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Costs are rising for employer-sponsored insurance — again

Insurance rates expected to go up
Health insurance rates could spike by 2019 01:38

If you're one of the majority of health-care consumers who purchase insurance through your employer, you know that premium increases and rising out-of-pocket costs aren't confined to the health-care exchanges. Rising medical costs are also alive and well in the employer-sponsored insurance market.

According to the Medical Cost Trend report released today from PwC's Health Research Institute, employers and insurers are expecting a 6 percent increase in healthcare costs in 2019, in line with the 5.5 percent to 5.7 percent increases seen in the past five years. In most cases at least part of those costs are passed onto employees.

At first glance the numbers look like good news. Health care costs aren't rising at a faster rate than years past, signaling a stabilizing in costs compared to the runaway double digit increases we saw in the early 2000s.  

A closer look, however, shows a different picture. "Health-care cost increases, although steady, are still not sustainable," said Barbara Gniewek, principal at PwC. "The economy, wages and the Consumer Price Index are not growing at the same rate as health-care costs, and that's troubling," she explained. "Health care accounts for 12 percent of wages, double what it was 30 years ago, and that's without accounting for inflation."

Gniewek points to three dominant trends in health care that are fueling rising costs.

  • Health care everywhere. Employers are offering workers access to health care in new places, including retail clinics, urgent care clinics and electronic physician consultations. This is increasing what insurers call "utilization" – in other words: consumption of health-care services – which drives up claims and costs. "Ironically these access points were designed to lower costs," Gniewek said. "We haven't seen the savings yet, although we may soon."
  • Provider mergers. Consolidation among hospitals and other health-care providers has been rampant in the past decade or so. While efficiencies from the mergers may eventually help lower costs, for the time being consolidation is actually increasing costs. Why? After a merger, it is usually the company with the higher cost providers that dominates. Contracts with insurers are renegotiated at the higher rates and in turn raising costs, at least in the short term.
  • More physicians working for hospitals. With the current health-care consolidation, many physicians have moved out of private practice and now work for hospital companies. In fact, 42 percent of physicians were employed by hospitals in 2016, up from 25 percent in 2012, according to the report. Hospitals and medical groups tend to charge anywhere from 14 percent to 30 percent more than physicians in private practice. The result: rising prices.

At the same time, some trends are putting a damper on health-care costs. Next year's flu, for instance, is anticipated to be far milder than this year's devastating season. In addition, more employers are offering care advocates. These services help the consumer navigate the insurance system to find the best quality care for the best price. According to the survey, 72 percent of employers offered health-advocacy services to their employees this year, a 14 percent increase from 2016.  

Employers are also embracing so-called high-performance networks. Often called narrow networks, these are a group of selective doctors that an insurer chooses to provide care for the bulk of covered employees. These providers aren't necessarily the lowest cost providers but they are proven to have the best results. Thus, employer-sponsored insurers want you to see them.

If you're an employee at a large company, expect to see more offerings for care advocates and specialized networks. Employers will want to take advantage of these cost-saving tools. At the same time, although it's costly for now, you'll likely see more opportunities to grab health care at non-traditional places, such as drug stores or clinics. You may like the convenience and your employer will like the idea that a small health problem caught now can avoid an expensive, full-fledged health episode later. 

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