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Retirement Planning
Retiree Healthcare Cost Increases Projected Lower
than Active Employees
Despite more double-digit increases healthcare
costs moderate
June 1, 2006 - While still reaching double-digit
figures, healthcare costs are beginning to increase at a lower rate,
according to Aon Consulting, the human capital consulting organization
of Aon Corporation. Healthcare rate increases for retiree medical are
projected to be lower than active employees, according to the Aon study.
During the next 12 months, Medicare Supplement plans are predicted to
increase by 11.5 percent and Medicare Advantage plans will likely
increase by 10.2 percent.
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Retirement Planning |
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"Retiree medical benefit cost trends are heavily
influenced by government reimbursement rates for Medicare and
prescription drug costs," said Jonathan Nemeth, senior vice president,
and chief health and benefits actuary with Aon Consulting. "Some modest
improvements in these two areas are leading to a slightly lower trend
rate for these plans."
Aon Consulting surveyed more than 70 leading
healthcare insurers (representing more than 100 million insured
individuals) and found healthcare costs are projected to increase in the
next 12 months by 12.2 percent for HMOs, 12.4 percent for PPOs and 11.9
percent for POS plans.
This compared to one year ago, when HMO cost
increases were 13.2 percent, PPO increases were 13.0 percent and POS
cost increases were also 13.0 percent. Meanwhile, consumer-driven health
plans (CDH) are estimated to increase by 12.5 percent, similar to a year
ago when these plans were forecasted to increase 12.7 percent. (See
below for trend data from Aon Consulting's prior healthcare surveys.)
"This is the sixth year of double-digit increases
in healthcare costs," said Bill Sharon, senior vice president with Aon
Consulting and director of the study. "Employers have been responding to
this by using a variety of strategies to control healthcare costs such
as increasing deductibles and co- payments, expanding disease management
programs, adding health promotion programs and introducing new
consumer-driven health plans. While these initiatives are slowing the
rate of increase, healthcare costs continue to grow at a pace that is
three to four times the rate of general inflation."
Insurance companies are forecasting consumer-driven
health plan trend rates to be on par with PPO trend rates, but it's
important to look at the first year of CDH savings, Sharon said.
"Although consumer-driven health plans may increase at a similar rate as
other plans this year, considerable savings still will be realized by
making the switch. Our analysis shows that a company can achieve first
year savings of 8 percent of their premium if they implement an
effective consumer-driven healthcare strategy."
As for prescription drugs, general pharmacy costs
are expected to increase by 12.2 percent, compared to 13.1 percent a
year ago. Specialty drug costs will increase by 17 percent, down from
22.5 percent last year. (Specialty drugs are biotechnology-derived
injectable medications used primarily to treat high-cost disease states
for which previous treatments were more invasive or unavailable.)
The following table summarizes Aon Consulting
Health Care Trend Survey results from 2001-2006:
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|
Fall 2001 |
Spring 2002 |
Fall 2002 |
Spring 2003 |
Fall 2003 |
|
|
|
|
|
|
|
|
Medical |
|
|
|
|
|
|
(w/Rx) |
|
|
|
|
|
|
HMO |
14.4% |
16.2% |
15.1% |
16.4% |
14.8% |
|
POS |
15.7% |
16.0% |
15.1% |
16.1% |
14.8% |
|
PPO |
16.8% |
16.0% |
15.8% |
15.7% |
14.9% |
|
Indemnity |
19.2% |
18.3% |
18.1% |
17.2% |
16.3% |
|
|
|
|
|
|
|
|
CDH |
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical |
|
|
|
|
|
|
(w/o Rx) |
|
|
|
|
|
|
HMO |
12.7% |
14.6% |
14.0% |
14.7% |
13.7% |
|
POS |
14.0% |
14.5% |
13.9% |
14.5% |
14.0% |
|
PPO |
15.1% |
14.6% |
14.6% |
14.4% |
14.3% |
|
Indemnity |
18.6% |
17.1% |
17.2% |
16.4% |
15.5% |
|
|
|
|
|
|
|
|
CDH |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental |
|
|
|
|
|
|
DHMO |
4.4% |
4.4% |
5.3% |
4.8% |
5.1% |
|
PPO |
7.7% |
7.6% |
7.8% |
7.6% |
7.7% |
|
Indemnity |
8.0% |
8.4% |
8.3% |
7.6% |
7.6% |
|
|
|
|
|
|
|
|
Pharmacy |
|
|
|
|
|
|
General |
16.0% |
17.8% |
18.3% |
17.7% |
15.3% |
|
Specialty |
|
|
|
|
|
|
Vision |
N/A |
3.2% |
3.5% |
3.8% |
3.4% |
|
|
|
|
|
|
|
|
|
Spring 2004 |
Fall 2004 |
Spring 2005 |
Fall 2005 |
Spring 2006 |
|
|
|
|
|
|
|
|
Medical |
|
|
|
|
|
|
(w/Rx) |
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