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Survey: Despite Low Inflation, Employers Should Expect Health Care Premiums to Surge Into 2016

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Health care insurers report continued rising premiums into 2016 with claim trends exceeding general inflation for at least the next 18 months, according to the Spring Healthcare Trend Survey from Wells Fargo Insurance, part of Wells Fargo & Co (NYSE:WFC) . The survey of more than 65 insurance companies nationwide found that, before any plan design changes, overall claim costs will continue to increase by 7 to 10 percent, indicating even higher premium rates in 2015 and 2016.

“The results of the survey indicate rising cost trends that will force companies into a delicate balancing act of providing competitive benefits while also managing costs effectively and complying with regulations,” said Dan Gowen, national practice leader with Wells Fargo Insurance’s Employee Benefits National Practice. “We continue to work with our employee benefit customers to design and implement the best programs to increase employee engagement and support their financial goals.”

Wells Fargo Insurance has conducted this biannual survey since 2008 and, for the first time, collected data from insurers for use in forecasting healthcare trends for 2016. The survey found several trends are contributing to the strong indication that health care premiums will continue to rise, including the following:

  • Medical claim increase trends remain in the high single digits – Trends range from 7.2 percent for HMO to 9.0 percent for Indemnity Fee-for-Service annually, slightly below 2014 levels and consistent with Wells Fargo Insurance’s 2015 Employee Benefits Market Outlook released earlier this year. Despite the stability in year-over-year claim trends, costs remains at unfavorable levels for employers.
  • Rising cost and usage of specialty drugs – The survey showed a continued increase in prescription drug cost trends as a result of price increases in generic drugs, and growing use of specialty biotech drugs, such as Abilify and Crestor.
  • Healthcare claim trends for 2016 expected to increase for most products - Projections for 2016 show 0 to 1 percent higher than trends from 2015.

Healthcare trend
percentage

2015
(average)

2016
(projected)

Health maintenance organizations (HMO) 7.2 8.6
Point-of-service (POS) 7.7 8.8
Preferred provider organizations (PPO) 7.9 8.7
Consumer driver health plans 8.0 8.9
Indemnity plans 9.0 9.6
Prescription plans 10.2 10.1
  • Other influences in addition to healthcare reform provisions - Claim trends are also influenced by price inflation or deflation (changes in unit prices for the same services), increased or decreased use of services, aging, the leveraging effect of benefit design features, changes in provider treatment patterns, and improvements in technology and drug therapies.

Another challenge facing employers is the excise tax, or so-called Cadillac tax, created to encourage employers to offer cost-effective plans and engage employees in sharing the cost of care in an effort to reduce health care usage and costs. Starting in 2018, excise taxes will be charged based on how much an employer’s plan exceeds the excise thresholds, charging $0.40 for every dollar above a set threshold. Currently, 38 percent of large employers1 are expected to hit the excise tax threshold in 2018 if they do not make any changes to their plan design.

“Since the excise tax thresholds will increase annually using a cost-of-living index, it’s vital employers strive to manage healthcare cost trends in order to avoid excise taxes in the long run,” said Nick Allen, national practice leader for Actuarial Services with Wells Fargo Insurance. “For many employers, healthcare cost trends will be the foremost determining factor as to whether and when their plans will exceed the excise tax dollar limits.”

Similar to the prior year, respondents agree the top-three employer product innovations in 2015 will involve wellness initiatives, accountable care organizations (ACOs), and narrow- or tiered- provider network offerings.

The survey also found that the dental claim trend remains constant with past results and lower than medical due to a lack of cost-shifting from public to private plans and improvements in dental technology.

“Employers need to have a realistic expectation of what will happen to their health care cost if they don’t make any changes to their plan or health of their employee population,” said Gowen. “Partnering with their insurance broker and employee benefits advisor to project costs is a critical first step for a business’ strategic and financial planning for 2016.”

Wells Fargo’s Employee Benefits National Practice helps customers with financial underwriting and insurance, health and productivity risk management, benefits communication and administration, and compliance with health care reform.

About Wells Fargo Insurance

Recently named Best Insurance Broker in the U.S. by Global Finance Magazine2, Wells Fargo Insurance provides solutions for a wide range of customers, including retail consumers, high net worth individuals, small businesses, as well as middle market and large corporate customers. Wells Fargo Insurance writes or places $11 billion of risk premiums annually in property, casualty, benefits, international, personal lines, and life products and also includes one of the nation’s leading crop insurance provider, Rural Community Insurance Services (RCIS).

About Wells Fargo & Company

Wells Fargo & Company (NYSE:WFC) is a nationwide, diversified, community-based financial services company with $1.7 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,700 locations, 12,500 ATMs, and the internet (wellsfargo.com) and mobile banking, and has offices in 36 countries to support customers who conduct business in the global economy. With approximately 266,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 29 on Fortune’s 2014 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially. Wells Fargo perspectives are also available at Wells Fargo Blogs and Wells Fargo Stories.

1 American Health Policy Institute, November 2014. Retrieved from http://www.americanhealthpolicy.org/Content/documents/resources/Excise_Tax_11102014.pdf

2 Ranking includes Wells Fargo Insurance Services USA, Inc., Wells Fargo Insurance Services of West Virginia, Inc., Wells Fargo Insurance, Inc., and Rural Community Insurance Company

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