Medical costs rose sharply during the recession and are continuing to rise at several times the rate of inflation, despite a poor economy, weak demand for medical services and generally low inflation.  Despite what you may have learned in economics 101 in college, the law supply and demand has seemingly little impact on medical cost inflation.

Two recently published studies show or predict costs rising at an approximately 8% annualized rate, even while demand for medical services is not growing much and inflation remains at very low levels (other than gas prices, of course!).

The PricewaterhouseCoopers (PwC) Health Research Institute recently predicted that employer health care costs will rise by about 8.5% in 2012, after rising by about 9% a year in both 2010 and 2011.  Even with modest cost-sharing and other plan changes, most employers can expect about a 7% increase on health plan costs over the next year.

The recently published 2011 Milliman Medical Cost Index (MMI) reports that in 2010 costs increased at a 7.3% rate to an average of over $19,300 a year for a family of four on a PPO plan, more than double the $9,235 cost in 2002.  The employee portion of these costs have also more than doubled, from about $3,600 in 2002 to just over $8,000 in 2011.

As costs have soared over the years, the employee's share of the total costs have also been increasing.  The MMI report states that the employee share of total health care cost have increased to nearly 40% (39.7%) of total costs, up from 36.8% in 2005 when they started tracking this metric.

Neither report offers much hope for a reduction in cost growth (the roughly 8% current medical cost inflation rate is down from annual increases in excess of 10% for most of the last decade).  The likely ongoing trend will be further cost-shifting to employees, even with employers absorbing much of the increased costs.

We believe that the ongoing high medical cost inflation rate also has the indirect effect of keeping a lid on merit and pay increase budgets (even in better times), as employers have to incur ever-increasing fixed benefits costs, even in times of economic stress and low inflation (and low pricing flexibility for their own products and services).

The PwC report states that 84% of employers are planning to make changes to their health plans to try and offset some of the expected cost increases.  A similar percentage (86%) state they are likely to re-evaluate their overall benefits strategy, while one-half are considering reducing or eliminating subsidies on dependent medical coverage.

If yesterday's graphic didn't scare you, this one might help you get the gist of why REAL healthare reform is critical to the costs your organization incurs for healthcare, as well as for the entire country, and especially for the taxpayers (and your children/grandchildren) that will foot the burden of out-of-control healthcare cost growth.

Some may ask why I'm on a soapbox about healthcare reform recently, and the answer is really quite simple.  Healthcare reform, without real reform, is just another way to pump even more money into the machine that is slowly but surely bankrupting our country. 

The current plans on the table, while offering some "mini" reforms, basically just pump another trillion or so dollars into the same high margin, fee-for-service machine that has led to a never-ending spiral of cost increases several times the overall rate of inflation for the past few decades (even in the 2008-2009 economic slump, the worst in decades, healthcare costs are expected to rise in low double digits annually, even while consumers are cutting back on medical care!).

Of course, most Americans are concerned about what come out of their pocket for care, and that's understandable.  But what I believe many fail to realize is someone is paying for all the care that you're not paying for, and those "someones" are your employer, your government, your children and grandchildren, and you (indirectly, through taxes and deficits).

So, even if you think you're not paying for it, you really are, because it is built into the cost of the goods you buy, the massive deficits we're racking up, higher cost your employers are paying (which otherwise might go towards pay increases or hiring, but those costs are diverted to healthcare instead).

The healthcare crisis in America is not going away, with or without the current plans on the table.  It's time for all Americans to demand real reform (at least if you're concerned about the world you, your children and grandchildren will live in, in the the coming decades).  Reform that will restrict and/or eliminate the current fee-for-service model, and move towards evidence-based treatments, outcome-based payments, best-practice models, and yes, even some reasoned rationing, because everybody can't have everything they want (at little or no out-of-pocket cost, of course) and not expect the costs to soar.

I feel better, now that I've blown off some steam!  Please do you part.  This really is a crisis, even if you don't feel it yet.

If you see any real healthcare cost containment going on, please let me (and the rest of the country) know.

Each year some major consulting firms and others conduct their annual healthcare cost studies, and while the trends seemed to be moving toward slightly lower annual increases (down to the upper single digits, from the low double digit percentage annual increases), the last two studies I've seen are predicting roughly 10% annual increases in healthcare cost for 2009 and 2010, in the middle of major a major recession with virtually no (non-healthcare) inflation!

For instance the Buck Consultants 20th National Health Care Trend Survey is predicting between 10% and 11% annual increases (depending on plan type) for 2009 and 2010.  In other words, while wages are are flat to down in real (post-inflation) terms and companies suffering from falling sales and profits, somehow, healthcare can increase 10% in cost.

I've been reading about how many consumers are delaying going to the doctor, and not electing to have elective procedures done, but costs still go up 10%?  Somewhere I recall hearing about this concept called "the law of supply and demand," but apparently I was mistaken about that!

Healthcare costs for employers have more than doubled since the turn of the century and employee's out-of-pocket cost have tripled. Healthcare is slowly bankrupting our country.

I'm not a fan of government intervention in the free market, or of government-provided healthcare, but something has to be done.  In 1980, healthcare was about 9% of GDP, and in 2009 it will be approximately 18%.  We're heading toward 20% of GDP being spent on healthcare in this country within a few years.  Yes, you read correctly, one out of every five dollars spent in this country, will be spent on healthcare alone.