Wednesday, June 25, 2014
PwC Health Research Institute
Medical Cost Trend: Behind the Numbers 2015
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
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.
Comment by Don McCanne
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.
at 3:46 PM