Tuesday, December 26, 2006

Why is Health Care Cost Trend So Low?

In my last two posts (below) I pointed out that commercial medical cost trend has been reported to be as low as 5.5% to 6% with most employers reporting 2007 increases in the 7% to 8% range.

While employer trend rates are at this level, health plans are reporting even lower internal trend rates with commercial profits remaining strong and virtually all of the plans reporting rate increases ahead of actual costs (see article below).

Which raises a question: Why is health care cost trend as low as it is?

In past years, higher rates of trend tended to reflect high rates of utilization that made up perhaps two-thirds to three fourths of the trend rate. The remaining trend was made up of pure price trend. So, if trend was 12%, perhaps 4 points of that was pure price trend and 8 points was utilization––in round numbers.

Could it be that the actual trend rates being experienced by the health plans today are made up of perhaps 4 points for price inflation and 2 points for utilization––again in round numbers?

Are we seeing lower trend rates because we are experiencing lower rates of increase in utilization?

After years of high increases in utilization by providers––particularly in the wake of the "provider backlash" (or patients' rights rebellion) in the early part of this decade and a slower rate of new technology and drug introductions––are we seeing a fundamental slowing in health care costs?????


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