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While the handwringing continues over anticipated healthcare premium increases for individuals who purchase insurance from Healthcare.gov and state healthcare exchanges in 2019, healthcare costs for employers under the Affordable Care Act (ACA) seem to be stabilizing.
The annual report by Price Waterhouse Cooper’s Health Research Institute indicates a medical costs trend increase of 6% for employers in 2019, similar to 2018.
The report notes that the annual medical costs trend has dropped significantly from 11.9% in 2007 to stabilize around 5.5% to 7% over the past five years. While medical cost trends continue to look stable going into 2019, the report says the trend remains unsustainably high as healthcare costs continue to rise. In an article by CBS MoneyWatch, Barbara Gniewek, a principal at PwC, said, “The economy, wages and the Consumer Price Index are not growing at the same rate as health-care costs, and that’s troubling. Health care accounts for 12 percent of wages, double what it was 30 years ago, and that’s without accounting for inflation.”
The medical cost trend is a projected percentage increase in the costs to treat patients. The medical costs trend directly correlates to premium rates because health insurance companies use them to determine what the same health plan this year will cost the next year. For its report, PwC estimated the projected increase in per capita costs of medical services and prescription medicine that affect commercial insurers’ large group plans and large, self-insured businesses.
The National Conference of State Legislatures, based on information from the Kaiser Family Health Foundation, says that annual premiums for employers reached $18,764 for 2017, up 3 percent from 2015 for an average family coverage with workers on average paying $5,714 towards the cost of their coverage. For those Americans buying insurance on an exchange or private market plan for 2017, the average health insurance premium increase before subsidies was 25%
The report cites several factors contributing to the stabilizing of healthcare costs, such as better data systems, growth in managed care organizations, an increase in the number of employers electing to self-insure, and the minimum medical loss ratio (MLR) under the ACA. The MLR is defined as, “the percent of premium an insurer spends on claims and expenses that improve healthcare quality.”
National health spending has grown from an average of under 6% of gross domestic product (GDP) in the 1960s to a projected average of nearly 18% for the decade ending in 2020. The Centers for Medicare and Medicaid Services (CMS) is projecting that national health spending will be 20 percent of the economy by 2026.
The report identifies two trends that have been driving this increase in healthcare costs:
- Healthcare prices have grown faster than other economy-wide prices, in large part because of ever-increasing, expensive new services and drugs.
- Healthcare utilization has been driven by new technologies and procedures, new prescription medicines, an aging population, and historically misaligned incentives that compensate providers based on volume.
The PwC report observes that employers and health plans likely will have to tackle healthcare prices to drive medical costs down further. The report states, “Addressing prices will require employers and insurers to collaborate with employees, providers, pharmaceutical companies, pharmacy benefit managers, community health resources, retail pharmacies and new entrants to the industry. It will mean sharpening focus on three areas: justifying the price of products or services by demonstrating their value, getting comfortable working with third parties advocating on patients’ behalf, and targeting investments that improve the customer experience.”
