Medical Practice Mergers Key in Employer Healthcare Cost Hikes
By Emily P. Walker, Washington Correspondent, MedPage Today
Published: May 20, 2011
WASHINGTON -- Employers can expect to spend an additional 8.5% on employee healthcare costs in 2012, as patients who had been putting off medical treatment during the recession flock to the doctor's office, according to a new survey from the consulting firm PwC.
Last year, employers' costs for providing healthcare to employees rose 8%, and the year before, they grew by 7.5%. Both rates were much lower than predicted.
Most larger employers -- including two-thirds of those who responded to the PwC survey -- are "self-insured," meaning that they pay employee healthcare costs themselves rather than paying premiums to an insurance company.
Economists and actuaries realized that during the flagging economy, people were putting their healthcare needs on the back burner in order to save money. But as Americans move further out of the recession, they are expected to seek out the healthcare they've been putting off for the past two years. And that should contribute to an uptick in medical treatments in 2012.
The survey includes four main components in its definition of healthcare costs: physician services, inpatient hospital care, outpatient services, and prescription drugs.
The largest single component of these costs is physician services, which makes up one-third of the cost of healthcare benefits. Inpatient hospital care is a very close second (31%), followed by outpatient hospital services (17%) and prescription drugs (15%).
Three factors are contributing to the projected increase, according to PwC analysts:
Increased mergers: More and more hospitals and physicians are consolidating, which is seen as a way to increase efficiency and reduce costs. This can mean more treatment is delivered at a hospital-based outpatient clinic rather than a freestanding physician office.
Medicare rates paid to a hospital-based practice can be more than 50% higher than those paid to a freestanding practice, and private insurers often use Medicare as a guide for their own rates.
Cost-shifting: Both Medicare and Medicaid plans have been paying less and less; the report noted that the increase in Medicare inpatient hospital rates is expected to be 3.3 percentage points below the expected growth in their costs.
"Hospitals and health plan executives agree that when Medicare and Medicaid pay less than costs, private payers must make up the difference," the report said.
Increased stress: Post-recession stress will lead to poorer health once people start going to the doctor again. Several health plans interviewed by PwC said they are already seeing more claims for stress-induced illnesses.
As stress increases, people are less likely to maintain a healthy lifestyle, and more prone to stress-related ailments, including heart disease and cancer.
The PwC analysts said that if employers decrease the benefits they offer, and pass more costs on to workers, the increase companies face could be more along the lines of 7%.
"The big question is how much of the medical cost increase will be passed on to employees, as employers recognize the economic burden on their workers given that wages have been stagnant over the past few years," PwC said.
There are also a few factors that will drive down costs in 2012:
- The trend toward increased use of high-deductible plans will continue. In 2011, 17% of employers said plans in which their employees paid a high deductible were the most common plan, up seven percentage points from 2010.
- A historic number of blockbuster brand-name drugs will go off patent, including Lipitor, Seroquel, Actos, Zyprexa, and Levaquin, paving the way for the sale of cheaper generics.
Employers are increasing deductibles for seeing out-of-network providers and are becoming more selective about who's in-network.
The Affordable Care Act won't have much effect on employer costs next year because many of its main provisions don't go into effect until 2014 or later.
The survey was conducted by PwC's Health Research Institute and involved 1,700 employers across 30 industries; it also included interviews with hospital executives and insurance actuaries.