6 factors behind PwC's 2019's medical cost trend of 6%
PricewaterhouseCoopers released its report on medical cost trends, which estimates numbers for 2019. The good news? Cost increases have leveled off—rising 6 percent in 2019. But for employers, these increasing expenditures do not lead to improved productivity. Medical costs continue to jump, while growth in labor productivity should remain near 1.1 percent for 2019—below the average annual increase of 2.3 percent in recent decades.
“Employer medical cost trend has plateaued,” the report states. “While the predictability is a welcome change from the wild swings and peak double-digit trends in the 2000s, steady as she goes is not good enough. Medical costs continue to grow as a percent of total employee compensation, making even the current trend unsustainable.”
PwC outlined six major factors affecting medical costs for 2019—three helping to inflate costs and three working to control spending.
Inflator 1: Widespread access
Individuals can access care at the grocery story, on their phones or via video on a computer. Convenience is key—and increased access is driving utilization.
“In transportation there is this idea that anytime you make it easier for people to use the transportation system, you increase congestion,” said Micah Weinberg, president of the Economic Institute of the Bay Area Economic Council, a San Francisco-based center for economic and policy research, in an interview with HRI. “A similar analogy applies to healthcare; anytime you make it easier to access the healthcare system, you increase utilization.”
Inflator 2: Industry consolidation
PwC’s Health Research Institute estimates 93 percent of metropolitan hospital markets will be high consolidated by 2019. This could lead to higher prices in the short term, with consumers covering increased expenses from integration. But, the report argues, prices may fall as economies of scale improve efficiency.
Inflator 3: Physician consolidation
Thanks to growth among large physician groups, doctors are more and more likely to be a part of larger groups. Efficiencies and cost-reductions should occur—but these cost controls have not been seen in the industry just yet.
“The last five to 10 years of physician practice acquisitions and vertical consolidation has made it hard for employers to negotiate,” said David Lansky, president and CEO of the Pacific Business Group on Health, a California-based employer association, in an interview with HRI.
Deflator 1: Catching the flu
Because this winter’s flu season was exceptionally bad, hospitalizations and mortality were higher than usual—something that can significantly affect cost trends in one year, while acting as a deflator for the next year, when flu rates return to normal.
“A bad guy for 2018 with rebound expected in 2019 is the severe flu season,” said Brian Renshaw, vice president and CFO of clinical solutions at Anthem Inc., based in Indianapolis, in an interview with HRI.
Deflator 2: Patient helpers
Employees are utilizing advocacy services to manage high deductible health plans, which can control costs. PwC estimated 72 percent of employers offer such services to employees in 2018—up from 75 percent in 2016.
“It’s the end of the cost-shifting story and the beginning of figuring out how to help employees become better healthcare consumers through real-time navigation assistance,” said Michael Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, based in Washington, D.C., in an interview with HRI.
Deflator 3: Narrow, high-performing networks
Employees are looking to other avenues than high deductible health plans—and the high-performance network is one option. These plans—with limited choid of doctors—will be a third deflator for 2019.
“Historically the narrow network has been a cost play,” said Amy Yao, senior vice president and chief actuary of Blue Shield of California, in an interview with HRI. “Employers are interested in bending the trend but also care about quality. Our ACO products are not narrow network products—they do not target the lowest-cost providers out of the gate. Instead, we focus on those providers who have the will and skill to care for patients in a way that bends the trend.”
The full report can be downloaded here for free.
Nicholas joined TriMed in 2016 as the managing editor of the Chicago office. After receiving his master’s from Roosevelt University, he worked in various writing/editing roles for magazines ranging in topic from billiards to metallurgy. Currently on Chicago’s north side, Nicholas keeps busy by running, reading and talking to his two cats.