New report finds medical costs to rise 8.5 percent in 2012

Employers should be expected to have an 8.5% increase in their medical costs next year due to the healthcare reform law. These prices should be a major political issue during the next presidential campaign.

By Julian Pecquet
05/18/11 10:52 AM ET
THE HILL

U.S. employers can expect an 8.5 percent increase in their medical costs next year due in some part to the healthcare reform law, the consulting firm PwC said in a report Wednesday.

The widely read annual report on cost trends points to three main drivers of healthcare costs, two of which are exacerbated by the new law.

At the same time, PwC said the law will have a "minimal effect" on 2012 prices because the provisions that go into effect before 2014 are "small changes for which employers already have fully accounted."

Still, the consulting firm said employers will have to work with health insurers and providers to ensure better care and pricing as the law is implemented further.

"Health reform is pressuring employers, providers, insurers and pharmaceutical manufacturers to be more cost-conscious and accountable for costs, quality and performance," PwC's Michael Galper said in a statement, "and they will need to work together to provide better, coordinated care, greater transparency in pricing and more patient-friendly practices."

The report identified the following cost drivers:

• Consolidation among hospitals and physicians.

Improving care coordination is a key goal of the law that the government hopes will lower costs over the long term, but health insurers say it will reduce competition and increase rates;

• Increased cost-shifting to private plans as Medicare and Medicaid rates fall further behind the rates private plans pay to providers; and

• Stress-induced illnesses following the recession.

The projected increase in 2012 medical costs is slightly higher than the 8 percent projected spike in 2011 from 2010.

The healthcare law remains a major political issue in Washington, where House Republicans repealed the law. Their effort has died in the Senate, but the subject is expected to play a major role in the 2012 presidential campaign.

At the same time, Republicans are coming under attack from Democrats over the House GOP budget, which would impose significant reforms to Medicare.

Higher employer costs likely won't all be passed on to workers in the form of higher premiums, but employees can expect to see higher deductibles and other forms of cost-sharing, the report said. Use of generic drugs is also expected to surge as several more expensive brand-name pharmaceuticals lose their patent protection.

"The big questions is how much of the medical cost increase will be passed on to employees, as employers recognize the economic burden on their workers given that wages have been stagnant over the past few years," PwC said.

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