Trend is the average forecasted change in health plans’ per capita claims cost. This figure is determined by insurance carriers, Managed Care Organizations, Pharmacy Benefit Managers, and Third Party Administrators. Trend projections are usually updated each quarter within a year and vary by source depending on the specific characteristics of the population being analyzed.
Trend comprises the following components:
- Price Inflation – this represents the per unit increase in the price of items such as medical supplies, drug unit costs and medical treatments.
Increased Utilization – this represents the frequency of consumption of items such as medical services, medical supplies, prescription drugs, etc. Utilization increases due to factors such as:
- Increased need for services by the aging population
- Increased consumer awareness of new medical technology and drug treatments
- Upgraded diagnostic and detection methods related to preventive services
- Technological Advances – this represents the introduction of new medical equipment, new medical and drug therapies, and the recent introduction of technological requirements needed to comply with HIPAA.
- Deductible Leveraging – this represents the change in cost sharing from the employee to the health care plan due to price inflation within a fixed co-pay arrangement.
EXAMPLE: A health plan participant pays a flat $20 co-pay for a 34 day dose of a prescription drug costing $100. If the drug price increases to $125 in the following year and the participant’s co-pay remains $20, the health plan’s liability increases from $80 to $105. This scenario represents a 31% increase in exposure for the health plan.
- Cost Shifting – this represents the shifting of costs from the public sector to the private sector. This occurs when the federal government reduces Medicare reimbursement rates or when hospitals experience an increase in the level of uninsured patients. Providers increase their fees to the private sector to recoup the deficit from other revenue sources.
- Government Mandated Benefits and Legislative Changes – this represents the costs associated with compliance with items such as HIPAA, Medicare D and various state-mandated benefits.
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