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Health care cost hikes are “eating into employer revenue” faster than inflation

Health care cost hikes are “eating into employer revenue” faster than inflation

  • International
  • While increases in health care costs are slowing, they continue to outpace inflation by a wide margin, according to our 32nd National Health Care Trend Survey from Xerox HR Services. Since the most recent recession, the annual increase in health care costs has eased from 11.6 percent in 2010 to 8 percent through the first half of 2016. During the same period, the United States Bureau of Labor Statistics stated inflation rate in the U.S. has been 1.4 percent. The rising expense of health care is causing employers to shift more costs to employees, resulting in consumers weighing price into their decisions of where and when to seek health care, with some even delaying treatment due to cost. “While it’s promising to see a slowing of increases, they are still eating into employer revenue and employee paychecks at four and five times the rate of inflation,” said Harvey Sobel, FSA, a principal and consulting actuary at Xerox HR Services and co-author of the survey.
  • Xerox

There are several reasons why medical cost trends are still higher than inflation, including:

  • Greater use of diagnostic tests and treatments
  • Limited reimbursement to providers from Medicare and Medicaid, with unreimbursed costs passed on to employers
  • Mandated coverage of certain benefits, such as expanded mental health benefits and prosthetic legislation
  • Increased administrative costs associated with new regulations
  • Up-front costs associated with new medical technology and treatments

Cost of Prescription Drugs

The pace of prescription drug costs is not lessening; with the rate of increase rising from 6.7 percent in 2010 to a current 8.8 percent.

Survey respondents cite three key reasons for rise: the continued impact of specialty drugs, where, as an example, treatment for multiple sclerosis can cost more than $50,000 a year; an increase in the number and use of pharmaceutical products that improve the quality of life and/or enhance lifestyles; and a dramatic increase in the number and expense of compounded pharmaceuticals.

“While specialty drugs continue to be a major component of prescription drug trend increases, there is a sizeable expense related to specialty medications billed under the medical benefit,” said Robert Ferraro, a principal in the national pharmacy practice of Xerox HR Services. “Plan sponsors have an opportunity to save money by making sure these non-oral medications are administered at the appropriate site of service.”

The survey also reported trend factors for dental and vision plans, with both showing lower and steady rates of cost increase.

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