NEW YORK — After a five-year contraction in employer healthcare spending growth, medical inflation in the United States is projected to rise to 6.8% in 2015, according to PricewaterhouseCoopers’ Health Research Institute. In its annual report, "Medical Cost Trend: Behind the Numbers," HRI on Tuesday projected that the stronger economy is now reaching the health sector, releasing a pent-up demand for care and services.
Despite some higher utilization and the cost of expensive new cures, the higher expected growth rate in 2015 is modest compared to the double-digit annual increases seen throughout the late 1990s and early 2000s. However, the fact that health spending continues to outpace GDP underscores the need for a renewed focus on productivity, efficiency and ultimately delivering better value for healthcare customers.
Confident consumers are spending more freely on healthcare due to the improved economy as well as increasing numbers of newly insured, and HRI expects that trend to continue through next year. In addition, the high costs of specialty drugs will increase the healthcare spending growth rate, according to HRI. As exemplified by new Hepatitis C therapies, which are estimated to have a big cost impact next year — responsible for a 0.2% increase in spending growth — drug development continues to play an inflationary role in the short run. However, over the long-term, these new therapies may improve quality of life and reduce other medical costs. Other inflationary factors identified by HRI are shifts to higher payments for physician practices acquired by hospitals and health systems, and IT integration investments for large-scale health system mergers and acquisitions.
"Due to a demand for value and increased efficiency in the healthcare industry, medical inflation will be modest this year," stated Kelly Barnes, PwC’s U.S. health industries leader. "It is still too early to tell whether the drive for transparency and better value for each healthcare dollar – the cornerstone of the new health economy – will be able to temper spending growth once millions of newly insured access the healthcare system."
The report notes that additional factors are helping to moderate the growth rate. Three factors holding down spending growth include:
- Healthcare providers gaining efficiencies through ‘systemness’ - streamlining administrative activities and standardizing clinical programs to eliminate redundancies and lower operating costs;
- Cost-conscious consumer shopping brought about by employees shouldering more of the financial responsibility for their healthcare; and
- Risk-based contracts in which healthcare providers are held accountable for patient outcomes.
After accounting for likely changes in benefit design, such as higher deductibles and narrow networks, HRI projects a net growth rate of 4.8% in 2015. Benefit design changes typically hold down spending growth by shifting financial responsibility to consumers, who often choose less expensive options.
In Behind the Numbers, HRI examines the factors that serve to inflate or deflate the spending growth rate. The ninth annual report also includes findings from PwC’s 2014 Health and Well-being Touchstone Survey of 1,200 large employers and interviews with health plan actuaries whose companies cover a total of 93 million members. Some key findings from the Touchstone Survey include:
- Employers are continuing to shift financial responsibility for health plan costs to employees through plan design and increased contributions. High deductible health plans are growing in popularity, with 18% of employers surveyed now offering a high-deductible plan as the only insurance option for employees;
- Wellness continues to be a major investment for employers, with 71% offering programs, up from 68% in 2013; and
- Other than traditional cost savings efforts geared towards cost shifting, employers are considering private exchanges more often than other new and emerging strategies.
“Major purchasers such as the federal government and large employers are helping to contain spending growth, in part by demanding greater value and by shifting more financial responsibility to consumers,” said Michael Thompson, principal, PwC’s human resource services practice. “Indeed 85% of the employers we surveyed have implemented or are considering an increase in employee cost sharing, with high deductible health plans the highest enrolled plan for 26%. When you consider that the in-network deductible is $1,000 or more for 40% of employers — up from 16% in 2010 — it’s no wonder that employers are exploring other cost saving efforts such as private exchanges and wellness initiatives.”