Insurers Expect Larger Premium Rise for 2016

Rising claims costs portend steeper premium hikes

By Stephen Miller, CEBS

Health care insurers foresee a steeper jump in premiums into 2016, with rising claims costs exceeding general inflation for at least the next 18 months, according to the Spring Healthcare Trend Survey from Wells Fargo.

The survey of more than 65 insurance companies nationwide found that, before any plan design changes, overall claim costs will continue to increase by 7 to 10 percent, signaling a sharper uptick in premium rates next year.

“Rising cost trends will force companies into a delicate balancing act of providing competitive benefits while also managing costs effectively and complying with regulations,” said Dan Gowen, national practice leader with Wells Fargo Insurance’s employee benefits national practice, in a news release.

Claim cost trends are influenced by price inflation or deflation, increased or decreased use of services, the aging of the population, the leveraging effect of benefit design features, changes in provider treatment patterns, and improvements in technology and drug therapies. The Affordable Care Act, which requires employers to cover a wider range of services for more people, with greater compliance costs, is also seen as contributing to pricing pressure on health care services.

Among the survey’s key predictions:

• Medical claim cost increases will remain in the high single digits. The growth in claims costs for 2015 have ranged from 7.2 percent for health maintenance organizations (HMOs) to 9.0 percent for indemnity fee-for-service plans, consistent with Wells Fargo’s 2015 Employee Benefits Market Outlook released earlier this year. Projections for 2016 show stepper increases.

• Speciality drug cost and use will continue rising. Despite overall stability in pharmacy claims cost growth compared to medical claims, the survey showed a continued increase in prescription drug cost trends as a result of price increases in generic drugs and the growing use of specialty biotech drugs.

“Employers need to have a realistic expectation of what will happen to their health care cost if they don’t make any changes to their plan or health of their employee population,” Gowen said.

Benefit Design Changes

Similar to the prior year, the surveyed insurers agreed that the top three plan design changes in 2015 will involve wellness initiatives, accountable care organizations (ACOs), and narrow or tiered provider network offerings.

The survey also found that the dental claim trend remains consistent with past results and lower than medical claims due to a lack of cost-shifting from public to private plans and improvements in dental technology.

Other Signs of Premium Growth

In a separate report released in May by actuarial and consulting firm Milliman, the 2015 Milliman Medical Index showed that in 2015 the cost of health care for a typical American family of four covered by an average employer-sponsored PPO plan is $24,671. That amount is predicted to surpass $25,000 in 2016, largely due to increases in prescription drug costs, which rose by 13.6 percent from 2014 to 2015, Milliman found.

Of the $24,671 in total health care costs for a typical family, $10,473 is paid by the family—$6,408 through payroll deductions and $4,065 in out-of-pocket expenses incurred at the point of care.

Altogether, the health care costs for a typical family have more than doubled over the past decade, and have nearly tripled since Milliman began tracking this information in 2001.

Employees continue to shoulder an increasing percentage of this expense, the report noted. The total employee cost (payroll deductions plus out-of-pocket expenses) increased by approximately 43 percent from 2010 to 2015, while employer costs increased by 32 percent.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.