Trend rates, familiar jargon that we often hear when reviewing our renewals, but what does it really mean? Trend rates are the rates at which medical plan costs are forecast to increase. These forecasts are affected by changes in three areas: reimbursement changes to the provider (doctor/hospital), utilization changes by the consumer, and case-mix changes (change to generic versus brand drugs or using MRI's versus X-Rays, etc). Additional factors are health care inflation, leveraging (a $500 deductible in 2010 is a significantly richer benefit than a $500 deductible plan was in 2000), and demographics. When premiums are set for an account, they use trend, past claims experience, benefit design, and characteristics of the account. While claims experience is used in determining renewal rates for larger groups (groups over 50 employees) it is not necessarily a big part of the equation for small groups. Future claims are more of a factor for small group, and what is needed to cover those claims. Therefore at renewal, a premium increase can be solely the result of overall health care cost trend, and not your group's actual utilization.
Why do health care cost trends continue to rise at a faster pace than the general inflation of consumer goods, one may ask. Unlike the consumer price index, which measures only the cost increases in a set "market basket of goods", health care cost trends are influenced by changes in the use and mix of health care goods and services used. Both the increased usage and change in the mix of services (MRI's vs X-Rays) contribute to the increases in health care cost trends. Demographics such as an aging population which uses more health care services, will continue to be a factor of trend and will only increase (baby boomers). Reimbursement rates for hospitals and specialty facilities are difficult to control due to increasing labor costs and other fixed costs. They also need to make up for reimbursement deficiencies from Medicare and Medicaid business, consolidation of providers, and the use of new technologies and devices. Technology continues to advance and it also creates higher treatment and diagnostic costs. Finally, prescription drugs and high-cost specialty drugs continue to enter the market, creating increased demand and driving up cost.
How do we keep these costs to a minimum? It's a challenge, and there is no easy answer. Things that you've heard before like healthier lifestyle choices, using generic drugs versus brand names (that you see in a magazine advertisements), disease management, and wellness programs, continue to be our largest allies in battling these costs. Insurers are also challenging providers to reimbursement models based on quality and outcomes, rather than fee per service. Different mindsets in provider reimbursement, more efficient utilization of medical care on
the part of the patient, more effective treatment by providers and more responsible lifestyle choices, will all assist in keeping health care cost trend to a minimum.