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Health care cost increases are slowing
September 30, 2004
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Ridgefield Park, N.J. -- Although employers' health care costs will continue to increase at a double-digit pace through 2005, the increases are slowing. These are the results of a national survey of health insurers, HMOs and third-party administrators released today by Mellon Financial Corporation's Human Resources & Investor Solutions (HR&IS) business.

In its 12th National Health Care Trend Survey, conducted in the third quarter of 2004, HR&IS analyzed the responses from nearly 100 insurers and administrators to determine projected employer-provided health care benefit cost throughout 2004. As the chart below indicates, survey results showed that trends for the most popular plans are expected to decrease slightly when compared to trends reported in HR&IS' previous survey, conducted in the fourth quarter of 2003.

Type of Plan            Mellon National Health Care Trend Data
                              3Q 2004        4Q 2003       Difference
Preferred Provider            13.8 %         14.8 %         -1.0 %
  Organization (PPO)
Point-of-service (POS)        13.4           14.3           -0.9
Health Maintenance            12.4           14.0           -1.6
  Organization (HMO)

"Insurers are citing three reasons for the declines in trends -- improved financial results, more favorable arrangements with hospitals and physicians, and a desire to be more competitive in the marketplace," said Harvey Sobel, FSA, a Mellon principal and consulting actuary, who directed the survey.

While trends for prescription drug programs are generally forecast to be higher than those for general medical programs, prescription drug trends reported by health insurers are also down slightly from those reported in the prior survey as follows:

Respondent             Mellon National Health Care Trend Data
                              3Q 2004        4Q 2003       Difference
Pharmacy Benefit              13.8 %         14.7 %         -0.9 %
Insurers                      16.9           17.6           -0.7
Combined                      14.6           15.2           -0.6

"This is our sixth consecutive survey for which insurers and pharmacy benefit managers have lowered their drug trend factors," said Sobel.

Health insurers use trend factors by coverage -- such as medical, prescription drugs, dental and vision care -- to calculate their 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.

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