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Employer Healthcare Costs Expected to Jump 8.5% in 2012

John Commins, for HealthLeaders Media, May 19, 2011

The end of subsidized COBRA coverage in 2010 is offsetting otherwise rebounding utilization growth rates so far in 2011, but employers and health plans expect pent-up demand to put upward pressure on the medical cost trend to continue into 2012, the PwC report said.

"Employers in particular continue to be very concerned about healthcare costs that are growing at substantially higher than the economy or their businesses or their wages," Thompson told HealthLeaders Media. "As a result they are continuing to focus efforts to dampen the increases that they are seeing."

The PwC report includes survey data from 1,700 employers in 32 industries, and interviews with hospital executives, health plan actuaries, and other healthcare sector executives. The medical cost trend is the projected increase in the cost of medical services assumed in setting premiums for health insurance plans.

PwC identified three factors that will inflate the medical cost trend in 2012:

1.    Consolidation among hospitals and physicians. This trend is expected to accelerate as health reform incentivizes hospitals and physicians to align and form Accountable Care Organizations. Health plans are concerned that consolidation will reduce competition among providers and drive up payment rates.

2.    Increasing cost shifting from Medicare and Medicaid. In 2012, 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 plans agree that much of the difference shifts to private payers.

3.    Post-recession stress on workers. Money, work, and the economy -- found by the American Psychological Association to be the top three causes of stress among the American workforce between 2007 and 2010 -- are taking a toll. Health plans and employers interviewed by PwC say they are beginning to see more claims for stress-induced illnesses, which are highly correlated to unhealthy behavior and adverse health conditions such as heart disease.

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