Summary
Analysis of PriceWaterhouseCooper's Report dated January 2006 and how it relates to current trends
Analysis
The overall increase in premiums between 2004 and 2005 was 8.8% (far lower than the 13.7% in 2002)
The number of new mandates overall have decreased markedly in recent years
Approximately 86 cents out of every dollar goes directly towards paying for medical services
Health plan profits represent 3 cents of the premium dollar
Premium increases closely follow healthcare spending. (i.e., 1993-2002, premiums grew at an annual rate of 7.3%, healthcare services grew at an annual rate of 7.2%)
While this report reveals many of the underlying costs of healthcare expenses, the fact that growth in premium expenses stayed on par with the rising costs of healthcare services shows that premium rates are not out of control.
The relationship between Premium Dollar and the cost of Health Benefits is KEY to explaining increases in health insurance premium. The study supports that the overwhelming share of health insurance premium goes to pay for the cost of health benefits – actual services such as hospitals, doctors, drugs and other services that directly benefit the consumer. The remaining share of the premium is attributable to other consumer services, provider support, marketing, government payments, compliance, claims processing, other administration and health plan profits.
The bulk of the premium dollar goes towards paying for:
24% - Physician Services
22% - Outpatient Costs
18% - In Patient hospital costs
16% - Prescription Drugs
06% - Other Medical services (DME, Home Health Care, other Health Professionals, other personal care)
05% - Consumer services, provider support, marketing, case management, disease management programs, wellness/prevention programs
06% - Government payments, compliance, claims processing and other administration, fraud, taxes on premiums, costs of compliance
03% - Health Plan Profits
The PWC Study Outlook:
Since 2002, growth in premiums HAS SLOWED DOWN, largely due to reduction in the contribution of several key cost drivers:
oThe decline in the passage of new mandates and the rise in the number of state mandate review commissions are indicative of the heightened attention being paid to the cost of mandates.
oIncrease in RX drug costs has slowed since 2000. In 2005 7 out of 10 beneficiaries are enrolled in a 3-tier RX plan. The smaller rate of increase in RX is consistent with this trend.
oIncreased attention is being given to the costs of poor quality – It is estimated that 30% of the healthcare premium is related to the cost of poor quality, including the overuse, misuse and waste. Of the 30%, PWC determines that 2% is the cost of direct litigation and 8% is the cost of defensive medicine.
oThe effects of litigation and provider consolidation continue to play a role in overall healthcare costs
Looking forward:
oAppropriately access quality measures would improve accountability throughout the healthcare system
oPromote provider pay-for-performance transparency
oPromote consumer engagement
oPromote healthy lifestyles
So what we can take from all this is the trends of the past few years are changing and carriers are starting to take notice in their new plan designs and marketing trends to the consumers as well as states backing off on new mandates which have traditionally negatively impacted the market place.
