The increase in the costs of medical services for employers, sometimes called medical cost trend, is forecast to be 8.5 percent in 2012. The projection is from a report by Pricewaterhouse Coopers titled, Behind the Numbers: Medical Cost Trends for 2012. But benefit plan design changes will keep employers’ actual health care cost increases at about 7 percent. Physician services account for 33 percent of all benefit costs, followed by inpatient hospital costs at 31 percent, while outpatient hospital costs and prescriptions account for 17 percent and 15 percent, respectively.

The report looks at the projected increase in costs of medical services assumed in setting premiums for health insurance plans. Insurance companies use medical cost trends to estimate what the same plan would cost in the next year. So a medical trend of 10 percent indicates that a plan that costs $10,000 per employee this year would cost $11,000 next year.

The report cites three factors: continued provider consolidation, payment reductions by Medicare and Medicaid that will increase cost shifting to private payers, and the effect of recession and post-recession stress on workers’ health. Workers will use medical services that were deferred during the depths of the recession.

The medical trend does not take into account changes in benefit design, such as changes in cost sharing. Typically, these changes reduce the trend by 1.5 to 2 percentage points. For example, plan changes reduced the trend an estimated 1.5 points — to 6 percent in 2010. Benefit changes in 2011 reduced the trend by only 0.5 point, to 7.5 percent, because of Affordable Care Act mandates.

These numbers are national estimates, and trends vary from market to market depending on the level of provider and health plan competition and on the regional economy. These numbers will also vary based on employer with regard to benefit plan design and the effect of specific health and productivity efforts.

Medical cost projected trend, 2010-2012

Source: Pricewaterhouse Coopers. Behind the Numbers: Medical Cost Trends for 2012

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