Survey: Despite Low Inflation, Employers Should Expect Health Care Premiums to Surge Into 2016
May 19 2015 - 8:30AM
Business Wire
Looming Affordable Care Act excise tax further
encouraging employers to manage health care cost trends
Health care insurers report continued rising premiums into 2016
with claim trends exceeding general inflation for at least the next
18 months, according to the Spring Healthcare Trend Survey from
Wells Fargo Insurance, part of Wells Fargo & Co (NYSE:WFC). The
survey of more than 65 insurance companies nationwide found that,
before any plan design changes, overall claim costs will continue
to increase by 7 to 10 percent, indicating even higher premium
rates in 2015 and 2016.
“The results of the survey indicate rising cost trends that will
force companies into a delicate balancing act of providing
competitive benefits while also managing costs effectively and
complying with regulations,” said Dan Gowen, national practice
leader with Wells Fargo Insurance’s Employee Benefits National
Practice. “We continue to work with our employee benefit customers
to design and implement the best programs to increase employee
engagement and support their financial goals.”
Wells Fargo Insurance has conducted this biannual survey since
2008 and, for the first time, collected data from insurers for use
in forecasting healthcare trends for 2016. The survey found several
trends are contributing to the strong indication that health care
premiums will continue to rise, including the following:
- Medical claim increase trends remain
in the high single digits – Trends range from 7.2 percent for
HMO to 9.0 percent for Indemnity Fee-for-Service annually, slightly
below 2014 levels and consistent with Wells Fargo Insurance’s 2015
Employee Benefits Market Outlook released earlier this year.
Despite the stability in year-over-year claim trends, costs remains
at unfavorable levels for employers.
- Rising cost and usage of specialty
drugs – The survey showed a continued increase in prescription
drug cost trends as a result of price increases in generic drugs,
and growing use of specialty biotech drugs, such as Abilify and
Crestor.
- Healthcare claim trends for 2016
expected to increase for most products – Projections for 2016
show 0 to 1 percent higher than trends from 2015.
Healthcare trendpercentage
2015(average)
2016(projected)
Health maintenance organizations (HMO) 7.2 8.6
Point-of-service (POS) 7.7 8.8 Preferred
provider organizations (PPO) 7.9 8.7 Consumer
driver health plans 8.0 8.9 Indemnity plans
9.0 9.6 Prescription plans 10.2
10.1
- Other influences in addition to
healthcare reform provisions – Claim trends are also
influenced by price inflation or deflation (changes in unit prices
for the same services), increased or decreased use of services,
aging, the leveraging effect of benefit design features, changes in
provider treatment patterns, and improvements in technology and
drug therapies.
Another challenge facing employers is the excise tax, or
so-called Cadillac tax, created to encourage employers to offer
cost-effective plans and engage employees in sharing the cost of
care in an effort to reduce health care usage and costs. Starting
in 2018, excise taxes will be charged based on how much an
employer’s plan exceeds the excise thresholds, charging $0.40 for
every dollar above a set threshold. Currently, 38 percent of large
employers1 are expected to hit the excise tax threshold in 2018 if
they do not make any changes to their plan design.
“Since the excise tax thresholds will increase annually using a
cost-of-living index, it’s vital employers strive to manage
healthcare cost trends in order to avoid excise taxes in the long
run,” said Nick Allen, national practice leader for Actuarial
Services with Wells Fargo Insurance. “For many employers,
healthcare cost trends will be the foremost determining factor as
to whether and when their plans will exceed the excise tax dollar
limits.”
Similar to the prior year, respondents agree the top‐three
employer product innovations in 2015 will involve wellness
initiatives, accountable care organizations (ACOs), and narrow- or
tiered- provider network offerings.
The survey also found that the dental claim trend remains
constant with past results and lower than medical due to a lack of
cost‐shifting from public to private plans and improvements in
dental technology.
“Employers need to have a realistic expectation of what will
happen to their health care cost if they don’t make any changes to
their plan or health of their employee population,” said Gowen.
“Partnering with their insurance broker and employee benefits
advisor to project costs is a critical first step for a business’
strategic and financial planning for 2016.”
Wells Fargo’s Employee Benefits National Practice helps
customers with financial underwriting and insurance, health and
productivity risk management, benefits communication and
administration, and compliance with health care reform.
About Wells Fargo Insurance
Recently named Best Insurance Broker in the U.S. by Global
Finance Magazine2, Wells Fargo Insurance provides solutions for a
wide range of customers, including retail consumers, high net worth
individuals, small businesses, as well as middle market and large
corporate customers. Wells Fargo Insurance writes or places $11
billion of risk premiums annually in property, casualty, benefits,
international, personal lines, and life products and also includes
one of the nation’s leading crop insurance provider, Rural
Community Insurance Services (RCIS).
About Wells Fargo & Company
Wells Fargo & Company (NYSE: WFC) is a nationwide,
diversified, community-based financial services company with $1.7
trillion in assets. Founded in 1852 and headquartered in San
Francisco, Wells Fargo provides banking, insurance, investments,
mortgage, and consumer and commercial finance through more than
8,700 locations, 12,500 ATMs, and the internet (wellsfargo.com) and
mobile banking, and has offices in 36 countries to support
customers who conduct business in the global economy. With
approximately 266,000 team members, Wells Fargo serves one in three
households in the United States. Wells Fargo & Company was
ranked No. 29 on Fortune’s 2014 rankings of America’s largest
corporations. Wells Fargo’s vision is to satisfy all our customers’
financial needs and help them succeed financially. Wells Fargo
perspectives are also available at Wells Fargo Blogs and Wells
Fargo Stories.
1 American Health Policy Institute, November 2014. Retrieved
from http://www.americanhealthpolicy.org/Content/documents/resources/Excise_Tax_11102014.pdf
2 Ranking includes Wells Fargo Insurance Services USA, Inc.,
Wells Fargo Insurance Services of West Virginia, Inc., Wells Fargo
Insurance, Inc., and Rural Community Insurance Company
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version on businesswire.com: http://www.businesswire.com/news/home/20150519005507/en/
Wells Fargo & CompanyAngenette Lau,
415-396-9904Angenette.m.lau@wellsfargo.com@AngenetteLauWF
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