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Employer health costs rise, despite zero inflation

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By Andrea Davis
March 22, 2010

Last year might have been inflation-free, but employers felt the pinch as their average health care costs increased 7.3% per capita, according to recent data.

The analysis from Thomson Reuters looked at medical claims data from 144 companies that provide health benefits to 9.5 million people from 2007 to 2009. The rate of health care inflation accelerated in 2009 for employers, increasing from 6.1% in 2008 to 7.3% in 2009.

The increase is particularly striking, given that the overall U.S. inflation rate, as measured by the Consumer Price Index, declined by 0.4% in 2009.

The 7.3% spike experienced by U.S. employers means their net health care payments for active employees increased from $3,113 to $3,341 in 2009. This cost increase comes at a particularly difficult time for U.S. companies struggling through the worst economic downturn in decades, notes the report.

Overall, U.S. health care costs grew at a more modest 4.8% per capita in 2009, according to National Health Expenditures data from the Center for Medicare and Medicaid Services Office of the Actuary.

Health care inflation hit small and midsize employers particularly hard. Among small employers (those with fewer than 5,000 employees), health care costs increased 9.8% in 2009, nearly double the 5% rate seen in 2008.

Midsized employers (those with between 5,000 and 50,000 employees) saw costs increase from 6.5% in 2008 to 10% in 2009. Among large companies (those with more than 50,000 employees), health care costs rose 5% last year – a decrease from the 5.8% rise in 2008.

Inflation continues to accelerate for both medical and pharmacy expenditures, reveal the data. Per member per year medical costs (which include inpatient and outpatient costs) increased 8% in 2009 – an increase from the 6.8% rate seen in 2008. PMPY pharmacy spending, meanwhile, increased 4.3% in 2009, up from a 3.4% increase in 2008.

Net inpatient medical costs increased 4.7% in 2009 to $852 per capita. This increase was driven by a 6.8% increase in the per capita cost of a hospital admission and partially offset by a 2% decrease in the number of admissions per 1,000 individuals.

Outpatient net costs, meanwhile, increased by 8.7% to $1,824 PMPY in 2009 and reflect relatively equal increases in the use and price of health care services. Outpatient services per 1,000 members increased 4.8% and net pay per outpatient service increased 3.8%.

Net pharmacy payments increased by 4.3% to $611 per capita in 2009, driven primarily by a 4.5% increase in unit cost. Utilization declined 0.1%.

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