The metrics for both medical claims and for the products that treat them are trending upward, according to a recent Wells Fargo national survey, with medical claims accelerating 7.2 percent for HMOs and 9 percent for indemnity fee-for-service plans.
The survey of more than 65 insurance companies found that before any plan design changes might be implemented, overall claim costs will continue to increase by 7 percent to 10 percent, indicating even higher premium rates this year and 2016.
“The results of the survey indicate rising cost trends that will force companies into a delicate balancing act of providing competitive benefits while also managing costs effectively and complying with regulations,” said Dan Gowen, Wells Fargo Insurance employee benefits national practice leader.
Michael J. Mascolo, national practice leader in Madison, N.J., for Wells Fargo North Region Employee Benefits, said “Big mergers are giving the big hospitals greater leverage when it comes to negotiating with insurance companies. That’s part of what’s driving the increase.”
The survey stated, “Despite low inflation, employers should expect health care premiums to surge into 2016.” It said the looming Affordable Care Act excise tax was “further encouraging employers to manage health care cost trends.”
The “Spring Healthcare Trend Survey from Wells Fargo Insurance” also found a continued increase in prescription drug cost trends as a result of price increases in generic drugs, and growing use of specialty biotech drugs.
Another challenge facing employers is the excise tax, what Wells Fargo and others term the Cadillac tax, created to encourage employers to offer cost-effective plans and engage employees in sharing the cost of care to try to reduce health care use and costs. Starting in 2018, excise taxes will be charged based on how much an employer’s plan exceeds the excise thresholds, are expected to hit the excise tax threshold in 2018 if they do not make any changes to their plan design.
“In the Northeast in particular large employers and government have tended to offer generous plans; these are likely to trigger the excise tax,” Mascolo said. “Other regions, this is less so.”
“Since the excise tax thresholds will increase annually using a cost-of-living index, it’s vital that employers strive to manage health care cost trends in order to avoid excise taxes in the long run,” said Nick Allen, national practice leader for actuarial services with Wells Fargo Insurance. “For many employers, health care cost trends will be the foremost determining factor as to whether and when their plans will exceed the excise tax dollar limits.”