Medical Spending Growth Expected to Decline

Lower spending on prescription drugs and increased cost-sharing with employees are expected to lower the growth rate of medical spending in 2008, a sign that premium increases may decline as well, according to data released Tuesday, June 19, by PricewaterhouseCoopers.

The driving force behind the drop is patients’ increased sensitivity to price. Employers have achieved this by sharing more of the cost of medical care with employees. They have also focused on managing the health of employees to prevent disease and encourage healthy lifestyles through health coaches and disease management.

“The causes for the current deceleration are complex,” according to the report’s authors, “but it’s clear that the movement into consumerism is real and is affecting medical costs.”

The use of electronic medical records is partially responsible for the slowing of medical cost increases.

Though a drop in medical cost growth does not necessarily mean a decline in premium growth, the past few years have seen just that.

This year, medical costs at health maintenance organizations, for example, are expected to increase 9.9 percent, compared with an increase of 11.8 percent last year. Consumer-directed plan costs increased 7.4 percent, compared with 10.7 percent a year earlier.

Premium growth rate, meanwhile, has dropped every year since 2003, when premiums rose 13.9 percent nationally. In 2006 and 2007, premiums increased 7.7 percent.

Medical cost trends for employers are a combination of factors: how much medical care costs; how much medical care patients seek; and how much of the cost employers shift to employers.

Jeremy Smerd