Health-care expenses to rise 8.5% in 2012: study Medical inflation accelerates as recovery gains momentum

LOS ANGELES (MarketWatch) — Employers can expect to see an acceleration in health-care cost increases in 2012, with expenses rising 8.5% next year, according to a study released Wednesday by PricewaterhouseCoopers.

The 30-page study says that the recession put a lid on health-care costs, which should keep the inflation rate to 8% for 2011, but those price hikes are getting steeper as the recovery gains momentum.

“Now, a few months into 2011, employers and health plans say utilization remains somewhat deflated, but they’re already worried about a rebound in 2012,” the study says. “Add to this recessionary effect the changes brought on by health reform, and the variables affecting cost trends in 2012 become an interesting blend of reactions.”

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But an 8.5% medical inflation rate is a fairly moderate rate.

“These increases aren’t as great as some years,” said Mike Thompson, a principal at Pricewaterhouse. He noted that over the last decade, there have been several instances where medical inflation has exceeded the double-digit mark.

“We do see fluctuation from year to year,“ he said.

Pricewaterhouse surveyed 1,700 employers from 30 industries along with hospital executives and health-plan actuaries. It found that three main factors will drive up medical costs next year.

First, consolidation among hospitals and physicians is snowballing. While that should increase efficiency, payers worry about the impact of consolidation on rates. Second, inpatient costs for Medicare recipients will rise 3.3 percentage points more than hospital rates. And post-recession stress has taken a toll on worker health.

But the study says that employers are expected to try to keep a lid on costs between now and next year, and the actual medical inflation rate for employers should be closer to 7%.

It also says that a number of factors will deflate medical pricing, including cost-sharing by employees through such vehicles as higher deductibles, brand-name drugs losing their patents and adding costs to employees who venture out of the health network for care.

The study also says that spending by insurance companies has grown the most for outpatient and inpatient care over the last five years, along with miscellaneous spending. There was slower growth in drug costs and physician expenses. But inpatient care and physician costs still comprised the biggest chunk of health expenses, each at more than 30%.

The Patient Protection and Affordable Care Act, passed in 2010, is expected to have little impact on rates, though it is pressuring employers to be more cost conscious about health care.

Russ Britt is the Los Angeles bureau chief for MarketWatch.