Medical costs projected to rise 8.5% in 2012

Health care costs just keep rising — and at an ever-faster pace. Medical costs for workers are projected to increase 8.5 percent in 2012, up from an 8 percent increase in 2011, according to a new report from consulting firm PwC’s Health Research Institute.


In the report summary, PwC names three key price accelerators:

  • Provider consolidation continues
  • Cost-shifting from Medicare and Medicaid increases
  • Post-recession stress builds up on the workforce

So, the recession bears a bit of the blame, but the bulk of it falls on the unaffordable Affordable Care Act. Or, as PwC more politely puts it, “An interesting blend of reactions to the recession, the slow recovery, health reform and other variables will affect the medical cost trend in 2012.” But, certainly, provider consolidation was a stated goal of Obamacare, as Julian Pecquet explains:

Improving care coordination is a key goal of the law that the government hopes will lower costs over the long term, but health insurers say it will reduce competition and increase rates.

Of course it will. PwC’s second price accelerator shouldn’t come as much of a surprise, either. As Medicaid and Medicare pay an even smaller proportion of cost to hospitals, private payers will have no choice but to pay more. The report puts it this way:

Private health plans generally pay above costs, while Medicare and Medicaid pay below costs to hospitals and physicians. For example, in 2009, on average, Medicare and Medicaid paid about 90 percent and 89 percent, respectively, of cost to hospitals, while private payers paid 134 percent of cost to hospitals. Medicare accounts for about 42 percent of hospital inpatient days; Medicaid accounts for about 11 percent. Both shares have been increasing and thus pushing uncovered costs onto a smaller base of private payers. Medicare and Medicaid rates are expected to decline relative to private payment in 2012 because of the impact of the PPACA on Medicare payment rates and the impact of the recession on Medicaid.


In 2008, the United States had a health care problem: high costs (among other things). In 2012, the United States will still have a health care problem: higher costs. All health care conversation fatigue aside, it’s no wonder the issue remains of paramount importance for presidential hopefuls.



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David Strom 5:30 PM | June 18, 2024