What’s Driving Medical Cost Trend Upward in 2018?

Medical cost trend is projected to have a slight uptick next year compared to the last three years, according to PwCs Health Research Institute (HRI) Medical Cost Trend: behind the numbers 2018 report.

Medical cost trend is the projected percentage increase in the cost to treat patients, assuming benefits stay the same. Insurers use the projection to calculate health plan premiums for the following year.

Annual Medical Cost Trend Expected to Be 6.5%

The anticipated growth rate for 2018 is 6.5 percent, half a percentage point higher than this year. Benefit design changes such as higher copays and narrower provider networks typically help hold down spending growth and is expected to do so next year by a percentage point, putting the net growth rate at 5.5 percent.

There are several factors affecting both sides of medical trend. While single digit increases have become the new normal for projections, the report notes that health organizations and businesses will have to tackle the price of services and the rate of utilization in the future to keep healthcare affordable.

Upward Pressure

For 2018, these three factors are expected to put upward pressure on medical cost trend:

Rising Inflation

The US economy is heating up and impacting all prices, healthcare costs included. With employers hiring and businesses and consumers spending, general inflation is rising and will likely put pressure on wages, medical prices and cost trend.

Movement to High Deductible Health Plans Slow

Less employers (28%) are considering only high deductible health plan offerings over the next three years, compared to (44%) in 2014, according to the 2017 PwC Touchstone Survey. A slowdown in the shift to HDHPs means employers may see an increase in utilization and will therefore have to look on the service-side of things such as narrower provider network and centers of excellence to bring down price instead of utilization.

Less Branded Drugs are Going Off Patent Protection

Fewer branded drugs have been coming off patent since 2016, meaning savings cannot be realized by generics coming onto the market in 2018. Generic prices are typically 80 – 85% less than branded originals within a few years of a patent expiring and create significant cost savings. Employers often use formularies with generics and encourage their use to help decrease medical costs.

Downward Pressure

There are also two emerging forces that may put downward pressure on health spending increases:

Public and Political Pressure to Keep Drug Prices in Check

Negative pressure is causing pharmaceutical companies to address pricing and value. Heightened political and public attention has the ability to cause drug-makers to hold price hikes in check, while for some drugs in the past year have had triple and quadruple digit percentage increases.

Employers Target New Treatments and Technologies to Reduce Waste

Employers looking to maintain access to care and minimize waste are turning to where treatments are administered, coordinating care, artificial intelligence, new technologies and traditional strategies to effectively keep employees covered and maintain costs.

Source:  PwC Health Research Institute. Medical cost trend: Behind the numbers 2018.