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Health Care Cost Trends Improve, But Hold Off On The Victory Lap


Recent trends in health care costs offer a glimmer of hope that employers and employees may find some relief from high benefits expenses soon. But hold off on that victory lap: It’s also clear that employers can’t ease up on their ongoing efforts to keep rising prices in check through innovative, well-maintained plan designs.

Report results

Here’s the encouraging news. The recent Health Sector Trend Report, produced by Altarum’s Center for Value in Health Care, found that last year:

  • Health care price growth (including services and pharmaceuticals) averaged 1.5%,
  • When adjusted for anticipated rebates from drug companies, the average price of drugs didn’t change last year, bringing the average total increase in health care prices to 1.2%,
  • Total spending on health care (including drugs) increased by 4.6%,
  • Total spending on health care services (excluding pharmaceuticals) grew by 4.5%,
  • Total spending on pharmaceuticals grew by 5% before rebate adjustments, but this figure is estimated to net at 1.3% after rebate adjustments, and
  • Total spending growth with projected adjustments to net drug spending was 4.2%.

Those numbers reflect prices and spending involving both the public (primarily Medicare and Medicaid) and the private sector. As noted, the impact of rebates from pharmaceutical companies in reducing the nominal prices of their products is substantial. But a closer look at the numbers indicates that private sector payers didn’t fare as well as Medicaid and Medicare in that regard. Specifically, the average private sector rebate was 12%, vs. 51% for Medicaid and 22% for Medicare. This disparity may partly reflect artificially inflated pre-rebate pricing, however.

ACA’s role

In recent years, a significant contributor to aggregate increases in health care spending has been expanded insurance coverage incentivized by the Affordable Care Act (ACA), according to the Altarum report. But since 2016, a slowdown in health care spending growth is attributed to the leveling off of ACA-mandated coverage. Further, the elimination of the individual mandate — effective in 2019 — is expected to further reduce overall spending.

“Everyone would like to see a decline in health spending growth, but few would like to see this accomplished through a reduction in coverage,” said Katherine Hempstead, Ph.D., a health coverage expert at the Robert Wood Johnson Foundation, the organization that funded the Altarum Study.

“It is far from clear,” Hempstead said further, “that decreasing coverage would lower spending growth” in the long run. That’s because medical care provided to the uninsured who cannot afford to pay for it is ultimately paid by everyone else who does pay for care, including employers.

Steered patients

Recently, however, efforts by employers and other health care purchasers to steer patients away from the most expensive care settings (eg., hospitals) to more economical outpatient venues appear to be bearing fruit. The Altarum study found that, since 2014, the growth rate in hospital spending has declined relative to physician offices and clinics.

This finding is in sync with the most recent employer polling data from the National Business Group on Health (NBGH). “While employers continue to address costs through health care management and plan design efforts, they are also ramping up efforts to positively affect the supply side of the health care system by pursuing health care payment and delivery reform initiatives,” NBGH CEO Brian Marcotte stated upon releasing the organization’s poll results.

Large employer strategies

Following are some highlights of the most recent NBGH Large Employers’ Health Care Strategy and Plan Design Survey, reflecting changes they’d planned to execute this year:

  • Nearly all (96%) will make telehealth services available where permitted by local law, and most (56%) plan to offer telehealth for behavioral health services in addition to medical.
  • 21% of employers plan to promote accountable care organizations (ACOs) this year. This number could double by 2020, as employers are more hopeful about ACOs’ capacity to improve health care quality than about ACOs’ short-term cost savings potential.
  • Most employers (54%) will offer onsite or “near site” health centers this year. This proportion could grow to nearly 67% by 2020.
  • Almost nine in 10 employers (88%) expect to use “centers of excellence” (COE) in 2018 for transplants, orthopedic surgery and other suitable procedures.
  • “Bundled payments” and other alternative payment models will be used by 21% to 48% of COE contracts, depending on the medical procedure or condition.
  • Nearly 40% of polled NBGH members have embraced the value-based health benefit design concept. This involves reducing employee premiums and/or cost sharing formulas when employees act to manage chronic conditions or get higher quality or more efficient care.

The fact that survey respondents represented large employers is apparent in the results. Some of the strategies, such as opening an onsite health clinic, aren’t practical options for smaller employers. Nevertheless, the results reflect the thought processes of full-time health benefit strategists employed by companies that invest a substantial proportion of their revenue in health care benefits.

The survey also reflected the overwhelming popularity of consumer directed health plans (CDHPs) among large employers: 90% of them predicted that this year they would offer one, and 40% said it would be the only kind of plan they intend to offer. The most typical kind of CDHP is a high-deductible plan with an accompanying Health Savings Account.

Vital component

Health care benefits remain a vital component of employee compensation. So, even if expenses moderate, you’ll still need to choose and maintain an optimal plan design for your organization. In fact, doing so becomes even more important so you can take full advantage of the slower rise in costs.


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