Rate of Increase Expected to Fall for Health Plan Costs

Survey shows health insurance companies expect plan costs to rise less quickly this year than last year.

Segal Consulting has released the results of a survey of health insurance companies. Conducted last year, the survey was designed to gauge insurers' expectations for health plan costs in 2014. It found that they're anticipating a reduction in the rate of increase for costs across all types of medical insurance plans.

The survey report provides a series of trend projections, which it derived by proportionally blending medical trends and prescription drug trends. (See Figure 1, below.) For health maintenance organizations (HMOs), non-Rx costs are expected to increase by 7.2 percent in 2014, vs. 8.2 percent in 2013. Fee-for-service (FFS)/indemnity plans are expected to increase more, but still less than last year: 10.4 percent without Rx, vs. 10.8 percent in 2013.

Price inflation in hospital services and brand-name medications are two of the major drivers of the rising health plan costs, although increases in both areas are expected to be lower than last year. Survey respondents expect prescription drug prices to rise by 6.8 percent this year, vs. 8.4 percent in 2013, and expect hospital prices to rise by 6.3 percent, vs. 6.4 percent last year. Prices for physician services are expected to grow by only 3.7 percent this year, vs. 3.9 percent last year. Survey respondents don't expect large changes in utilization rates in any category of medical service.

Segal cites several drivers of these various cost trends. Many of today's plans include higher out-of-pocket costs for participants. Provider reimbursement arrangements are starting to shift away from the fee-for-service model toward approaches that reward service providers for efficiency. The Hospital Readmissions Reduction Program is helping reduce overall hospital spending. And health insurers are increasing the transparency of plan costs.

Nevertheless, the report adds: "While this decline in the trend rate is positive news, it is important to note that medical health plan cost trends still outpace the consumer price index for all urban consumers (CPI-U) by a margin of at least three-to-one, which continues to serve as a drag on real wage growth."

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