In the ever-evolving world of healthcare, one term you’ve likely come across is “trend.” But what does it really mean?
In simple terms, healthcare trend refers to the projected year-over-year increase in healthcare costs. This concept involves two main factors:
- Price inflation: The rising cost of services
- Utilization increases: More people receiving the same services
These dynamics work together, especially as new, often more effective treatments become available, replacing older, less expensive, and less effective options.
Why Should You Care About Trends?
If you’re a plan sponsor or advisor, understanding trend assumptions is key for accurate health plan budget forecasting, particularly for self-insured plans. Trend assumptions, along with past claims experience, are the primary factors for underwriters and actuaries to develop cost projections. Without accurate trend assumptions, financial forecasts can be significantly skewed.
Underwriters and actuaries derive trend assumptions from various sources. Some use internal calculations based on their specific book of business, while others refer to published sources like Segal or Milliman.
Regardless of the source, the consensus is clear: trend rates for medical and drug costs are rising, and the pace of this increase is accelerating.
What Drives Healthcare Trends?
Several factors are impacting this continued increase. Let’s explore just a few:
- Advancements in medical technology: While new technologies and treatments improve patient outcomes, they often come with higher costs that impact your health plan budget.
- Aging population: As the population ages, the prevalence of disease increases. Older adults require more medical care, driving up utilization rates.
- Chronic disease: The growing prevalence of chronic diseases like diabetes, heart disease, and obesity leads to increased use of healthcare services. Managing these conditions often requires continuous care, medications, and monitoring, contributing to higher long-term expenditures.
Strategies to Mitigate Trends
For decades, common strategies to counter rising trends involved plan design changes and increasing employee paycheck contributions. Both have the net effect of passing along more of the plan costs to employees. This strategy may have reached its limit, as plan designs are nearing the point of legal limits on affordability.
Many plan sponsors are now looking for alternative strategies that focus on addressing the problem at its source. Some of these strategies include:
- Increased use of data analytics: Leveraging data and analytics can help in understanding and managing medical trends. For example, predictive modeling can identify high-risk patients, enabling early intervention and care coordination to prevent costly hospital stays.
- Preventive care programs: Promoting preventive care can reduce the incidence of chronic diseases and improve overall population health. By preventing diseases or catching them early, these initiatives can cut down on the need for expensive treatments and hospitalizations.
- Alternate health plan models: These include narrow network plans, which offer higher benefits for using high-value, low-cost providers, and value-based care models, which focus on delivering high-quality care while reducing unnecessary services and costs. Providers are incentivized to achieve better health outcomes rather than increasing service volume, leading to more efficient and effective care.
Navigating Your Future
In times of record health plan costs, understanding the implications of trend is more important than ever. With a clear grasp of these concepts, you can better navigate the complexities of healthcare budgeting and ensure your forecasts are as accurate as possible.
Working with the Employee Benefits experts at Holmes Murphy will help you manage the financial health of your plans with powerful insights and strategies designed for your organization’s unique needs. Reach out today and let’s start a conversation!
