Employers should expect healthcare costs to increase by 9 percent in 2010

Healthcare costs for the nation's employers are expected to grow by another nine percent next year, according to a report by PricewaterhouseCoopers' Health Research Institute.

The nine percent projected cost increase is a slightly slower rate of growth than in previous years. Medical costs grew by 9.2 percent in 2009 and 9.9 percent in 2008. Despite the modest slowdown, medical cost increases continue to significantly outpace inflation and wage increases, according to the report.

The report identities the trend of American workers accelerating their use of healthcare in anticipation of losing their jobs and - potentially their health insurance coverage - as one of the drivers expected to increase medical costs in 2010. Other factors driving up medical costs include the rise of unemployment, which is resulting in an increase in the uninsured and underinsured population, a drop in membership in commercial health plans and a higher percentage of the population covered by Medicaids. These trends are offset by factors expected to drive down medical cost, including the longer-term promise of health reform and potential for high deductible health plans and wellness programs to restrain costs, the report says.

In the last five years, health insurance premiums have increased four times faster than wages, a trend that the report says is expected to continue in 2010. With their corporate profits pounded in 2009, employers told PwC that they will push more of the costs of health insurance to their workers in 2010 while expecting greater responsibility from workers for managing their personal health.

• Forty-two percent of employers surveyed by PricewaterhouseCoopers said they would increase employees' share of healthcare costs.
• Forty-one percent said they expect to increase medical cost sharing through plan design changes.
• More than two-thirds of employers are offering wellness and disease management programs; however, few said they are very effective at lowering costs.

"The recession is creating a tug of war between upward and downward pressures on medical costs," said Jack Rodgers, managing director in the health policy economics group of PwC LLP. "Healthcare organizations are finding their revenue falling and are trying to increase prices. However, with most prices holding steady or falling, health plans will put pressure on providers to hold the line on medical costs."

According to PwC certain trends are helping to deflate health spending, including:

• Ongoing decrease in the growth rate of drug spending. Health plans report they are seeing much smaller growth in drug spending with the increased use of generic drugs. In 2010, five more blockbuster drugs will go off patent, and the number of patent expirations will increase in 2011 and 2012. According to the Centers for Medicare and Medicaid Services, 67 percent of all drugs were generic in 2007.
• Increase in wellness and disease management programs. Employers are more focused on wellness and disease management programs, though participation among eligible employees remains low at around 40 percent for wellness programs and 15 percent for disease management programs, according to PwC. Employers are looking to health plans to provide greater education and incentives to increase participation.
• Increase in high deductible health plans. A growing number of American workers are now in high-deductible health plans, which are expected to lower utilization of health services, partly because greater awareness of medical costs could reduce demand for medical care but partly because cash-strapped workers lack the resources to pay for medical procedures. Twenty percent of employers surveyed said they would add a high deductible health plan as an option to their benefit plan design over the next two years.

"Higher medical costs are getting even greater scrutiny in this down economy, and employers are squeezing dollars out of their programs to save money," said Mike Thompson, principal, PwC global human resource solutions group. "As the economy recovers, employers will refocus on more sustainable longer term approaches to medical cost containment based on an increasingly shared interest between employers and their workers,"