Employer medical costs expected to increase in 2011

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Employers can expect medical costs to increase by 9 percent next year, a slight decrease from the 2010 growth rate, according to a report from PricewaterhouseCoopers.

For the first time, a majority of  American workers is expected to have a health insurance deducible of more than $00 as more employers raise out-of-pocket limits, replace co-pays with co-insurance and add high-deductible health plans.

“For more than 50 years, U.S. employers have used health benefits as a critical part of their compensation package to recruit and retain workers,” said Michael Thompson, principal in Pricewaterhouse’s human resource services. “The value of these benefits is becoming an even more visible part of overall compensation as medical costs grow, and by 2014, health insurance benefits will shift from being a voluntary benefit to an individual mandate. Companies are now working with their health plan providers for new post-recession, post-reform strategies to sustain their programs and promote health as their next competitive advantage.”

Other findings from the report:
– Wellness programs are gaining popularity, as two-thirds of companies intend to expand their wellness programs
– 42 percent intend to increase employee contributions for health insurance coverage
– 41 percent intend to increase medical cost-sharing, including higher deductibles and co-pays, while only 26 percent intend to increase prescription drug-cost sharing.
– More employers are dropping health benefits for retirees. One third of employers with more than 5,000 workers subsidize retiree medical coverage, down from 47 percent in 2009.
– Employers believe they can rein in costs by requiring workers to spend more money at the point of care. The number of employers using c0-insurance for doctors’ visits has nearly doubled.

Medical inflation will continue in hospital and physician costs, which make up 81 percent of premium costs. Hospitals are shifting costs from Medicare to private payers and employers – the number one reason for higher medical cost trends. Medicare will reduce payment rates to hospitals for the first time after seven years of increases. Some hospitals that benefited from higher payments might be able to manage this type of cut by tapping their reserves.

Provider consolidation is increasing – which also means an increase in bargaining power. Nearly 3,000 doctors were involved in mergers in 2009, nearly twice that of 2008, and record consolidation continues in 2010, according to the report.