Medical Cost Trend Settles Into a "New Normal" of Single-Digit Growth, According to PwC's Health Research Institute

NEW YORK, June 13, 2017 /PRNewswire/ -- 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 percent 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. 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.

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"Yesterday's strategy of encouraging lower utilization through increased cost-sharing with consumers has run its course," said 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."

PwC's Health Research Institute has identified five major factors expected to impact medical cost trend in the coming year:

1. Rising general inflation impacts healthcare. As the U.S. economy heats up, a rise in general inflation during 2016 and 2017 will likely put upward pressure on wages, medical prices and overall cost trend in 2018. Higher general inflation has the biggest impact in healthcare through salary and benefits, but also affects the cost of other inputs such as medical devices and pharmaceuticals. 
2. Movement to high-deductible health plans is losing steam. The wave of growth in high-deductible health plans, 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. 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.
3. Fewer branded drugs are coming off patent. For two consecutive years, the U.S. pharmaceutical sales revenue associated with patent expirations for branded, small molecule drugs has declined. Employers may have less opportunity to encourage employees to buy cost-saving generics in 2018.
4. Political and public scrutiny puts pressure on drug companies. Heightened political and public attention could encourage drug companies to moderate price increases. Similar scrutiny in the early 1990s resulted in a dramatic decrease in the drug price growth rate. The industry is already seeing some pharmaceutical companies take action, limiting price increases, offering cheaper alternatives and proactively addressing questions of value.
5. Employers are targeting the right people with the right treatments to minimize waste. 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.

Like its predecessors, this year's Behind the Numbers report draws upon findings from PwC's 2017 Health and Well-being Touchstone Survey of more than 780 employers from 37 industries, one of the most thorough studies available on benefit plans offered by U.S.-based employers. Key findings include:

• Medical plan costs have continued to increase, but employers expect that the rate of increase will start to slow. Plan design changes contributed towards slightly lower-than-expected increases in 2016.
• Participants appear to be in a "wait and see" mode – rather than considering broader and more transformational changes, they continue to use traditional cost-shifting approaches to control health spend.
• Participants are increasing contributions in the form of surcharges for spouse, domestic partner and dependent coverage. This may be contributing towards a decrease in enrolled family size and slowing the rise in net employer spend.
• Participants are utilizing High Deductible Health Plans (HDHPs) more and Preferred Provider Organizations (PPOs) less, although PPOs remain more popular among employees.

For its research, HRI interviewed industry executives, health policy experts and health plan actuaries whose companies cover more than 100 million employer-sponsored members. PwC's national consumer survey of 1,500 U.S. adults is also included. The report does not cover government-sponsored or nongroup insurance.

For the full report and graphics illustrating the key findings, visit www.pwc.com/us/MedicalCostTrends.

For the full report of the 2017 PwC Health and Well-being Touchstone Survey, visit www.pwc.com/us/touchstone2017.

About PwC's Health Research Institute (HRI) PwC's Health Research Institute (www.pwc.com/hri) provides new intelligence, perspectives and analysis on trends affecting all health-related industries. The Health Research Institute helps executive decision makers navigate change through primary research and collaborative exchange. Its views are shaped by a network of professionals with executive and day-to-day experience in the health industry. HRI research is independent and not sponsored by businesses, government or other institutions.

About PwC's Health Industries Group PwC's Health Industries Group (www.pwc.com/us/healthindustries) is a leading advisor to public and private organizations across the health industries, including healthcare providers, pharmaceuticals, health and life sciences, payers, employers, academic institutions and non-health organizations with significant presence in the health market. Follow PwC Health Industries at @PwCHealth.

About PwC US At PwC US, our purpose is to build trust in society and solve important problems. We're a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com/US.

© 2017 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

Contact: Sarah Tropiano Senior Manager, Public Relations (703) 307-3823 [email protected]

Laura Dally Senior Associate, Public Relations (202) 774-8524 [email protected]

 

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SOURCE PwC US