New Regs Aim to Confront High Health Costs

May 24, 2011

According to a report by PricewaterhouseCoopers (PwC) Health Research Institute, medical costs are expected to increase by 8.5 percent in 2012, up from eight percent in 2011.However, with health plan benefit design changes, employers are expected to limit their health increases to approximately seven percent.

Three factors are accelerating the health care costs, including: consolidations between doctors and hospitals that are expected to increase due to incentives for accountable care organizations; cost-shifting from Medicare and Medicaid to private payers, which also is expected to worsen in 2012; and, higher medical use due to deferred use during the recession that lasted from 2007-2009.

Conversely, several factors are expected to deflate costs in 2012, including changes in cost-sharing. According to employers surveyed, high-deductible health plans were the most common plan design used in 2011, up four percent from 2010 to 17 percent in 2011. Additionally, as is reaffirmed in NSBA survey data, employers have been making other plan design changes to cope with rising costs, including increasing deductibles, out-of-pocket maximums, and copayments.

Other factors contributing to the deflation of health costs include the limits on medical services out-of-network and greater selectivity of who is in the networks. Finally, lower costs are expected to result from blockbuster brand name drugs going off patent. The study notes that cumulative sales of drugs going off patent will be the largest in history in 2012.

Health care cost increases have plagued small businesses for years and has been a legislative priority for NSBA for several congresses. NSBA has revamped a resourceful Web site to answer small-business questions and provide information concerning the new health care law.

Meanwhile, the U.S. Department of Health and Human Services May 19 released regulations that will require insurers to justify premium increases greater than 10 percent starting September 1, 2011. The new rate review will require insurers’ base premium rate increases are based on reasonable estimates and real-time data on medical cost trends and health care utilization.

States have varying authority when it comes to insurance oversight: some states have oversight authority to review rates; others have the authority to block rate increases; and, other states have no authority. Since health costs vary dramatically by state, by September 1, 2012, the 10 percent threshold will be replaced with a state-specific threshold that accounts for data particular to that state. States lacking the necessary authority to review rates will have HHS perform the task.

Please click here to take this week’s NSBA Quick Poll on health insurance rate increases.

Click here to view the HHS fact sheet on premium review, and here to view the agency’s final regulation. Continue to watch the NSBA Web site and the HRTT Website for more information as it is made available.