Medical cost trend: behind the numbers 2019

Employer medical cost trend has plateaued. PwC's Health Research Institute projects that the 2019 figure will be 6%: the same as 2018. Cost reduction efforts will now shift to prices.

Where is the medical cost trend headed in 2020?

Employer activism is on the rise. Fed up with rising healthcare costs, many American businesses are negotiating contract prices themselves, setting up provider networks and even building a parallel health system to take care of employees at more manageable costs. PwC's Health Research Institute (HRI) explores the impact of employer activism on medical costs in 2020.

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Every June, PwC’s Health Research Institute (HRI) projects the growth of medical costs in the employer insurance market for the coming calendar year and identifies the leading factors expected to impact the trend.

Looking ahead through 2019, medical cost trend remains stable but extremely high as healthcare costs continue to rise.

  • HRI projects 2019’s medical cost trend to be 6%. This is consistent with the last five years, which have seen trends between 5.5% and 7%.
  • Efforts to cut utilization have run their course and prices have continued to grow.
  • To drive medical cost trend down, employers should tackle prices. These efforts should address more than just drug prices, which have been the focus of attention in the last several years.

Medical cost trend over the years

Large fluctuations in medical cost trend have, for now, disappeared, but healthcare continues to represent a large share of the US economy and a large share of total employee compensation. A consistent growth rate between 5.5% and 7% is still unsustainably high.

Healthcare inflators

Care anywhere and everywhere

Responding to increased consumer pressure, employers and health plans are improving convenience by giving consumers more ways to get care. The long-term goal is to decrease spending, but in the short term, more access points can increase utilization.

Provider megamergers

The provider landscape will grow more concentrated after several recently announced mega-deals are completed. Prices tend to rise when health systems merge and the consolidated entity gains market share and negotiating power.

Physician consolidation and employment

More doctors are practicing as employees of hospitals, health systems and medical groups. These organizations tend to charge higher prices than independent doctors.


Healthcare deflators

Flu impact

The 2017-18 influenza season was the worst in several years, increasing utilization of care and driving up medical costs. The 2018-19 flu season will likely be closer to average, slightly dampening the disease’s effect on trend in 2019.

Care advocacy

Employers and health plans are offering consumers new services that engage and guide the consumer to better quality and lower-cost care.

High-performance networks

These limited provider networks emphasize high-quality care and customer satisfaction alongside cost savings. Some employers are using their buying power to negotiate directly with providers to create high-performance networks.

Recurring drivers of healthcare costs

Demographics: As baby boomers age, they have more health needs and higher healthcare costs.

Social factors and lifestyle: Unaddressed social factors of health, such as economic stability and education, can impact utilization patterns and care decisions. Poor wellness and prevention habits are drivers of ill health.

General inflation: Healthcare prices rise alongside economywide input prices.

Medical technology and innovation: New health technologies can improve outcomes and patient satisfaction but tend to cost more than existing ones.

Drug spending: Specialty drugs and gene therapies typically apply to a small segment of the population, yet their costs are high enough to affect employer healthcare spending.

Government regulation: In 2019, the industry may experience more uninsured and underinsured individuals due to the elimination of the individual mandate penalty, efforts to expand the use of plans that sidestep Affordable Care Act consumer protections and the proliferation of state-based Medicaid work requirements.

Payment models: Health plans have seen improved quality and cost outcomes thanks to value-based arrangements and will continue to push for them.

What this means for your business

Price is key

Demonstrating value is critical

Healthcare providers, drug companies and payers should develop plans to address the ongoing and intensifying focus on prices from consumers, lawmakers and the media. This could mean developing more affordable options, embracing true price transparency or demonstrating the provided service’s value.

  • Providers: To remain competitive, providers need to demonstrate value by delivering consistent outcomes at predictable prices and offering easy access to services in the right care setting.
  • Pharmaceutical and life sciences: Companies should consider differentiating themselves by using clinical decision making tools and other value-added services such as companion diagnostics to offer personalized treatments to patients.
  • Payers and employers: Businesses should consider offering a value plan option with a limited network, focusing on quality and customer satisfaction. It should also feature pricing transparency tools to demonstrate savings and value.

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Make room for advocates

Consumers and employers want their own representation

Employers are adding health advocacy to health and wellness benefits to help employees get the most out of their benefits. Health advocates help consumers make medically appropriate, financially sound decisions.

  • Providers: Health advocates can help improve patient outcomes by supporting care coordination efforts for patients across specialties and services.
  • Pharmaceutical and life sciences: As care advocates become more common, demand may rise for outcomes-based pricing and may increase price pressures. Advocates will guide patients to the most cost-effective treatment options.
  • Payers and employers: Health advocates may enhance existing disease management and care management programs, particularly for populations with chronic conditions.

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Consolidation is not enough

A better customer experience will be essential

Consolidation has changed the healthcare landscape. Health systems are getting larger, yet consolidating to protect and increase market share and negotiating power won’t guarantee success. Understanding consumers’ points of view is critical. Organizations armed with knowledge about the populations they serve can target investments strategically.

  • Providers: Post-merger, providers should consider strategies to improve customer experience, quality and convenience of care. This demonstrates the additional value gained from any price increases.
  • Pharmaceutical and life sciences: As provider consolidation continues, pharma companies should consider refocusing sales tactics from conversations with individual prescribing providers to presentations showing efficacy and cost effectiveness to a formulary committee.
  • Payers and employers: Businesses should consider proactively renegotiating contracts to manage potential rate increases in a post-acquisition market.

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Contact us

Kelly Barnes

US Health Industries and Global Health Industries Consulting Leader, PwC US

Rick Judy

Principal, Health Industries, PwC US

Tel: +1 (415) 498 5218

Benjamin Isgur

Health Research Institute Leader, PwC US

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