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Pent-Up Demand Expected to Drive Medical Cost Growth Pent-Up Demand Expected to Drive Medical Cost Growth

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Pent-Up Demand Expected to Drive Medical Cost Growth


Dr. Jim Spears examines Sarah Ittner, a New York-based actor who does not have health coverage. Medical costs are expected to spike as the economy recovers.(Spencer Platt/Getty Images)

Employer medical costs are expected to rise 8.5 percent in 2012, up from 8 percent in 2011, in part due to pent up demand from those who delayed care during the economic downturn, according to a report published on Wednesday.

Other factors expected to drive up costs: Hospitals and doctors will team up more, reducing competition; and cost-shifting will result as Medicare and Medicaid pay less per patient.


The recession that lasted from 2007 through 2009, coupled with a slower-than-expected recovery, worked to keep medical cost growth below predicted levels, according to a PricewaterhouseCoopers Health Research Institute report. As a result, Americans had less to spend on medical services.

Cost growth rose to 7.5 percent in 2010, and is expected to hit 8 percent this year--both below predicted averages, PwC said in its analysis of a survey of 1,700 employers from 30 industries.

But those numbers could rise as the economy rebounds and employees seek to make up for the medical care they may have put off.


“Healthcare organizations are in a state of flux over pending health reform provisions, an uncertain economic outlook and financial pressures, and the way they react will have significant implications for their own long-term health in this rapidly changing market,” Michael Galper, a PwC analyst, said in a statement.

The year-old health reform law has played only a marginal role so far. That could change as some of the provisions begin to take hold, however. The law could contribute to higher cost growth because it continues to cut Medicare rates, which may prompt hospitals and doctors to charge higher rates.

Even though costs are expected to grow, it could be worse. Several factors are working to keep costs in check, such as employers shifting more of the costs to their workers, and the proliferation of cheaper prescription drugs as many brand name drugs go off patent.

Medical cost trend is the projected increase in the costs of medical services that health plans use to set their premiums. The largest component of spending is physician services, which consumes 33 percent of all benefit costs. Hospital services account for 31 percent. Spending on outpatient services and prescription medications is also considered.

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