Employer health costs projected to jump 9 percent in 2011

The cost for businesses providing health coverage to employees will jump by 9 percent in 2011, according to a report released Monday by PricewaterhouseCoopers. The figure would be higher, but analysts predict employers will shift more costs to workers next year. 

The projection — on which the new health reform law has only a small influence — is less than the 9.5 percent hike estimated for this year, but remains several times higher than the growth of the economy, squeezing employers amid already difficult economic times.

The report arrives just as the Obama administration is unveiling new rules designed to prevent businesses from dropping health insurance benefits for their workers.

Rising hospital costs will be the most significant factor behind the increase, the analysts predict, as hospitals try to make up for a looming decrease in Medicare payments by shifting those costs to businesses and private insurers. After nearly a decade of big increases, Medicare rates for hospitals are scheduled to fall in 2011.

A number of the other drivers, however, are temporary factors expected to slow the growth of healthcare costs further down the road, the researchers say.

As medical providers consolidate from small private practices to larger, integrated groups, they will assume more bargaining power. That power will lead to higher medical costs in the near term, according to the analysts, but it will also create efficiencies in care expected to trim costs further in the future.

Similarly, providers buying expensive new health information technologies will drive up short-term costs, though those systems are expected to control medical inflation over time.

To rein in costs, businesses are expected to shift more responsibility to employees, with workers being required to pay more out of pocket when they receive care, the analysts predict. That shift is designed to discourage the over-utilization of drugs and services.

Other factors likely to control rising healthcare costs include the continuing trend toward generic drugs and the expected expiration of COBRA subsidies, which led to a 1 percent hike in medical inflation, according to the report.

Of note, the newly enacted healthcare reforms will have only “a minor impact” on next year’s medical cost trends, Kelly A. Barnes, U.S. health industries leader at PricewaterhouseCoopers, said in a statement. The law, Barnes added, could play a significant role in controlling medical inflation.

“These changes could bring significant new cost savings opportunities for employers and payers as well as new choices and transparency for workers buying insurance,” Barnes said.

The figures are based on a survey of more than 700 employers spanning 30 different industries, according to PricewaterhouseCoopers.