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Employer Healthcare Costs Expected to Jump 8.5% in 2012

John Commins, for HealthLeaders Media, May 19, 2011

Employers will see healthcare costs increase by 8.5% in 2012, up slightly from 2010, as the economy continues to rebound, according to the annual Behind the Numbers report on medical cost trends from the PwC Health Research Institute.

That financial hit could be "contained" to about 7%, however, with increased cost-shifting to employees, PwC Principal Michael Thompson told HealthLeaders Media.

"There are three levers that employers are looking at. One is certainly cost-sharing. It has been demonstrated that cost sharing does influence how people use services," Thompson says. "On the negative side, part of the reason they mandated that cost sharing be eliminated for preventative services was so that people would use preventative services.

"Secondly is education on how to use the system more effectively. Thirdly, there has been a dramatic and continued focus from employers on making employees much more conscious and accountable for their own health behaviors," he says.

Containing healthcare cost growth to 7% will likely puts it on a track that is more than double that of overall inflation as measured by the Consumer Price Index, which grew at 3.2% between April 2010 and April 2011.

Healthcare inflation has been slowed over the last two years by the weak economy, Thompson says, but as the economy recovers, costs are increasing too. "To some degree we have found that healthcare costs actually grow as a percentage of the economy during down cycles," Thompson says. "Interestingly though, this year we found more of a reaction than we typically find. That has been reflected in somewhat decreased levels of utilizations, more than we have seen in past recessions. We attribute some of that to the fact that there has been much more cost sharing in the plans than we've had in years. As a result, employees have experienced more of the cost of services during the downturn and consequently have used fewer services during the last year or so."

Based on interviews with health plans, PwC had projected a 9% increase in employer medical costs for recession-wracked 2010 and 2011. However, low utilization led to adjusted estimates in the medical cost trend to 7.5% for 2010 and 8% for 2011 before benefit plan changes.

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