PwC’s Health Research Institute (HRI) predicts that the era of volatile swings and double-digit growth in employer medical costs may be coming to an end.
Based on its annual report, “Medical Cost Trend: Behind the Numbers 2018,” HRI projects approximately a 6.5% growth rate for next year, a half percentage point increase from the estimated 2017 rate. The new health economy is settling into a “new normal” characterized by this single-digit trend that fluctuates moderately from year to year, PwC says.
Still, with medical cost trend hovering between 6% and 7% percent for several years, health spending continues to outpace the economy. Even this “new normal” is not sustainable and future reductions in cost trend may require tackling the price of services as well as the rate of utilization, the company notes.
PwC found the wave of growth in high-deductible health plans HDHPs, employers’ go-to strategy in recent years to curb health spending, may be plateauing. Employers are recognizing a limit to how broadly cost sharing can be used to encourage more price-conscious decisions, PWC says. At the same time, in a competitive labor market, employers have less appetite for scaling back benefits and continuing with a plan design that has proven largely unpopular with employees.
“Yesterday’s strategy of encouraging lower utilization through increased cost-sharing with consumers has run its course,” says Kelly Barnes, U.S. Health Industries and Global Health Industries consulting leader, PwC. “For medical cost trend to slow further, industry leaders will need to look at new strategies that focus on bringing health prices down.”
However, PwC’s 2017 Health and Well-being Touchstone Survey of more than 780 employers from 37 industries found employers are utilizing HDHPs more and Preferred Provider Organizations (PPOs) less, although PPOs remain more popular among employees.
The Medical Cost Trend survey found that in an effort to ensure employees maintain access to care while minimizing waste, employers are learning to better manage and deploy new treatments, technologies and information. They are doubling down on tactics such as prescription quantity limits and exploring new technologies such as artificial intelligence to match people with the best treatment.
The Health and Well-being Touchstone Survey shows employers are increasing contributions in the form of surcharges for spouse, domestic partner and dependent coverage. This may be contributing toward a decrease in enrolled family size and slowing the rise in net employer spend.