Health Care Costs To Grow 9% In 2010 | Massachusetts increase may be higher
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Chris Powers, senior vice president of Worcester-based Benefit Development Group.
For small business owners, there isn’t much good news when it comes to health care costs.
In fact, a recent study from PricewaterhouseCoopers predicts that health care costs will rise about 9 percent in 2010. There’s some solace in the fact that the increase is a slightly slower rate of growth than previous years.
In the Northeast, and Massachusetts in particular, that projection might be slightly low, according to Chris Powers, senior vice president of Worcester-based Benefit Development Group.
“Because of higher costs, higher concentration of teaching hospitals and a higher level of benefits, the trends here are more in the 10 to 12 percent range,” Powers said.
The PWC report points out that costs are going up despite a dramatic downturn in the economy. But it turns out that the recession might be accelerating the problem. The PWC report supposes that Americans are actually increasing their utilization of health care in anticipation that they may lose their jobs. In other words, if you have a job, now may be the time to get that elective surgery.
Age Related
Powers also points to another recession-related trend: demographic shift. Health care premiums are often set by a number of factors, including the average age within the workforce. When layoffs happen, it’s often younger employees that are shown the door, producing an older demographic, and a more expensive one.
Also of concern is the ever widening gap between wages and health insurance premiums. In the last five years, according to PWC, premiums have increased four times faster than wages. And in 2010 that trend is expected to continue.
From the perspective of Fallon Com-munity Health Plan, the nonprofit HMO based in Worcester, a major driver of cost within the last six months has been pharmacy benefits, according to CFO Charley Goheen.
For example, Goheen said there’s one drug on the market which last year cost $1,600 per dose. Today it costs an astounding $23,000.
And while there’s savings to be found in generic drug usage, Powers said Massachusetts already has a high rate of utilization of generics. And, he pointed out, just one or two people that need a specialty medication that costs thousands of dollars can drive up costs exponentially.
The good news in the market for drugs is that five more so-called blockbuster drugs (drugs with sales of more than $1 billion) will go off patent next year, and the number of patent expirations will increase in 2011 and 2012, according to PWC.
Another factor driving costs, according to Goheen, is a shifting of costs. As Medicare/Medicaid pull back reimbursements to local hospitals, that forces hospitals to make up the revenue in other places, in some cases by what they charge to carriers like HMOs.
The never ending increase in costs, combined with a difficult economy, has resulted in a lot more pressure on carriers like FCHP, as well as Tufts, Harvard Pilgrim, Blue Cross/Blue Shield and others, to come down in price.
“For the smaller businesses, under 100 employees, it’s really become a price chase,” said Powers.
Goheen said FCHP has seen an increase in brokers putting plans out to bid more frequently. While business owners were more likely to let benefits stand for a year or two, cost pressures are bringing a lot more scrutiny to plans. The trend is for putting benefits out to bid every year.
“In better years they wouldn’t think of making employees go through that,” Goheen said.
Powers said the trend of higher deductible plans coupled with shifting more costs to employees is continuing. Some employers are also self-insuring to save money, or carving out pharmacy programs and going direct to pharmacy benefit managers. For example, Powers said some companies are requiring that employees use mail order rather than retail, for drugs.
Meanwhile, “wellness” continues to be a cost-savings buzz word.
Greg Lavelle, president of Corporate Benefit Plans in Worcester, said his firm has had success in driving down costs by helping employers put in place wellness programs at the workplace. The program includes an individual health risk profile for each employee that then enables a tailored plan of health.
FCHP, like many HMOs, also offers discounts to employers that put certain wellness programs in place. Internally, FCHP has incentives in place for employees to maintain overall health, according to spokesman Robert Nolan. For example, there is zero copay for annual checkups and employees that smoke pay higher rates.
Nationally, wellness plans are increasingly popular, but their adoption rate is still rather low, according to PWC. While employers are “more focused on wellness,” the study found that only 40 percent of eligible employees are participating.
FCHP has also crafted a program called Direct Care, which has gained traction with employers locally. The program has a narrower doctor pool, but offers savings.
To Lavelle at Corporate Benefit Plans, it isn’t all doom and gloom for the health care sector.
“If the client is really interested in saving money, they can definitely do it,” he said. “It does take being creative. You can’t keep offering the same type of products and philosophy of health care.”
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