Report: March of Rising Health Care Costs Has Slowed, but Pace Is Still Unsustainable

6% to 7% annual cost hikes outpace nation’s economic growth

While the era of double-digit growth in health care costs seems to have ended, the “new normal” pace of around 6% to 7% per year is still unsustainable, according to an article posted on the Modern Healthcare website. The report quotes from a new study by PricewaterhouseCoopers’ Health Research Institute (HRI).

HRI’s analysis projected that medical costs in 2018 will increase by 6.5% from 2017—the first uptick in three years. Insurers use the annual cost growth rate as a benchmark to help set premiums. While the medical cost trend has declined from 11.9% in 2007, it will still outpace economic growth, which means employers, providers, and insurers must work together to reduce costs over time, the study found.

The analysis measured anticipated spending growth in the employer-based market, which covers about half of all Americans. The study did not factor in changes to government payers and to Patient Protection and Affordable Care Act (PPACA) exchanges.

The report attributed increasing medical costs to three key factors:

  • Rising general inflation

An upswing in the U.S. economy, now in its third-longest expansion in American history, is gaining strength, and higher general inflation rates will affect the labor-intensive health sector, driving up wages and medical prices, the report predicts.

  • High-deductibles lose steam

After shifting health care costs to employees for years, employers are starting to ease off. Growth in high-deductible employer-based health plans is slowing, leaving less opportunity to stem increases in the use of health care services.

  • Fewer branded drugs off patent

With fewer branded, small-molecule drugs coming off patent, employers will have fewer opportunities to encourage employees to buy cost-saving generics in 2018.

The report, however, finds that two factors will help prevent increases in health care costs from returning to double digits:

  • Scrutiny pressures drug prices

Increased political and public attention could encourage drug companies to moderate price increases, the analysis suggests. Similar scrutiny in the early 1990s resulted in a dramatic reduction 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, the report says.

  • Employers minimize waste

Employers are looking to maintain access to care for their employees but in more efficient ways, lowering costs by minimizing waste and targeting spending where it’s most effective, according to the analysis. They are doubling down on tactics such as prescription quantity limits and are exploring new technologies such as artificial intelligence to match people with the best treatments.

Sources: Modern Healthcare; June 13, 2017; and HRI Report; June 2017.