Health Insurers Predict Double-Digit Cost Increases

Costs for the most popular types of health care coverage are projected to increase at double-digit rates through the remainder of 2007 and into 2008, according to a national survey of insurers and administrators. The survey released today by Buck Consultants, an ACS company and human resource and benefits consulting firm, analyzed responses from 79 health insurers, HMOs, and third-party administrators.

In its 18th National Health Care Trend Survey, Buck measured the projected average annual increase in employer-provided health care benefit costs. Insurers providing medical trends for the survey cover a total of approximately 91 million people. Costs for the most popular plans continue to increase by more than 10 percent, similar to trends reported in the firm's 17th survey, conducted in early 2007.

Health insurers reported an average prescription drug trend of 11.68 percent, up slightly from the 11.33 percent reported in the prior survey. This is considerably higher than the 4.52 percent reported by pharmacy benefit managers (who generally do not take any underwriting risk). However, insurers reported lower trends for plans that supplement Medicare--7.32 percent for plans with drug coverage and 6.82 percent for plans without. This reflects the impact of federal controls on Medicare fees and the lower increases expected in Medicare deductibles and co-pays.

"Insurers are concerned about the cost shifting to private employers that may result due to health care reform at the state level," said Harvey Sobel, FSA, a Buck principal and consulting actuary who directed the survey. "Complying with federal and state mental health parity laws is also expected to raise costs."

Health insurers use trend factors to calculate premium rates, and large self-funded employers use these trend factors to budget their future health care costs. In general, trend factors provide for price increases that may result from such variables as inflation, utilization of services, technology, changes in the mix of services, and mandated benefits.

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