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Medical Costs Expected To Rise Next Year

June 14, 2010

According to a new PricewaterhouseCoopers report, companies that offer employee health insurance can expect another steep jump in medical costs next year, and more will ask workers to share a bigger chunk of the expense.

The consulting firm said in a report released today that most of the American workforce is expected to have health insurance deductibles of $400 or more.

Only 25 percent of the companies that participated in the annual survey two years ago said they asked employees to pay deductibles of $400 or more.  That number grew to 43 percent in 2010 and is expected to pass 50 percent next year.

Employees who are asked to pay more through things like higher deductibles help keep cost growth in check because they use less health care.

Michael Thompson, a principal with PricewaterhouseCoopers, said the health care reform law passed by Congress and then signed by President Obama in March has just started to unfold and will have little impact on costs next year.

“In general, it’s a continuation of a fairly high rate of medical inflation,” he told the Associated Press (AP).

PricewaterhouseCoopers found that medical costs are expected to rise 9 percent next year.  However, this does not mean workers will see their monthly premiums jump by the same amount.

Employers generally soften the impact of a cost increase by absorbing some of it, changing insurance plan designs or asking employees to pay higher deductibles or a larger coinsurance percentage.

A medical cost increase of over 9 percent was forecasted for 2009.  However, according to a separate study from the Kaiser Family Foundation, the average annual premium only rose 5 percent for family coverage that year and stayed flat for single coverage. 

The 9 percent medical cost increase expected for 2011 is actually slightly smaller than the 9.5 percent jump PricewaterhouseCoopers is seeing this year.  Thompson said several top-selling drugs will lose patent protection next year and become exposed to lower-cost generic competition.

The report also found a drop in the percentage of employers that subsidize retiree health converge.  It said that only 22 percent of employers with over 5,000 workers subsidized retiree coverage after the age of 65.  That figure was down 37 percent in 2009.

“It’s a major cost and one that employers have for years now been moving away from,” Thompson said.

PricewaterhouseCoopers compiled its report by analyzing email survey results from 674 companies in 30 different industries throughout the country.  Most of the participating companies had at least 1,000 employees.  The firm also interviewed health plan executives and reviewed analyst reports.

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