In a national survey of 126 insurers and administrators, Buck Consultants measured the projected average annual increase in employer-provided health care benefit costs. Insurers and administrators providing medical trends for the survey cover a total of approximately 119 million people.
In its 28(th) National Health Care Trend Survey, Buck found costs are projected to increase at rates that are lower than its recent prior surveys, but far in excess of general inflation.
Type of Plan
Preferred Provider
Organization (PPO) 8.7%
Point-of-service
(POS) 8.5%
Health Maintenance
Organization (HMO) 8.6%
High Deductible
Health Plan (HDHP) 8.6%
Some survey respondents cited reduced utilization as the primary reason for the decrease.
“This may be a result of the economic slowdown and its impact on consumers’ willingness to seek medical treatment,” said Harvey Sobel, FSA, a Buck principal and consulting actuary who co-authored the survey. “Even though the decline is good news, most plan sponsors still find 8-9 percent cost increases unsustainable.”
Health insurers reported an average prescription drug trend of 9.2 percent, a decrease of 0.7 percent from the prior survey. On the other hand, pharmacy benefit managers, who generally do not take any underwriting risk, reported a weighted average trend factor of 4.1% — less than half of the factor reported by health insurers — but still up by 0.3% from the 3.8% reported in the prior survey.
For plans that supplement Medicare, health insurers reported a trend of 5.5 percent excluding prescription drug coverage, up from 4.1 percent in the prior survey. Medicare Supplement plans generally have lower trends than other medical plans due to the impact of federal controls on Medicare fees and the smaller increases expected in Medicare deductibles and copays.
“It’s too soon to tell the impact of public and private health exchanges on trend,” said Daniel Levin FSA, a Buck principal and consulting actuary, who co-authored the survey. “It may take another few years before we really know if (and by how much) the exchanges will “bend” the cost curve.”
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.
NOTE: A trend factor alone does not mean that is the percentage that premiums will increase. Let’s say the current premium is $100. However, last year claims and other expenses equaled $103 so to get even there is a 3% increase required. $103 is our starting point for the next year.
The trend is for a twelve month period so if you are setting premiums for 2015 in September of 2014 the trend factor must be applied not for twelve months, but for fifteen months (including October, November and December of 2014). That means that a 8.5% trend converts to a premium increase of 10.62% over 15 months to cover the expected costs of health care through the end of 2015. Now recall that current premiums is 3% too low to cover actual expenses. Soooo, our starting point is $103 and we apply a 10.62% increase for a new premium of $113.93 or as you can see, an actual increase of 13.93%.
QUINNSCOMMENTARY 