The 32nd National Healthcare Trend Survey from Xerox HR Services reveals that while increases in healthcare costs are slowing, they continue to outpace inflation by a wide margin.

Since the most recent recession, the annual projected increase in healthcare costs has eased from 11.6% in 2010 to 8% in 2016. During the same period, the United States Bureau of Labor Statistics stated inflation rate in the U.S. has been 1.4%.

The rising expense of healthcare is causing employers to shift more costs to employees, resulting in some consumers weighing price into their decisions of where and when to seek healthcare, and even delaying treatment due to cost.

Typically, early intervention is important with any diagnosis, said Harvey Sobel, FSA, a principal and consulting actuary at Xerox HR Services and co-author of the survey. Delaying even routine medical visits can not only invite substantially higher costs at a later date, but invite more serious health challenges.

“While it’s promising to see a slowing of increases, healthcare cost increases are still eating into employer revenue and employee paychecks at four and five times the rate of inflation,” said Sobel. “Plan sponsors should remain vigilant, reviewing all facets of their medical plans, including benefit design, networks and vendors, to make sure they and their employees are getting the best value for the price.”

There are several reasons why medical cost trends are still higher than inflation, including:

• Use of diagnostic tests and treatments;
• Limited reimbursement to providers from Medicare and Medicaid;
• Mandated coverage of certain benefits, such as expanded mental health benefits and prosthetic legislation;
• Increased administrative costs associated with new regulations; and
• Up-front costs associated with new medical technology and treatments.

Cost of prescription drugs

The pace of prescription drug costs is not lessening; with the projected rate of increase rising from 6.7%in 2010 to a current 8.8%. Survey respondents cite three key reasons for rise: the continued impact of specialty drugs, where, as an example, treatment for multiple sclerosis can cost more than $50,000 a year; an increase in the number and use of pharmaceutical products that improve the quality of life and/or enhance lifestyles; and a dramatic increase in the number and expense of compounded pharmaceuticals.

“While specialty drugs continue to be a major component of prescription drug trend increases, there is a sizeable expense related to specialty medications billed under the medical benefit,” said Robert Ferraro, a principal in the national pharmacy practice of Xerox HR Services. “Plan sponsors have an opportunity to save money by making sure these non-oral medications are administered at the appropriate site of service.”

The survey also reported trend factors for dental and vision plans, with both showing lower and steady rates of cost increase.

The 32nd National Healthcare Trend Survey looked at 143 health insurers and pharmacy benefit managers and measured the projected average annual increase in employer-provided healthcare benefit costs. Health insurers and pharmacy benefit managers providing healthcare trends for the survey cover a total of approximately 117 million people.

To see the full results, or to order a copy of this survey, click here.