[April 05, 2012]

Small Comfort: Health Care Costs Projected to Increase Less Than 10 Percent, First Time in Decade

Costs for all types of medical plans are expected to increase by 9.9 percent for 2012, according to a survey by Buck Consultants, A Xerox Company (NYSE: XRX). This is the first time since 2001 that Buck's survey has projected cost increases less than 10 percent for any type of plan. The firm has been conducting its survey since 1999.

In a national survey of 129 insurers and administrators, Buck measured the projected average annual increase in employer-provided health care benefit costs. Insurers and administrators providing medical trends for the survey cover a total of approximately 109 million people.

In its 24^th National Health Care Trend Survey, Buck found costs are projected to increase at rates that are more than a full percentage point lower than its prior survey, as shown in the following chart.

"The reduced trend factors reported in our survey reflect that health insurers, who may have previously added margins to account for health care reform benefit changes mandated for 2011, have now removed those margins for 2012 projections," said Daniel Levin, FSA, a Buck principal and consulting actuary who directed the survey. "The reduction also reflects lower expected costs as a result of the economic slowdown. Employees are trying to reduce their out-of-pocket expenses and are postponing elective medical services."

"Also, the trends are not varying by plan type as they have in previous surveys," added Levin. "This may indicate that insurers do not currently see network type as a significant reason for modifying trend factors."

Health insurers reported an average prescription drug trend of 9.6 percent. This is down 1.1 percent from the prior survey. It is also more than twice the 4.6 percent reported by pharmacy benefit managers (PBMs) - third party administrators of prescription drug programs who generally do not take any underwriting risk.

For plans that supplement Medicare, health insurers reported a projected increase of 5.8 percent excluding prescription drug coverage, up from 5.3 percent in the prior survey. This lower trend of Medicare Supplement plans reflects the impact of federal controls on Medicare fees and the lower increases expected in Medicare deductibles and copays.

"Despite the lower trend factors found in our survey, health care costs continue to outpace both general inflation and wage increases -- creating real business challenges for organizations," said Levin. "We've seen increased interest from plan sponsors for strategies to optimize alternative delivery systems such as exchange models and Accountable Care Organizations."

The survey also reported trend factors for dental and vision plans.

Health insurers use trend factors to calculate premium rates, and large self-funded employers use these trend factors to budget their future health care costs. In general, trend factors provide for price increases that may result from such variables as inflation, utilization of services, technology, changes in the mix of services, and mandated benefits.

About Buck Consultants

Buck Consultants, A Xerox Company, is a leader in human resource and benefits consulting with more than 1,500 professionals worldwide. Founded in 1916 to advise clients in establishing and funding some of the nation's first public and private retirement programs, Buck is an innovator in the areas of retirement benefits, health and welfare programs, talent and human resources solutions, compensation, and employee communication. News and other information about Buck Consultants are available at http://www.buckconsultants.com.

Buck's 24^th "National Health Care Trend Survey" is available at no cost to the media by contacting Ed Gadowski at 201-902-2825. It is available to other interested parties for $100 from Buck's Global Survey Resources, 50 Fremont Street, 12^th Floor, San Francisco, CA (News - Alert) 94105. Telephone 800-887-0509. It also can be ordered online at http://www.bucksurveys.com.

About Xerox

With sales approaching $23 billion, Xerox (NYSE: XRX) is the world's leading enterprise for business process and document management. Its technology, expertise and services enable workplaces - from small businesses to large global enterprises - to simplify the way work gets done so they operate more effectively and focus more on what matters most: their real business. Headquartered in Norwalk, Conn., Xerox offers business process outsourcing and IT outsourcing services, including data processing, healthcare solutions, HR benefits management, finance support, transportation solutions, and customer relationship management services for commercial and government organizations worldwide. The company also provides extensive leading-edge document technology, services, software and genuine Xerox supplies for graphic communication and office printing environments of any size. The 140,000 people of Xerox serve clients in more than 160 countries. For more information, visit http://www.xerox.com, http://news.xerox.com or http://www.realbusiness.com. For investor information, visit http://www.xerox.com/investor.

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