Looks like medical costs are expected to trend well above inflation for 2011. In addition, consumer out-of-pocket costs have increased as employers continue to shift the cost onto employees.
Medical costs are expected to increase by 9 percent in 2011, according to a report from PricewaterhouseCoopers LLP. Although the increase is down 0.05 percent from the 2010 growth rate, it still is expected to outpace the rate of inflation. For the first time, the majority of the American workforce is expected to have a health insurance deductible of at least $400 as more employers return to indemnity-style cost sharing by raising out-of-pocket limits, replacing co-payments with co-insurance and adding high-deductible health plans.
Hospital and physician costs, which make up 81 percent of premium costs, are the biggest inflators of the 2011 medical cost trend. Hospitals shifting costs from Medicare to private payers and employers is seen as the top reason for higher medical cost trends. In 2011, Medicare will reduce payment rates to hospitals for the first time after seven years of increases that almost matched or exceeded inflation increases. Some hospitals that benefitted from higher payments in 2008 and 2009 may be able to manage this type of cut by tapping their reserves, but many hospitals are likely to shift more costs to commercial payers during their negotiations, according to the report.
In addition, increasing consolidation among physician practices is expected to increase their bargaining power. Payers expect to see more negotiating power and higher prices in the short term, but efficiencies created by consolidation will moderate future rate hikes.
The report findings are based on a survey of more than 700 employers from 30 industries and interviews with health plan actuaries.
