Health Care Costs Are Rising Slower than Expected, Three Surveys Show

Published December 1, 2008

A number of consulting firms, including Mercer, Aon, and PricewaterhouseCoopers, are reporting a slowing of health care cost increases around the nation.

The firms report costs have increased between 6 and 11 percent over the past year. That’s less than last year’s projections.

For example, Aon predicted costs would rise at least 12 percent in the 12 months following June 2007, which in itself represented a continued slowdown from the 16 percent increase Aon reported in 2002.

According to PricewaterhouseCoopers (PWC), the rate of increase in health care costs nationwide has fallen every year since 2003.

PWC projects the trend will not continue into 2009 because of several factors, including growth in the number of private hospitals and outpatient facilities, continued shift of Medicare and Medicaid costs onto those who purchase private health insurance, and larger enrollment in taxpayer-funded health insurance programs.

Using Innovation

Mercer paints a slightly less-dire picture, pointing out employers are controlling costs through innovation. Thirty-eight percent of respondents to the firm’s 2008 survey said their company would improve health management programs to control costs, and 19 percent said they would add consumer-directed plans.

“Disease management was first designed only for very large, self-insured employers,” said Blaine Bos, worldwide partner and senior health and benefits consultant at Mercer. “But it has been expanded over the last decade to the point where most insurers add that to their fully insured products for everyone.”

Only 10 percent of companies in the Mercer survey said they would reduce coverage.

“There is some confusion over what it means when coverage is reduced. Often reducing covered services is not a cost-shift to consumers,” said Bos.

“A good example would be taking bariatric surgery and imposing rules on when and how someone can get it,” Bos continued. “Maybe in going forward a plan beneficiary would have to go through behavioral management for a time period before getting the surgery. This can be used to reduce waste and improve likely outcomes, making the surgery more likely to work.”

Lowering Premiums

The surveys also found more employees will have access to wellness, prevention, and disease management programs in the coming year.

Companies see these initiatives as a way of keeping employees healthy, present, and productive, according to the surveys, which businesses hope will translate into lower overall premiums.

James P. Gelfand ([email protected]) writes from Washington, DC.

For more information …

“Behind the Numbers: Medical Cost Trends for 2009,” PricewaterhouseCoopers, September 2008:

“Double-Digit Rise in Health Plan Costs Projected,” Aon (via Workforce Management), August 2008:

“Health benefit cost growth predicted to ease slightly in 2009 as employers shift cost,” Mercer LLC, September 2008: