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EMPLOYEE BENEFITS

Health Care Costs Expected to Moderate in 2006

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Oct. 5, 2005--Soaring costs for medical services are expected to moderate in 2006, though they will remain much higher than the growth in wages and salaries.

A recent survey conducted by The Segal Company, an actuarial firm, found that medical service providers such as health maintenance organizations and preferred plan providers expect to increase prices by only 12% on average in 2006, down considerably from the 20% levels reached between 2001 and 2003. Similar trends are expected for dental care services and the cost of prescription drugs.

Segal's health practice leader, Ed Kaplan, attributed the fall in prices to increased competition among service providers, as well as to a drop in the demand for discretionary medical care.

"We found that when employers shift the cost of health care to employees through higher co-payments and deductibles, people don't go to doctors as often," said Kaplan. "These out of pocket costs have reduced the demand for care, and put downward pressure on price increases."

Half of the survey respondents expect prescription drug costs to rise between 10% and 15%, the lowest rate of increase since 1998. The study attributes this trend to increasing use of over-the-counter medications, and the growing market for generic drug as patents expire.

But even though the trend in price increases for drugs and medical care are falling, they still greatly outpace the trends in wage increases. In June, the Bureau of Labor Statistics reported that wages are increasing at an annual pace of only 3.2%, which is almost a full percentage point below last year's growth rate and far slower than the rise in medical costs.

Consequently, Kaplan warned that workers will not be able to bear this growing cost of health care. "Employers can't just continue to just raise copays and deductibles because eventually employees won't perceive any benefit from employer sponsored health plans," he said.

Instead, Kaplan advises companies to manage costs by finding the best rates, and cracking down on abusive provider practices.

Companies like United Health Care examine employers' claim data, and benchmark costs to industry averages.

"We're beginning to make the system more transparent, and that will benefit both employers and their employees," said Kaplan.

Last updated: Oct 5, 2005




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