[October 05, 2010]

2011 Segal Health Plan Cost Trend Survey Released

Medical and prescription drug cost trend rates for 2011 are expected to remain relatively unchanged from 2010 levels. However, these projected health plan cost increases represent a substantial increase over core inflation, according to the 2011 Segal Health Plan Cost Trend Survey, The Segal Company's 14th annual survey of health plan cost trends.

Edward A. Kaplan, SVP and Segal's National Health Practice Leader noted, "After several years of declining trends, it appears that 2008 was the bottom of a downward pattern, with cost trend rates returning to an upward direction in 2009." He added, "A new, potentially short-term driver of health plan cost trend is the cost of compliance with the Affordable Care Act. More than three-quarters of those we surveyed said that the Act's impact would result in an increase in overall health plan trend of more than 1 percent."

Key findings of the 2011 Segal Health Plan Trend Survey include:

• Compared to 2010, trend rates for indemnity plans and high-deductible health plans (HDHPs) are expected to decrease in 2011.
• Trend rates for preferred provider organizations and point of service plans are slightly higher than in 2010.
• All 2011 medical plans types are projected to experience cost trends that are more than eight times higher than the consumer price index for all urban consumers.
• Prescription drug trend projections have remained below 10% for the last three years.
• Price inflationfor inpatient hospital stays is the largest component of overall plan cost trend.

• Using designs that generate wider use of generic drugs, eliminate waste and take advantage of step therapy programs that drive lower net Rx costs.
• Focusing on aggressive network hospital negotiations to keep cost payment increases reasonable.
• Implementing smarter design rules, which reduce ER visits and overuse of CT and MRI scans as well as better use of low-intensity provider services (such as visits to other qualified primary care providers such as nurse practitioners).
• Investing in controlled preventive, wellness and on-site clinic delivery systems that move away from fee-for-service contracts.
• Mining medical data to determine where the key cost drivers are and creating meaningful incentives and support services so that members engage in healthy behaviors and improve their health status.

Comparing past health plan cost projections to actual increases indicates that insurers and PBMs tend to make conservative projections. Their forecasts have generally been higher than the actual experience, but forecasters are becoming more accurate in their projections.

Trend is the projected year-over-year change in health plans' per-capita claims costs as determined by insurance carriers, managed care organizations, pharmacy benefit managers and third-party administrators. These are the basic costs underlying health care inflation that are captured by The Segal Company in its annual survey.

Complete survey results are here: http://www.segalco.com/publications/surveysandstudies/2011trendsurvey.pdf

An on-line supplement showing selected annual and projected trend data from the last 10 surveys and a second graph of selected medical trends for actives and retirees under age 65 is here: http://www.segalco.com/publications/surveysandstudies/2011trendsurveysupplement.pdf

The Segal Company (www.segalco.com) has been a leading, independent firm of benefit, compensation and human resources consultants since its founding in 1939. Segal is headquartered in New York and has more than 900 employees throughout the U.S. and in Canada. Clients include corporations, non-profit organizations, professional service firms, state and local governments and joint boards of trustees administering pension and health and welfare plans under the Taft-Hartley Act.

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