Pace of Rising Health Plan Costs To Decline In 2007

Health care plan cost increases are expected to outpace inflation and wage growth in 2007, but they will rise at lower rates than in 2006, according to a report released by human resources consultancy the Segal Company.

The survey of managed care organizations (MCOs), health insurers, pharmacy benefit managers (PBMs), and third party administrators (TPAs) showed that both medical plan costs and prescription drug plan costs are likely to increase substantially next year. But researchers said the price trends of all MCOs peaked in 2003; they are expected to decline for the fourth consecutive year in 2007.

Price inflation for high-deductible plans offered by preferred provider organizations (PPOs) is forecasted to reach 12% in 2007, compared to 12.6% in 2006. The cost of traditional PPO plans is expected to grow 11.6% in 2007, down from 12.4% in 2006. The projected cost increase for health maintenance organization (HMO) plans is 11.1% in 2007, down from 11.6% in 2006.

Results showed that price inflation for prescription drugs is expected to decline markedly in 2007. For active participants and early retirees, retail network prescription drug costs are forecasted to rise 11.9% in 2007, compared with 13.8% in 2006. Mail order drug plan costs are predicted to increase 11.5% in 2007, down from 14.5% in 2006. These declines can be attributed to the increased availability of generic drugs and the efforts by medical plans and PBMs to maximize generic drug utilization, according to the report. Researchers added, however, that the cost of biotechnology or specialty drugs is projected to rise far more rapidly than other drug costs.

Commenting on these trends, Edward A. Kaplan, Segal's national health practice leader, said, "The plan sponsors with the most success in dealing with health costs have taken major steps to understand the underlying dynamics of their health plan to address the root cause of high costs."