Posted on June 20, 2007

PricewaterhouseCoopers on cost trends for 2008


Behind the numbers

Healthcare cost trends for 2008
Health Research Institute

Based on discussions with private insurers, medical costs are expected to rise by 9.9% for preferred provider organizations (PPOs), 9.9% for health maintenance organizations (HMOs)/point of service plans (POSs)/exclusive provider organizations (EPOs), and 7.4% for consumer-directed health plans.

While too early to evaluate the long-term impact of consumer-directed health plans, it appears that their cost trend is running about 2.5 percentage points below cost trends in HMOs and PPOs. However, enrollment in these plans is still fairly low, and it’s probably too early to determine whether these plans can lower medical costs long term.

In looking at the year ahead, PricewaterhouseCoopers identified four influences that are affecting the cost trend:

  • Slower spending growth for prescription drugs - A key factor in the lower growth rate is the increase in generic dispensing.
  • Increased transparency and cost-sharing with employees - Higher co-pays, higher deductibles, and an increase in cost-sharing tiers for health plans are all a part of this general trend.
  • Total-health-management approach to benefits - More employers are investing in wellness and are developing incentives for employee adoption of healthier lifestyles. Research has shown that some employers have received a $3 to $1 return on investment for preventive services and health promotion.
  • Broadening of the digital backbone in healthcare - While initial spending on IT has been shown to add to costs, the longer-term effect is one of reduction in costs. While still in its early stages, the potential to improve quality and reduce variation in provider practice patterns will be strengthened as the digital backbone continues to strengthen.

The causes for the current deceleration are complex, but it’s clear that the movement into consumerism is real and is affecting medical costs.


By Don McCanne, MD

When health care costs continue to increase well in excess of the rate of inflation, it seems counter-intuitive to celebrate the success of the role of consumerism in the deceleration of the rate of health care cost increases. Furthermore, is the celebration of the success of consumerism even warranted? Let’s look at the four influences identified by PricewaterhouseCoopers.

  • Prescription drugs - Many drugs are going off patent, resulting in a significant increase in lower-priced, FDA-approved generics. Whether it is the government, the private insurer, or the patient who is paying the bill, lower-priced generic equivalents are always preferred. Does anyone believe that this preference for value would not exist if it were not being pushed by the advocates of consumer-directed health care (CDHC)? How can anyone seriously contend that the increase in generics is a success of consumerism?
  • Increased employee cost sharing - The primary impact of high deductibles, copayments, and coinsurance is to shift some of the responsibility of paying for health care from the employer to the employee. Most employees have difficulty understanding how the opportunity to pay more out-of-pocket for health care is of personal benefit to them. As a result, many forgo beneficial health care services. Policies that result in individuals not receiving the care that they should be can hardly be described as a success of consumerism. It is a failure of consumerism.
  • Total-health-management - Can employers really influence the health habits of their employees? You often see cited the claim that employers receive a $3 return for each dollar spent on health promotion. I have never seen an objective study confirming this, but only the statement by Ron Finch, EdD that “for every $100 spent on health promotion, employers could see a $300 return on investment” (Compensation & Benefits Review, Vol. 37, No. 2, 18-22 (2005)). Could see a return is not the same as seeing a return. Although health promotion is to be commended, motivating individuals to exercise, eat well, quit smoking, practice safe sex, and otherwise positively modify their behavior has been one of the more difficult challenges for both the public health system and our health care providers. That employers could meet this challenge through the magic of consumerism is nonsense.
  • Information technology - We are still in the primitive stages of development of IT in that we haven’t even crossed the first crucial threshold: assuring patient privacy in an interconnected system. It is unlikely that we will make any significant progress until we have leadership in the public sector that is ready to set the national standards required for an interoperable system. The startup and maintenance costs will be great, and they may never be offset by the savings through error reduction and other efficiencies. Since cost savings from information technology in health care does not yet exist, it can hardly be claimed as a success of consumerism.

We have already identified the excess cost drivers in health care, and we know how to reduce the waste while improving the effectiveness of our system. When the business community finally realizes that indulging themselves in their fantasies of consumerism is leading them nowhere, maybe they’ll finally be ready to join us in supporting reform that really will work: single-payer national health insurance.