Expect pent-up demand to bring higher 2012 spending increases

July 1, 2011

Provider consolidation, lower Medicare and Medicaid reimbursements, and post-recession stress will combine to increase healthcare costs by 8.5% in 2012, according to a new study.

NATIONAL REPORTS-Provider consolidation, lower Medicare and Medicaid reimbursements, and post-recession stress will combine to increase healthcare costs by 8.5% in 2012, according to PricewaterhouseCoopers' annual study.

The rate of increase, up 0.5% from 2011, will continue to plague employers as they work to curtail the cost of healthcare benefits they provide. It also means MCOs will see higher uptake in benefit packages that offset these increased medical costs, most commonly by offering lower-cost plans with higher deductibles.

"We feel consolidation is good in the long run to reduce costs in the overall health system and improve efficiency, but there is concern this will reduce competition and drive up payment rates," says Rick Judy, a principal in PricewaterhouseCoopers' healthcare payer practice.

"The expectation is that hospitals and health plans may shift some of that Medicare and Medicaid payment to private payers," Judy says.

To combat the higher costs of medical care, employers are increasingly likely to shift costs to their employees. Seventeen percent of employers surveyed said high-deductible plans were their most common benefit design, up 4% from 2010.

Small businesses, which depend on their employees' participation to qualify for certain rates, often prefer to pay the full premium in exchange for high deductibles, says Paul Fronstin, director of the Health Research and Education Program at the Employee Benefits Research Institute.

"Once you ask employees to share costs, you have to give them the option of dropping out, so they're hesitant to ask employees to share the cost of the premium," he says.