Medical Cost Trend: Behind the Numbers 2015
PwC Health Research Institute, June 2014
PwC’s Health Research Institute (HRI) projects 2015’s medical cost trend to be 6.8% — a modest increase over our 2014 projection of 6.5%. This projection is based on HRI’s analysis of medical costs in the large employer insurance market, which covers about 150 million Americans. By comparison, Medicare serves 52 million beneficiaries and a little over 8 million Americans enrolled in the public exchanges this year.
The net growth rate in 2015, after accounting for benefit design changes such as higher deductibles and narrow provider networks, is expected to be 4.8%. Benefit design changes typically hold down spending growth by shifting costs to consumers, who often choose less expensive healthcare options.
Although total US health spending will likely increase as more people gain insurance under the Affordable Care Act (ACA), it may have little effect on employer health spending. The increase in utilization under the ACA will likely drive up total national health expenditures without changing prices for those with employer coverage.
High-deductible plans will continue to tamp down use of services
The popularity of high-deductible health plans continues to rise as employers attempt to manage their benefit costs. According to PwC’s 2014 Touchstone Survey, 44% of employers across all industries are considering high-deductible plans as the only insurance option for their employees during the next three years. In addition, according to the same survey, 33% of employers are considering moving their active employees to a private exchange in the next three years, and this strategy tends to accelerate employee adoption of higher deductible plans.
Now more than ever, consumers are experiencing increased financial responsibility and are evaluating and rethinking how and when to spend.
Consumers become cost-conscious healthcare shoppers
The ongoing growth in high-deductible plans ultimately influences consumer behavior on the number and type of health services purchased. Eighty-five percent of employers in PwC’s 2014 Touchstone Survey have already implemented or are considering an increase in employee cost-sharing through plan design changes over the next three years, and 44% of employers are considering offering high-deductible plans as the only insurance option for their employees over the next three years.
While increased cost sharing and high-deductibles do not affect medical inflation directly, consumer behavior does. Cost remains a top concern for consumers and affects the health choices they make. According to a December 2013 HRI survey, 40% of consumers said that healthcare expenses put a strain on their budget. And a recent study in the journal Health Affairs about families with high-deductible health plans observed deliberate changes in those families’ use of health services. Families enrolled in high-deductible plans used fewer brand name drugs, had fewer doctor visits, and spent less per visit.
Risk-based contracts are beginning to reduce costs
Insurers and employers are increasingly using risk-based payments in their physician and hospital contracts to reduce costs. Risk-based contracts can include quality bonuses and penalties, shared savings programs that encourage physicians to cut costs, and patient-centered medical homes (PCMH), which pay physicians to manage and coordinate care. Most health plan actuaries interviewed by HRI reported that these strategies are starting to reap cost savings.
Employers: What are they doing now?
Employers continue to pursue a range of cost-cutting strategies with a fresh emphasis on shifting more responsibility onto workers. According to PwC’s 2014 Touchstone survey, 26% of employers have a high-deductible health plan as their highest enrolled medical plan in 2014—the highest percentage ever. Controlling costs through high-deductible plans is not the only strategy employers are trying. Offering plans with narrow provider networks, investing in wellness programs, contracting directly with centers of excellence, or even participating in private exchanges, may save employers money. Consumer behavior is also beginning to impact the spending growth rate.
This PwC medical cost trend applies to the large employer health insurance market, covering about 150 million Americans. The increase in costs for 2015 is anticipated to be 6.8%, again well in excess of the rate of inflation. Perhaps most alarming is the estimate of net growth – 4.8% – a reduction accomplished by “benefit design changes such as higher deductibles and narrow provider networks.”
We have discussed repeatedly the perversities of higher deductibles and narrower provider networks – reducing spending by impairing access and making health care less affordable for patients in need – yet that is the direction where the mainstay of health care coverage – employer-sponsored plans – is headed.
We need to remove employers and private insurers from the health care equation. A single payer national health program would eliminate the need for deductibles and would provide unlimited choice of health care professionals and institutions, while actually controlling health care spending. Its time is now.