WASHINGTON, June 17, 2008 (PRIME NEWSWIRE) -- Although medical costs have increased steadily for decades, the rate of growth has been slowing in each of the past five years. No more, however: In 2009, the downward trend is expected to level off, according to a new PricewaterhouseCoopers Health Research Institute (HRI) report, "Behind the Numbers: Medical Cost Trends for 2009," which is based on HRI analyses and a survey of more than 500 employers and provider-based health plans. Actual Medical costs are expected to grow 9.6 percent in 2009, compared with a 9.9 percent rate in 2008 and double-digit annual increases in prior years.
"While the continued slowing of medical cost growth is welcome, the fact that the rate of growth may no longer be declining as sharply is worrisome and could have implications for employers and workers," said David Chin, M.D., leader of the Health Research Institute. "With medical cost growth already exceeding the overall inflation rate and inflation heating up in so many other sectors, healthcare providers, insurers and employers will have to monitor medical costs carefully if we are to avoid a resurgence of the double-digit annual increases seen in the past."
According to the report, multiple factors are expected to help drive medical cost increases in 2009:
* The healthcare industry is in an era of booming construction to replace facilities and adjust to consumer demands, such as a preference for private hospital rooms and a move to outpatient venues. * Cost-shifting from the uninsured, Medicare and Medicaid to private payers continues to increase and will account for nearly one in every four dollars spent by private payers in 2009. This trend is expected to continue because the federal government is underfunding public medical insurance programs while the number of uninsured is increasing.
Medical cost trends reflect the projected increase in the costs of medical services. They are the "numbers behind the numbers" and are used by health insurers to estimate what it will cost to provide coverage in the coming year and to set premiums. Insurers and employers use the trend projections to design the benefit packages that will be offered to workers next fall.
While medical cost trends are not necessarily a perfect predictor of increases in premiums, because employers make changes to plan benefits and add cost-sharing features rather than increase premiums, medical costs and premiums tend to move in the same direction.
Much of the progress on cost management in recent years has come from strategies to reduce medical costs for workers with private insurance. The strategies have included greater cost-sharing by workers, improved medical management and substitution of lower-priced treatments. Among the factors that will help to restrain the rate of cost growth in 2009 are the continued use of generic drugs, which currently account for two-thirds of all prescriptions (although fewer drug patents will expire in 2009 than in the past two years). In addition, improved medical management of high-cost patients, such as programs that improve adherence to medication regimens, is reducing hospitalizations and controlling costs.
"In the past, employers have tried to restrain increases in the insurance premiums their workers pay by changing their health plans or by increasing co-payments or deductibles. This has helped to keep insurance premium increases lower than the growth in medical costs," said Michael Thompson, global human resource services principal at PricewaterhouseCoopers. "However, employers' use of this strategy may be declining. About one-third of the employers we surveyed said they expected to increase cost-sharing in their medical plans in 2009. Increasingly, employers are adopting plan designs that help workers 'earn' discounts or bonuses for behavior that keeps them healthy, productive and engaged."
According to the report, employers are responding in a variety of ways:
* Wellness programs and initiatives to personalize the experiences of health plan members are on the rise. Health plans, which are competing for a slowly eroding number of employer-based members, are increasingly focused on personalizing member experiences to attract and retain large corporate accounts. * Employers will rely on prevention and disease management programs to temper costs in 2009 rather shifting higher levels of cost- sharing onto workers. * The number of privately insured continues to slowly decrease, which increases cost shifting, makes it more difficult to control costs and increases competition among health plans as they try to keep cost growth in check without sacrificing member satisfaction.
According to the report, certain other factors could affect these cost projections. For example, a recession in 2009 could result in higher costs, since medical price growth historically has risen faster during recessions. The outcome of this year's elections also could have an impact: If a Democratic president takes office in 2009 and puts in place initiatives to expand coverage of the uninsured, cost-shifting could be reduced, which may benefit employers and workers, but also may increase taxes.
This is the third consecutive year that PricewaterhouseCoopers has provided an estimate of year-ahead medical costs trends. The complete report may be accessed at www.pwc.com/hri/employerhealthcosts.
Methodology
In preparing "Behind the Numbers: Medical Cost Trends for 2009," PricewaterhouseCoopers Health Research Institute (HRI) reviewed historical and prospective medical cost trends and the influences behind them through interviews, surveys and published reports. In addition to reviewing analyst reports and documents for publicly traded health plans, HRI conducted a survey of more than 500 employers and provider-based health plans. The number of individuals covered by the employers and health plans surveyed totaled more than 11 million.
About the PricewaterhouseCoopers Health Research Institute
PricewaterhouseCoopers' Health Research Institute (http://www.pwc.com/hri) is an unparalleled resource for health industry expertise. By providing cutting-edge intelligence, perspective and analysis on issues impacting the health industry, HRI assists executive decision-makers and stakeholders worldwide in navigating their most pressing business challenges. PricewaterhouseCoopers is one of the only firms with a dedicated global healthcare research unit, capitalizing on fact-based research and collaborative exchange among our network of professionals with day-to-day experience in the health industries.
About PricewaterhouseCoopers' Health Industries Group
PricewaterhouseCoopers' Health Industries serves as a catalyst for change and the leading advisor to organizations across the health continuum, including payers, providers, health sciences, biotech/medical devices, pharmaceutical and employer practices in the public, private and academic sectors. With a distinctive approach that is collaborative, multi-disciplinary and multi-industry, PricewaterhouseCoopers draws from its broad perspective and capabilities across and beyond the health industries to help solve the array of emerging complex problems health organizations face, lead cultural and clinical transformation, and create a new sustainable model for care delivery that is quality-driven, patient-centered and technology-enabled.
PricewaterhouseCoopers' Health Industries' clients include both 40 of the top 100 hospitals in the U.S. and 16 of the 18 best hospitals as ranked by US News & World Report; all 20 of the world's major pharmaceutical companies; all of the top 20 commercial payers in the U.S.; municipal, state and federal government agencies and many of the world's preeminent medical foundations and associations.
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