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Despite Recession, Medical Costs Will Grow in 2010

John Commins, for HealthLeaders Media, June 19, 2009

Despite the talk of healthcare reform and a deep recession that has brought layoffs, salary freezes, and wage cuts, medical costs in the United States are expected to grow by 9% in 2010. The increase continues a disturbing trend that has health insurance premiums growing four times faster than wages during the past five years, and the move to implement healthcare reform is not expected to affect costs until at least 2011, PriceWaterhouseCoopers Health Research Institute reports.

About the only solace that can be drawn from the report—Behind the Numbers Medical Cost Trends for 2010—is that the 9% cost growth in 2010 is at a pace slightly slower than in 2008 and 2009.

The report paints a grim picture of American workers, those lucky enough to have jobs, who are trapped between sharply rising healthcare costs and stagnant or shrinking salaries.

The recession is having a mixed effect on medical costs. On the one hand, the report notes that high-deductable health plans will see lower use in 2010 because the record number of workers now in those plans won’t have the money to pay for procedures, a trend that is expected to slow the rate of medical cost increases.

On the other hand, many workers still fortunate enough to have jobs, but who fear losing them, may be using more services while they still have health insurance. Health plan executives interviewed indicated they are not seeing a reduction in overall utilization.

The report also found that:

  • The recession and the prospect of health reform will help temper medical costs, impacting the pricing
  • As the recession pounded corporate profits in early 2009, employers surveyed say they were ready to push more of their health insurance costs to their workers in 2010 while expecting more responsibility from workers for managing their personal health
  • Although health reform will have a major impact on the industry, its effect on medical costs likely will not be felt until 2011 or later.
  • More than two-thirds of employers expect to expand wellness and disease management programs, although few are convinced that they are very effective at mitigating healthcare costs.
  • 42% of employers surveyed say they would increase employee contributions, up from 38% in 2008, and 41% say they expect to increase medical cost sharing through plan design changes.
  • Increased cost sharing could squeeze workers, many of whom took wage cuts in 2009 because of the recession. In the last five years, health insurance premiums have increased four times faster than wages, a trend that is expected to continue in 2009 and 2010. If employers follow through on plans for increased cost sharing, the affordability gap could grow even larger.
  • Although health reform will have a major impact on the industry, its effect on medical costs likely will not be felt until 2011 or later. However, the prospect of health reform may have a dampening effect on overall healthcare price increases as it did during the Clinton health reform years.

John Commins is a senior editor with HealthLeaders Media.

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