 and introduces hundreds of changes in the healthcare system designed to reduce costs and improve efficiencies in the long term," said Kelly A. Barnes, a U.S. health industries leader at PricewaterhouseCoopers. "These changes could bring significant new cost savings opportunities for employers and payers as well as new choices and transparency for workers buying insurance."