The Rollercoaster Ride of Healthcare Trend and How It Impacts Your Costs
Want to take a guess at what is arguably one of the hottest topics this time of the year as we’re finalizing current year reforecasts and setting future year budgets with clients? Easy answer…healthcare trend (it was also in the blog title, so dare I say I made that one easy!). I bring this up because it’s been the main topic of conversation in all of my recent meetings with clients. Unfortunately, it’s not a sexy topic to talk about; nonetheless, it’s an important one.
As an employee benefits healthcare consultant, it’s my job to know and talk about healthcare trend, especially since it’s top of mind for nearly every business. Headcount, design, on-going claims, fixed fees, and trend are all major inputs that go into creating a healthcare/employee benefits budget, with trend often being one of the most hotly debated.
Depending on the size of the business and historical factors, clients may choose to use a market trend with inputs from both large insurance companies (Blue Cross Blue Shield, United Healthcare, Cigna, Aetna, etc.) and industry studies alike (Segal, Milliman, PriceWaterhouse, etc.). Of these major sources, there is typically a tight cluster of annual trend picks, along with relatively slow movement. They will inch up (or down) by tenths of a percentage point, with a full point being a major deviation from both a prior year and the other market sources.
While trend is certainly a major component, we cannot forget the other factors in the overall cost equation of healthcare. PRICE (with trend playing into this variable) x USE = COST.
Stepping back from trend as an input, the current forecasting has its share of free radicals currently bouncing around the USE category:
- return-to-claims after delayed treatment
- mental health status deterioration
- consistently poor underlying health risk factors
- continually churning talent pool
Insert an uneasy economy with talks of both a recession and stagflation, and it makes budgeting both a top priority and challenge.
Preparing for the Cost of Your Health Plan
Recent medical trend has hovered in the 6-7 percent range and is typically 2x the Consumer Price Index (CPI). That said, a strange thing has happened in the last two years — healthcare inflation has been lower than overall inflation, with factors pointing to both a delay in care due to COVID, along with government subsidies provided to hospitals during the pandemic.
With increased inflation, return to care, and many of the factors previously mentioned in this blog, healthcare trend is being called into question. That 7 percent — is it too high…is it too low? How long will it remain at the current level, and is there a false sense of present reality due to the long-term nature of hospital contracts with insurers? Will this change or has it already?
To answer these questions, the Holmes Murphy actuarial team has undergone a significant analysis looking across our book of business in both recent and historical times of inflation. Further, they’ve compared current carrier projections analyzing the difference between the trend rate and renewal increases, most often driven by use. Focusing trend on a correlation with CPI, while balancing individual client use has been a good exercise as we enter budget season for many of our clients.
With the talent war creating hesitancy for employers to pass along market inflation in the form of contribution or benefit changes coupled with an uncertain economy, accurate and realistic budget projections are paramount.
Our teams are aware of potential headwinds in the market, and we are focused now more than ever on the PRICE x USE equation to help predict your COST. Timely and accurate forecasting, coupled with creative design and purposeful employee communications are critical. Leading with an understanding of where we are, what we’re solving for, and the market pressures ahead, we’re bullish on solving the problem together.
Holmes Murphy is passionate about making our clients better and partnering with each other to understand and navigate these dynamic times and we’re happy to help you out. Please don’t ever hesitate to reach out to us. Our goal is to ensure you’re covered and informed!
Published on: 08.18.22