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Is Healthcare Spending Beginning to Stabilize?

Despite continuing to grow at double-digit levels in 2012, two reports predict the rate of healthcare spending by employers will begin to stabilize or slow next year. But at least one expert warns: Don't be fooled by the headlines.

Monday, July 16, 2012
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While healthcare spending for employers should grow at a "historically low" rate in 2013, it "continues to escalate at double-digit levels" around the globe in 2012.

 

At least that's according to dueling reports released by PricewaterhouseCoopers and Towers Watson, respectively.

In the annual Behind the Numbers report on medical-cost trend, published by the New York-based Health Research Institute of PwC US, researchers predict healthcare spending in the United States will grow at a "historically low" rate of 7.5 percent in 2013.

The HRI anticipates a continuing pattern of slower medical growth, which it says is a reflection of the sluggish economy, increased focus on cost containment by the industry, 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, the report says, and recalibration of previous estimates shows a low range of 7 percent to 7.5 percent from 2010 through 2013.

The report names four factors that should "deflate" the medical-cost trend in 2013: Market pressure to reduce medical supply and equipment costs; increased popularity of new methods to deliver primary care; increased availability of comparative cost information; and accelerated savings from the pharmaceutical-patent cliff.

"Slower growth in healthcare costs could be the 'new normal,'" says Michael Thompson, a principal of human resource services at PwC.

"We're seeing long-term trends that could keep cost increases in check," he says. "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."

But, according to another report, The 2012 Towers Watson Global Medical Trends Survey released by the New York-based consultancy, the cost of providing employee medical benefits "continues to escalate at double-digit levels around the globe" in 2012, although it does caution that some regions are seeing cost increases beginning to stabilize.

 

The survey is based on responses from 237 leading medical insurers in 48 countries and finds that the global cost of employee medical benefits is expected to increase by 9.6 percent in 2012, which is lower than the 9.8 percent experienced in 2011 and 10.2 percent in 2009.

The three most-cited factors cited as cost drivers in the Towers Watson report are new medical technology causing overuse of care (52 percent of respondents), practitioners recommending too many services (50 percent) and providers' profit motives (31 percent).

Fortunately, the news is not all gloom and doom, says Francis Coleman, director of international consulting at Towers Watson.

"Across all regions," he says, "we are seeing projections increase at a slower rate than in the recent past -- perhaps evidence of the global economic slowdown.

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"Nevertheless, with trend rates expected to continue rising -- even if less quickly -- employers will be compelled to look for innovative solutions to manage their medical costs. In particular, many will investigate how a strategy of holistic health promotion can help curb long-term costs effectively."

Helen Darling, president of the Washington-based National Business Group on Health, says she's not surprised by the results of the PwC report, but adds: "I am only surprised that anyone would call a rate of growth of more than 7 percent 'low,' especially when the economy and workers' wages are virtually flat and everybody is struggling."

Her recommendation to HR leaders is a simple one: Don't be fooled by the headlines.

"HR leaders need to keep the pressure on to control healthcare-cost increases, increase consumerism and individual accountability, use all of the tools and resources available to empower consumers to be wiser purchasers and support them to choose healthier lifestyles, which will in turn reduce the need for healthcare.

"They should also back physicians who are working to reduce overuse and harm (including death) of medical procedures and tests that add no clinical value to patients," she says, "but cost billions of dollars."

Paul Ashley, an advisor at FirstPerson, an employee-benefits consulting firm in Indianapolis, says HR leaders should take this opportunity to "take a step back from the tactics and hustle and bustle" of their annual plan renewals and ensure they have a strategic plan in place.

Employers, he says, would be well served by crafting clear objectives in the areas of financial outcomes, benefit design, employee wellness and engagement, and administrative efficiency.

"Simply waiting for your next year's renewal isn't an option anymore," he says.

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