Health care cost trends; is there any good news for employers?

It’s no secret that the cost of healthcare for employers and the dollars spent by employees have been steadily rising for years.  While the increases have not always been dramatic, costs have been going up for the past 40 years.  Behind the Numbers a study of Medical Cost Trends for 2009 by PricewaterhouseCoopers’ Health Research Institute predicts that the rate of increases will slow slightly but continue to be greater than the Consumer Price Index for at least the next 10 years.  Employers face an increase of almost 10% in 2008 to be followed by a 9.6% increase in 2009.

Policies to shift costs from Medicare and Medicaid and the potential for health care reform could have a dramatic impact on these costs.  As the government seeks to spend less on Federal program reimbursements hospitals and doctors spread the costs to private payers.  Health care reform could also force greater cost sharing but we won’t know this until any plans are agreed upon and enacted.

There are a few bright spots in health care spending.  Controlling prescription costs has been helped significantly by the increasing use of generic drugs.  Your prescription plan probably has different levels for drug cost coverage.  Prescription plans also call these formularies or lists that the plan provider creates to identify benefits.  Formularies are likely to have lists of drugs broken down into 3 parts; generics, preferred and non-preferred. These are also commonly called tier I, II and III. The lowest cost and corresponding copay for employees includes generic drugs.  Preferred drugs are those with lower costs than non-preferred but not as low as generics.  In many cases pharmacy benefit plans use their size to negotiate reduced rates for commonly used drugs.  The non-preferred formulary will include the most costly items and also require a larger payment by the employee.  It’s not uncommon for benefit plans to exclude certain drugs altogether and indicate that suitable alternatives are available on the formulary or even over the counter without a prescription.

The next time you hear an employee complain that the plan is not covering a specific drug or only a generic you can respond that prescription drug benefits make up at least 14% of the cost of health benefit premiums.  Generics are a way to keep these costs under control.  And think twice before you are the one to start complaining about the plan.  Check future posts for more information about employee health benefit trends.