Healthcare costs show signs of moderating

November 1, 2004

Lincolnshire, Ill.- Healthcare cost increases, while high, are moderating because of decelerating cost trends, according to Hewitt Associates.

Lincolnshire, Ill.- Healthcare cost increases, while high, are moderating because of decelerating cost trends, according to Hewitt Associates.

For 2005, Hewitt is projecting an 11.3% average increase for employers, which is lower than 2004's 12.3% increase.

"While the decelerating cost trend has been going on for almost two years, the data shows this is beginning to show up in premiums," according to Ken Sperling, Hewitt's East region healthcare practice leader. "This should be no surprise to managed care executives."

According to Sperling, the deceleration in underlying cost trend has been driven by a fairly stable physician pricing environment (despite increasing malpractice rates), declines in hospital utilization, and a reduction in the rate of increase of prescription drug costs brought on by patent expirations and movement of certain drugs to OTC status (e.g., Claritin and Prilosec). "In addition, health plan profitability has been healthy, so rate increases do not have to result from a decline in overall loss ratio," he says.