Wow! What's up with healthcare cost trends?  For 2008, healthcare cost trends are expected to be in the single digits, according to a recent study by the PricewaterhouseCoopers' Health Research Institute.

What does this mean for our clients and other businesses?  It should mean that rate increases for health plans will generally hang around the high single to low double digits for the next 12 to 24 months.  While insurance companies use medical cost trends to estimate what the same claim will cost next year, it is just one of the factors used to determine rate increases (a detailed explanation of how insurance companies determine rate increases is not the intent of this blog).   Medical cost trends vary by geographic region, and rate adjustments are also fueled by demographics of the insured group, health plan design, and utilization tendencies.

Most of our clients in Maryland are subject to Maryland's Small Group Reform which uses average age of the enrolled employees to determine what rates the group is charged for a particular plan.  Medical cost trends can be misleading for businesses that are subject to this kind of state rate regulation.  If a particular group's average age at renewal pushes into the next higher age bracket for rating purposes, the resulting increase can be significantly higher than the prevailing medical cost trend.  Fortunately, there are plans availible to Maryland employers which are not subject to Maryland Small Group Reform.  These plans are often a better option because they do tend to track more closely with medical cost trends.

Consumer Directed Health Plans in conjunction with HSA's and HRA's have begun to have a positive impact on utilization and the growth of these plans will accelerate.  My next blog will talk about why CDHP's should be seriously considered by virtually all employers interested in controlling health care costs for themselves as well as their employee's.

Stephen R. Shaff