Here’s Why You’ll Likely Pay More for Your Employer-Sponsored Health Insurance
Health care costs are expected to grow 6.5% through next year. While costs have finally reached a point of equilibrium after years of double-digit growth, they are still expanding far faster than overall inflation, leaving employers and insurers trying to figure out how to stomach the new increases. The answer may not please many consumers.
The medical cost trend for 2017 is projected to remain the same year-over-year, according to a new study from PwC’s Health Research Institute. Flat growth may feel like a win to some, but it’s still outpacing general price inflation. The consumer price index (CPI) has been trending at 1% over the past 12 months and isn’t expected to pick-up pace anytime soon. Meaning that employers and insurers are trying to figure out ways to adjust health insurance plans to keep cost gains lower than the expected 6.5% growth.
“The good news is that health care cost trends are staying at a more moderate level. They’re not the double digit trend that we had years ago,” says Barbara Gniewek, a principal in PwC’s Global Human Resource Services group. “The bad news is health care does cost employers a lot of money and the idea that they are just going to absorb a 6.5% increase when CPI is at a much lower rate is unlikely, so they will continue to cost shift.”
Insurers and employers can keep medical cost growth more manageable through various tactics, which often includes some form of cost sharing with plan holders. While costs are expected to go up by 6.5% next year, employers anticipate that they will only have to swallow a nearly 4% cost gain thanks to some realignments, says Gniewek. This can include moves like higher deductibles, switching to high-performing providers, narrower drug options, or higher co-pays.
That means that more and more of rising health care costs are going to be shouldered by everyday workers. Another PwC report finds that more employers are switching to high deductible health plans (HDHPs). A quarter of surveyed employers already offer only high-deductible health plans, while another 39% are considering making the move to HDHP-only strategy in the next three years.
Thirty-six percent of employers are even considering a defined contribution strategy where they would provide a set sum of money to each employee to pay for health care, and if a health care plan exceeds that sum, the employee is on the hook for the remainder of the cost. It’s similar to how employers changed retirement plans, moving away from pensions to contributing to an employee’s 401k. Already about 12% of employers have adopted such a strategy, according to the PwC survey.
“We know health care isn’t one size fits all. We have different generations, people from different backgrounds,” says Gniewek. “With defined contribution, employers are saying, ‘Here’s some money, you pick what’s best for you you. If it’s not enough, you pay the difference.'”
So, what’s exactly driving these increases?
There’s two primary factors that affect health care costs: how much is being consumed and the price for services and drugs. As it turns out, prices aren’t what’s primarily adding to the rising trend. It comes down to more people consuming more care.
“Utilization is up, but price is coming down on the back end,” says Gniewek.
Retail clinics and urgent care stores have increased access for many people at a relatively low unit cost, which has ultimately led to greater use by patients and more spending. At the same time, mental health care has become more prevalent and is expected to increase as the issue captures attention in Washington D.C. and among employers.
On the other hand, prices for medical care have been under control recently. Insurers and self-insured employers have prioritized high-performing networks on their plans so that members are getting more bang for their buck when it comes to care. Also, pharmacy benefit managers, like Express Scripts (ESRX) and CVS Health (CVS), have been using new and more aggressive strategies to keep drug prices under control. Plus, specialty drug spending, which far outpaces traditional drug spending, is expected to slow next year.