Large Employer Health Costs May Rise 4.5% in 2018: Aon

 

Aon analyzed health benefits data from 450 of their largest clients (10 million people) to determine:

  • Large US employers experienced a 3.9% increase in health benefits costs this year (average $11,934)
  • In 2016, this average increased 3.1%
  • In 2018, this average increase is projected to be 4.5%
  • Employer costs rose 3.9% (average $9,371 per employee)
  • Employee’s share of premiums rose 4% (average $2,563)
  • Out of pocket costs rose 10% (average $2,332)

 

Popular cost-control strategies for this year include:

imposing special rules on users of expensive specialty drugs, sending participants with chronic health problems to providers in special networks, and requiring more patients to get care from "centers of excellence."

 

In contrast, PwC’s Health Research Institute examined data from PwC’s 2017 Health and Well-being Touchstone Survey, encompassing more than 780 employers from 37 industries and an HRI national consumer survey of 1,500 US adults. In Medical Cost Trend: Behind the Numbers 2018, the HRI anticipates a 6.5% growth rate for calendar year 2018, compared to a 6.0% increase for 2017.

  • Between 2011-2016, the average health premium for family coverage purchased through an employer rose 20%.
  • In the same period, wages increased 11%.
  • The net medical cost trend growth rate in 2018, after factoring benefit design changes such as higher co-pays and narrow provider networks, is expected to be 5.5%.
  • In 2018, hospital spending will likely account for half of all medical costs: 30% for inpatient, 19% for outpatient, 29% for physicians, and 18% for prescription drugs.

 

PwC pinpoints three factors affecting the “New Health Economy”:

  • Rising general inflation impacts healthcare
  • Movement to high-deductible health plans loses steam
  • Fewer branded drugs come off patent
  • Political and public scrutiny puts pressure on drug prices
  • Employers target right people with right treatments to minimize waste

 

The “usual suspects” in medical cost trend are as follows.

 

Economywide drivers

  • Income: Higher incomes are associated with relatively higher health spending.
  • Demographics: The workforce has been aging as Baby Boomers reach retirement. Across the full civilian labor force over the age of 16, aging will account for 0.4% of annual employer medical spending increases in the decade from 2012-2022.
  • Lifestyle: Obesity, smoking, substance abuse, poor nutrition, and physical inactivity intensify utilization of health services.

 

Healthcare-specific drivers

  • Technology and treatment innovation: The pharmaceutical, life sciences, and medical device industries are funding research and development budgets and launch new products every year, some with hefty price tags and potential to boost utilization.
  • Consolidation: Providers, payers, and pharmaceutical and life sciences companies have engaged in a surge of merger and acquisition activity in recent years.
  • Government regulation: From nurse staffing levels to use of health information technology, government regulation has long had an influence on healthcare costs.
  • Payment models: Historically, fee-for-service payment has helped to drive up medical cost trend, creating incentives to increase the volume of services delivered and favoring more expensive specialty care. But the shift to pay for value, instead of volume, is underway.

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