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Segal 2015 Health Trend

By November 11, 2014November 12th, 2014Commentary

As the open enrollment season for the public exchanges and for many employer-based plans gets underway, there is much anticipation about what cost trends will look like in 2015 and how those estimates are affecting premium rates.  Most of the larger benefit consultants issue projections and the Segal Group issued theirs recently.   (Segal Report)    The report is based on Segal’s 18th annual survey of health plans, TPAs and PBMs.  Segal defines trend as the change in annual gross per capita claims cost, which is the cost increase without accounting for benefit design changes.  For persons aged under 65, Segal is forecasting a trend rate of 6.2% for HMO coverage, 7.5% for PPO plans, 7.9% for high-deductible plans and 10.4% for straight indemnity designs (does anybody still have an indemnity plan?)  Prescription drug carve-out trend was forecast at 8.6%.  Specialty drugs, as expected, are driving medication expenses higher, with a 19.4% spending increase anticipated in 2015.  For most design types, the increases for 2015 are slightly lower than 2014 trend.  For Medicare-eligible persons, Medicare Supplement coverage is expected to see a 3.2% trend, which Medicare Advantage plans experience a 3.6% to 3.9% growth rate.  Ancillary coverages such as dental and vision are projected to have moderate trend growth of 2.5% to 4%.

In regard to specific categories of service, hospital and physician service use is estimated to rise by 3.5%, while the number of prescriptions filled per person will increase by 2.5%.  Price inflation will add 2.85 to physician trend, 4.5% to hospital trend and 7.5% to drug trend, all rates below the growth in 2014.  Regionally, the South and Midwest will have the lowest trend increases, at 5.8% and 6.6%; while the West has the highest at 9.2%.  About 38% of survey respondents said that using a narrow network would lower trend by 3.8 percentage points.  Some common cost management strategies being employed by respondents were using low-cost primary care like retail and onsite clinics or telemedicine, reference pricing, value-based pricing, continued emphasis on wellness and defined contribution strategies.  Most respondents said that the provisions of the reform act were adding to spending trends.  Interestingly, when Segal backtested respondents projections in past years with actual experience, they found that estimates were higher than actual experience by as much as 3% or 4%, so 2015 actual trend may well be below what the respondents anticipated.  From an employer and consumer perspective, however, actual and projected increases in trend are well  above general price inflation, GDP growth and wage growth.

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