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Segal’s Medical Cost Trend Analysis for 2018

By October 6, 2017October 9th, 2017Commentary

Yet another benefit consultant, Segal, issued a report on expected health plan cost trend for 2018.   (Segal Brief)   The analysis is based on a survey of health plans, PBMs, and third-party administrators.  Historically, actual medical cost increases tend to come in slightly lower than projections for employer-based plans, because when employers see the projections they tend to adjust benefit designs to lessen the impact.  Depending on the type of plan design, projected trend for 2018 varies from around 6.9% (HMO, or closed panel plans) to 9.3% (indemnity plans).  The most common plans, including high-deductible ones are around 7.8%.  This projected rise represents a very modest uptick from the increase expected in 2017.  These increases are higher than some projected by other firms.  The projected increase in drug spending is 10.3% and for speciality drugs is 17.7%.  While alarming, these are actually lower than the corresponding figures for 2017.  But they do explain why drug costs are number one in the list of employer and health plan spending concerns.  And almost all of the drug trend is due to price increases and the prices of new medications.  The new drug pipeline, which is almost exclusively specialty compounds, exacerbates these concerns.

8.8% of the drug spending increase is related to price inflation and only 2.1% to more utilization.  For hospitals, a 4.6% increase is expected in pricing and 1.5% more utilization and for physicians, prices are expected to grow only 2.8% while utilization is up 1.5%.  Despite a move to value-based payment methods, there is still fairly rapid upward movement in provider pricing, which particularly reflects hospital gains in market power.  Overall, employers and consumers continue to face health plan cost growth that outpaces economic growth, and, for consumers, personal income increases.  This situation has gone on for many years and simply cannot exist indefinitely.  Radical new approaches will be required to constrain spending and none of the recent, highly touted initiatives, like reimbursement reforms, seem likely to do the job.  According to Segal, employers and plans are focused on the usual tactics:  narrower and value-based networks, financial incentives for wellness, cost-sharing, specialty pharmacy management, more telehealth and onsite and retail clinics, and reference-based pricing.  These may reduce trend a point or two, but they won’t bring it in-line with overall inflation or GDP growth.

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