medical cost trends

PwC’s Health Research Institute has published its annual projection of medical costs in the employer health insurance marketplace. The report identifies the key factors that will impact growth trends in medical costs in 2018.

It is expected that the coming year will see moderate fluctuations instead of volatile swings in medical costs. Moreover, employer medical costs will trend towards single-digit growth after years of double-digit growth. The projected growth in medical costs for 2018 is 6.5 percent. Employers will need to employ a multi-pronged approach to curb healthcare costs by addressing the price of services as well as utilization rate. Here are some of the principal medical cost trends for 2018 in the “new normal” healthcare landscape.

Inflation

Rising inflation will lead to an increase in the price of everything from salaries and benefits to pharmaceuticals and medical devices. This will put an overall upward pressure on medical costs for businesses in 2018.

Affordable Health Plans

The wave of growth in affordable health plans with low premiums and high deductibles is expected to plateau. Employers have typically relied upon these plans as a cost-controlling strategy. In an increasingly competitive market, employers will find it difficult to offer such plans which have scaled-back benefits.

Generic Drugs

Over the last couple of years, several patents for branded drugs have expired, bringing down the overall revenue from pharmaceutical sales in the U.S. For employers, this means that in 2018 there will be fewer opportunities to purchase less expensive generic drugs.

Drug Prices

There is increasing pressure on Big Pharma to moderate drug prices. This scrutiny is expected to limit increases in price and bring less expensive alternatives to the market in 2018. The focus is on providing value and minimizing waste. Employers will have access to new treatments and technologies and will benefit from strategies such as limited prescription quantities.

Lifestyle Trends

Lifestyle trends and demographics are overall drivers of the economy including healthcare costs. In 2018, these factors will place both upward and downward pressures on employer healthcare costs, with changes in payment models playing a key role in the medical sector.

Cost-Sharing

HRI projects that increased cost sharing with the consumer and lower utilization as a method of reducing medical costs will no longer be an effective strategy. Employers will have to develop new strategies to curb employee medical costs.

It is interesting that in the five years from 2011 to 2016, the insurance premium for employer-provided family coverage increased by 20 percent. With health spending continuing to outpace economic growth, the increased cost of health insurance is eroding into the ability of the consumer to pay for necessities such as food, housing, and transport. It is projected that in 2018 medical costs will continue to grow faster than the GDP and take up an even bigger share of the economy. On the one hand, this will place budgetary constraints on sectors such as defense. On the other hand, it will lead to increasing dissatisfaction with low-premium health plans that entail a high deductible and force consumers to forgo services such as preventive healthcare. In 2018, therefore, businesses will need to tackle medical costs in the new health industry landscape with a focus on both the price of services as well as utilization rate.

Contact us to find out more about medical cost trends.

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