By Bill Rusteberg
Medical trend (inflation) is largely due to inflated medical costs guaranteed to increase year after year in managed care contracts through annual escalator clauses (Escalator Clauses, Rising Prices, And Why We Should Care). In addition, renegotiated contracts effectively cause a double whammy (renegotiated provider contracts always end up costing more, not less).
Medical costs have remained relatively stable over the past five years but medical “costs” to the payer of services have increased 9-10% each year. Think about that – Medical costs have remained static but medical costs have increased. Try to explain that to Uncle Hermann.
Groups eschewing managed care historically beat medical trend (Beating Medical Trend – Managed Care vs Reference Based Pricing).
On the other hand, the BUCA’s continue to rely upon managed care contracts that drive costs up, not down. Why ? Frequent readers of this blog know the answer.
Today I reviewed a BUCA renewal. In 2017 their trend factor was 10.56%. Their trend factor for 2018 is projected to be 11.04%. The group is getting a whopping increase, much larger than trend, despite a 68% loss ratio. The multiplier effect of trend is costing the plan sponsor dearly.
I like a trend factor of 0%. Don’t you? In fact, how about a negative trend factor? It exists.
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