Medical Cost Trend: Behind the numbers 2020
PwC Health Research Institute (HRI)
Condensed and presented by Advanced Plan for Health
The Advanced Plan for Health team regularly scans the health market for trends, analysis and insight. In our research, we found The PwC HRI Medical Cost Trend: Behind the Numbers 2020 report to be full of valuable healthcare market information and thought our readers would benefit from the report findings. We decided to condense and present the PwC HRI report in a bi-weekly blog series to highlight what we found to be most pertinent to our readers and to better understand factors that could potentially affect the 2020 medical cost trend. Below is Session 1 of 11 sessions, per the PwC Health Research Institute (HRI) report.
Session #1: Medical trend, what it is, and the inflators / deflators for 2020
What is medical cost trend?
Medical cost trend is the projected percentage increase in the cost to treat patients from one year to the next, assuming benefits remain the same. While it can be defined in several ways, PwC’s report estimates the projected increase in per capita costs of medical services and prescription medicine that affect commercial insurers’ large group plans and large, self-insured businesses. Insurance companies use the projection to calculate health plan premiums for the coming year. For example, a 5% trend means that a plan that costs $10,000 per employee this year would cost $10,500 next year. The cost trend, or growth rate, is influenced primarily by:
Changes in the price of medical products and services and prescription medicines, known as unit cost inflation
Changes in the number or intensity of services used, or changes in per capita utilization
The medical trend has been flat for two years but is expected to increase in 2020.
Drug spending will grow faster – Between 2020 and 2027, retail drug spending under private health insurance is projected to increase at a rate of 3% to 6% a year as the impact of generics on spending plateaus, biosimilars continue to see slow uptake and new costly therapies enter the market.(2)
Chronic diseases will continue to plague the populace – 60% of adults have a chronic disease, with 40% managing two or more.(3)
Employees and their families will take advantage of greater access to mental health services – Nearly 75% of employers offer mental health disease management programs. (5) Anytime access is expanded, costs will go up in the short term. but in the long term, employers may find that addressing mental health is a powerful deflator of medical cost trend.
Employers will continue to open more expansive worksite clinics – In 2020, more companies will take action to make sure healthcare is accessible to their employees, opening and expanding clinics as a strategy to control cost trend.
Employers and payers will nudge people toward lower-cost sites of care – Payers are designing plans to encourage members to choose free-standing facilities and in-home care, rather than more expensive sites. How those benefits are designed and how employees perceive the costs will shape the effectiveness of site of care strategies. Payers and employers are aiming to grow the role of telemedicine as employees grow more comfortable with it, especially if out-of-pocket costs are lower and quality and experience don’t suffer.
More employers will help employees maximize their benefit packages – More than 80% of consumers surveyed by HRI with employer-based insurance would be interested in a “menu” of options for care across virtual and physical settings.(7)
More employers are taking matters into their own hands, becoming “employer activists.” These new employer activists are taking bold new steps in their efforts to contain costs. They are:
negotiating contract prices,
setting up their own provider networks and,
building parallel health systems for their own employees at more manageable costs.
The pressure to reduce health costs has been building for years for employers and now is spreading to employees, who are not happy with the level of cost sharing. More than 40% of consumers surveyed by HRI who have high deductible plans through an employer said they would rather not have one. (9) Many consumers struggle to afford their deductibles; 28% of HRI survey respondents with employer-sponsored insurance said they had $500 or less in emergency savings. (10)
With all that is stated in this recap concerning medical trend, each employer needs access to data that will allow them to determine the inflators and deflators that are driving their cost trend. In turn this will enable the development of strategies that provide a path to intervene at the point of risk and mitigate its impact, e.g. benefit design considerations, care management effectiveness, and others. To learn more about this research, feel free to contact us here.
PwC HRI Sources
(2) PwC Health Research Institute analysis of CMS national health expenditure data for private health insurance, projected data 2020-27; Andrea M. Sisko, Sean P. Keehan, John A. Poisal, Gigi A. Cuckler, Sheila D. Smith, et al., “National Health Expenditure Projections, 2018-27: Economic and demographic trends drive spending and enrollment growth,” Health Affairs, Feb. 20, 2019, https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2018.05499. Note: Private health insurance spending is used by CMS to measure health spending growth for the private health insurance market, about 90 percent of which consists of employer health spending.
(3) CDC’s National Center for Chronic Disease Prevention and Health Promotion, “Chronic diseases in America,”accessed May 27, 2019, https://www.cdc.gov/chronicdisease/pdf/infographics/chronic-disease-H.pdf.
(5) PwC 2018 Health and Well-being Touchstone Survey.
(7) PwC Health Research Institute consumer survey, May 2018.
(9) PwC Health Research Institute consumer survey, spring 2019.
(10) PwC Health Research Institute consumer survey, spring 2019.