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Low Healthcare Growth Expected

June 5, 2012

Healthcare spending in the U.S. is expected to grow at a historically low rate of 7.5 percent next year, according to the annual Behind the Numbers report on medical cost trend, published by the Health Research Institute (HRI) of PwC US.

The projection continues a pattern of slower medical growth, which reflects the sluggish economy, increased focus on cost containment, lower use of services by cost-conscious patients and efforts by employers to hold down expenses.

Medical inflation has been lower than expected for the past three years, and recalibration of previous estimates shows a low range of 7 percent to 7.5 percent from 2010 through 2013. Healthcare spending historically bounces back as the economy improves. But, the HRI report identifies structural changes that may temper that pattern. A fourth year of relatively low growth suggests that the gap between healthcare spending and overall inflation may be narrowing to a more sustainable level.

Medical cost trend helps insurers and large employers set premium rates for the following year.

For U.S. employers, the net impact of next year’s increase could be as low as 5.5 percent, after accounting for changes in benefit design by purchasers, HRI estimates.

Employers are focused on two strategies to control medical costs in 2013: increasing the employee share of costs and expanding health and wellness programs, according to the PwC 2012 Health and Well-Being Touchstone Survey of 1,400 employers in 34 industries.

The survey also found that health plan design features with the most significant changes in 2012 were a considerable increase in in-network deductibles, emergency room co-payments and prescription drug co-payments. Highlights include:

Nearly six in 10 employers (57 percent) are considering increasing employee contributions to health plans.

Half of employers are considering increasing cost-sharing through plan design, such as higher deductibles. The average emergency room co-pay, for example, is now $125 or more.

More than half of employers are considering raising employee prescription drug plan costs.

Average enrollment in high deductible plans coupled with a Health Reimbursement Account has increased to 43.2 percent in 2012 from 34.2 percent in 2010.

Nearly three quarters of employers (72 percent) offer wellness programs, and half of those say they are considering expanding those programs next year.

“Slower growth in healthcare costs could be the ‘new normal,’” Michael Thompson, principal, human resource services, PwC, noted. “We’re seeing long-term trends that could keep cost increases in check. As employers shift expenses to their employees, for example, these workers are pursuing lower-cost alternatives. Even as the economy strengthens, changes in behavior by employers and consumers may help limit medical growth.”

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