Medical cost trend: Behind the numbers 2021

PwC’s Health Research Institute projects that medical cost trend could range from 4% to 10%

Medical cost trend in the midst of the COVID-19 pandemic

Because of the drop in employer healthcare spending in the first half of 2020 and the uncertainty around spending in the second half of the year, HRI is projecting 2021 medical cost trend relative to 2020 estimated healthcare costs, normalizing for COVID-19, rather than actual 2020 costs. HRI has developed three scenarios to guide employers and health plans as they determine 2021 medical cost trend:

  • High-spending scenario: Spending grows significantly higher in 2021 after being down in 2020.
  • Medium-spending scenario: Spending grows at roughly the same rate in 2021 as it did from 2014 to 2019 and was expected to in 2020.
  • Low-spending scenario: Spending remains dampened in 2021.

Watch PwC's webcast: Medical cost trend in the midst of the COVID-19 pandemic.

COVID-19 upends employer healthcare spending

Employers are incurring unplanned COVID-19 testing and treatment costs in 2020, and those costs likely will continue in 2021. In 2020, these unplanned costs are expected to be more than offset by the savings from delayed care during the pandemic. An increase in spending is expected in 2021 as the demand for care returns.

Healthcare inflators/deflators

Inflator 1 - COVID-19 boosts mental health utilization

Employers have made mental health a priority over the past few years by expanding mental health benefits and working to dispel the stigma around mental health conditions. The COVID-19 pandemic, with its attendant anxiety and social isolation, likely will drive further demand for mental healthcare at a time when employers are eager to expand access.

What this means for your business: Payers/employers

Take inventory of virtual mental health offerings to ensure sufficient access to virtual care and support. Communicate these virtual options early and often to employees and members. Encourage the use of telehealth for mental health through plan design.

What this means for your business: Providers

Build out virtual mental health services and integrate them with broader primary care services to improve health outcomes and spending on individuals with a comorbid mental health condition.

What this means for your business: Pharma and life science

Partner with digital mental health companies to support medication adherence and enhance outcomes. Consider outcomes-based contracts with employers and payers for the diseases and related treatments targeted by partnerships with digital mental health companies.

Inflator 2 - New specialty drugs and expanding indications for approved specialty drugs increase spending

Most medications in the pipeline are specialty drugs. Some of those drugs are curative gene therapies that could come with multimillion-dollar price tags. Existing specialty drugs also are driving spending as the conditions for which they are approved expands.

What this means for your business: Payers/employers

Self-insured employers and payers should evaluate their abilities to cover new, high-priced therapies and consider partnering with other organizations such as financial institutions, pharmaceutical companies and even other payers with the balance sheet to weather one-time treatment costs of $1 million or more.

What this means for your business: Providers

Work with payers and employers to mitigate spending growth on administered drugs, most of which are high-priced specialty drugs, by delivering those therapies in the safest, lowest cost setting. During the COVID-19 pandemic, this could mean moving treatments completely out of the inpatient setting to an outpatient clinic, physician’s office or even the patient’s home.

What this means for your business: Pharma and life science

Before the launch of a new drug, especially one with a price tag in the millions, engage with payers and employers on pricing and financing. Make the case for the long-term cost savings. Consider alternative payment models, or a combination of models, to ease the financial burden on payers and employers.

Deflator 1 - Telehealth goes mainstream

Telehealth has been gaining ground slowly for years. COVID-19 forced its rapid adoption by both consumers and clinicians, many of whom had never used it before. In 2021, HRI expects telehealth to settle in as a viable and desirable alternative to in-person care, saving employers and health plans on the episodic cost of care delivered virtually.

What this means for your business: Payers/employers

With telehealth utilization likely to remain up over pre-pandemic levels, payers should review their telehealth contracts and determine whether contracting with a national telehealth provider, local providers or both best fits the needs of its members. Payers can also help employers increase utilization of telehealth.

What this means for your business: Providers

Providers should reevaluate telehealth solutions with the expectation that this channel for care delivery may be the new normal. Providers will need to redesign the patient experience for a post-pandemic world around a heavily virtual system that is able to address chronic conditions and more complicated patients.

What this means for your business: Pharma and life science

Post-pandemic, companies should prepare for virtual clinical trials to become the norm. Virtual trials could lead to faster drug development, by allowing for faster collection of some data and more frequent gathering of information about patients.

Deflator 2 - Networks narrow out of necessity

Employers are eyeing narrow provider networks; over a quarter of employers have been considering them for the past few years. Some of those employers may move to a narrow network plan in 2021 as COVID-19 and the related economic downturn force employers to shed costs and make healthcare providers more willing in the short term to give price concessions or take on more risks in exchange for predictable cash flows, if it helps them get patients to return for care.

What this means for your business: Payers/employers

Plans that have embraced narrow networks for their individual exchange businesses may be well-positioned to roll out those networks on a broader scale for commercial large group business. Employers will need analytic capabilities to understand costs to inform strategy and a clear communication strategy to show value to employees, who may be skeptical of their value.

What this means for your business: Providers

Providers positioning for inclusion in narrow networks will need to demonstrate quality while managing cost. They should pursue deals that help them build primary care networks that can address patients’ whole health needs, including addressing the social factors impacting their health, and triage patients to the lowest cost setting appropriate for their health issue.

What this means for your business: Pharma and life science

As narrow provider networks become more popular, providers may be shouldering more risk on treatment and patient outcomes. This could affect prescribing patterns and, in turn, how pharmaceutical companies promote their products to providers. Pharmaceutical companies should find the most effective ways to demonstrate their drugs’ value and look for opportunities to collaborate with providers on population health management.


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Karen Young

Karen Young

US Health Industries Leader, PwC US

Barbara Gniewek

Barbara Gniewek

Principal, Health and Welfare Practice Leader, PwC US

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Rick Judy

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Benjamin Isgur

Health Research Institute Leader, PwC US

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