According to a recent analysis by PricewaterhouseCooper’s (PwC), the employer medical cost trend has plateaued. Medical costs continue to grow and PwC’s Health Research Institute (HRI) projects a 6 percent medical cost trend in 2019, consistent with the 5.5-7 percent range of the previous years. As employers continue to struggle to contain their employee coverage costs, medical costs continue to grow.
So, what is currently driving these costs? We’ve done a deep dive into the current medical cost trend and have uncovered several key factors that will drive healthcare costs for 2019.
- Care anywhere and everywhere. Responding to increased consumer pressure, employers and health plans are improving convenience by giving consumers more ways to access care. While the long-term goal is to decrease spending, more access points can raise utilization in the short term.
- Physician consolidation and employment. More and more physicians are practicing as employees of hospitals and health systems. These organizations tend to charge higher prices than independent doctors.
- Flu impact. The 2017-18 flu season was one of the worst in years, increasing care utilization and driving up medical cost trend. The 2018-19 flu season likely will be closer to average, slightly dampening the disease’s effect on trend in 2019.
- Care advocacy. Employers and health plans are offering consumers new services that engage and guide the consumer to better quality and lower-cost care.
- High-performance networks. These limited-provider networks emphasize high-quality care and customer satisfaction alongside cost savings. Some employers are using their buying power to negotiate directly with providers to create this type of network.
The Usual Suspects
Several key factors repeatedly influence the medical cost trend, including demographics, social factors, lifestyle choices and general economic growth. They also include several healthcare specific drivers such as medical technology, innovation, government actions and drug spending growth. Here’s the breakdown…
- Medical technology and innovation: New health technologies can improve outcomes and patient satisfaction but tend to cost more than existing ones.
- Drug spending: Specialty drugs and gene therapies typically apply to a small segment of the population but at a high cost that can impact employer spending.
- Government regulation: In 2019, the industry may experience more uninsured and underinsured individuals, due to the elimination of the individual mandate penalty, efforts to expand the use of non-ACA compliant health plans, and state Medicaid work requirements.
- Payment models: Health plans have seen improved quality and cost outcomes from value-based payment arrangements and will continue to push for them.
- Demographics: As baby boomers age, their healthcare needs increase, yielding higher healthcare costs.
- Social factors and lifestyle: Unaddressed social factors of health such as economic stability and education can impact utilization patterns and care decisions, while poor wellness and prevention habits are drivers of poor health.
- General inflation: As a general rule, economy-wide input prices go up, so do healthcare prices.
So, now that we know what is driving costs, how can you offset them to provide cost savings? If you are reviewing health plan choices for the upcoming year, consider a so-called high-deductible health insurance plan (HDHP) with a health savings account (HSA).
Because of that high deductible, these plans cost less and can save you money by providing affordable coverage for major health and medical expenses for individuals who can afford some up-front medical costs. As a result, HDHPs are ideal for younger, healthier workers who have no significant pre-existing health conditions. They also come with the option to open and contribute to a health savings account, or HSA, which allows you to save pre-tax money and withdraw it tax-free when spent on qualified medical expenses.
The cost of a HDHP is relatively low because the insured must first satisfy a high deductible. The main appeal of such plans is that premiums can be 40 percent lower in a high-deductible HSA-qualified health insurance plan than those in a conventional co-pay plan.
However, until you meet the deductible threshold in these health plans, you’ll have to pay out-of-pocket costs for routine doctor’s office visits and trips to the emergency room for minor ailments. But some high-deductible plans cover preventive services and programs, such as prenatal care, cancer screenings and smoking cessation services. In these plans, the deductible applies only to services that are not considered preventive.
As an alternative to HSAs, some employers contribute to what’s known as a health reimbursement arrangement, or HRA, which employees can use to pay for healthcare expenses that are not reimbursed by the plan. Workers don’t contribute to HRAs, and unused funds are forfeited at the end of the year. Also, of note, if you change jobs, you no longer have access to the HRA.
One thing to keep in mind. Thanks to the 2010 health reform law, over-the-counter medications cannot be paid for with tax-free money taken out of any health care accounts, including an HSA or HRA.
Just remember that while high-deductible health plans are an affordable way to get coverage for large, unexpected medical costs, you’ll also need to have a plan to come up with the funds for the out-of-pocket costs (either from your HSA or from your own pocket) to satisfy the deductible before your insurance coverage kicks in.
For more information, contact one of Roper Insurance’s dedicated health benefits specialists at 303-721-1145.