Medical cost trend: Behind the numbers 2020

PwC’s Health Research Institute projects that 2020 medical cost trend will be up slightly from the past two years.

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Each 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.

Heading into 2020, medical cost trend is expected to increase slightly.

  • HRI projects 2020’s medical cost trend to be 6%. This is up over the flat trend seen in 2018 and 2019, with revised estimates coming in at 5.7% for both years.
  • Prices continue to be the primary driver of healthcare spending, growing at a faster rate than utilization.
  • To drive medical cost trend down, employers are taking a more active role in managing healthcare costs. For example, they're negotiating contract prices themselves, setting up provider networks and even building a parallel health system to take care of employees at more manageable costs.

“It’s no longer just about the 6% trend. For employers, compared to other players in the healthcare industry, it is now about inequity in cost and misaligned incentives across the board.”

Michael Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions

Medical cost trend over the years

Despite employers’ efforts to control utilization through high deductibles and other cost sharing, medical cost trend still outpaces general inflation. Prices continue to creep up. So, more employers are taking matters into their own hands, becoming what HRI terms “employer activists.”

Healthcare inflators

Drug spending will grow faster

Drug spending will increase as the positive impacts of generics on spending wane and new, expensive specialty therapies enter the market.

Chronic diseases will continue to plague the populace

An individual with just one chronic illness costs employers nearly four times more than a healthy individual. Diabetes and obesity are on the rise among individuals with employer coverage, fueling increased spending.

Employees and their families will take advantage of greater access to mental health services

Employers are encouraging employees to use mental health services by expanding access and running anti-stigma campaigns to promote the use of these services.

Healthcare deflators

Employers will continue to open more expansive worksite clinics

Worksite clinics are no longer centers of occupational health, with most providing primary care services and many offering additional services, like mental health programs.

Employers and payers will nudge people toward lower-cost sites of care

Payers have used benefit design and cost sharing to direct members to lower-cost sites of care. Now employers are joining them, incorporating telehealth and designing plans that encourage and incentivize the most appropriate care.

More employers will help employees maximize their benefit packages

In 2020, more employers will improve communication to help employees navigate the system and make the most of the benefits employers have directly contracted for, added on or carved out of the traditional health plan.

What this means for your business


Become a transparency steward: Understand the needs of your specific employee population to buy the best benefits at the best price with the best outcomes. Be clear what those benefits cost the employee and the employer.

Take the driver’s seat to beat the market: Understand your role as the purchaser of healthcare for employees and join the ranks of employer activists, pursuing new solutions to lower costs, improve access and enhance quality.

Design a care menu, then manage it: This applies to both the health plan and add-on benefits outside of the health plan, with clear communication around the cost, action to be taken by the employee and expected outcomes if action is taken.

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Find the right price: Benchmark the prices paid commercially against a common reference point such as Medicare. With this information, pursue value-based arrangements with high-performing and lower-cost providers, in addition to negotiating better contracted rates on existing fee-for-service arrangements.

Rethink your role to prove value: As employers look to bring together services across vendors and reconcile duplicative services, opportunity exists for payers to become integrators and even manage the performance of the services, even if the services are not offered directly by them. And for payers that have pursued vertical integration, now is the time to tap into the suite of product offerings to deliver savings to employers and consumers.

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Build a value line: A value line strategy is necessary as employers and consumers look for high-quality care for a low cost. Providers armed with a value line strategy are more likely to be included in a health plan’s high-performance networks and are better positioned to directly contract with employers.

Understand how to manage risk: Providers should understand what risk they can take on to guarantee a health outcome and the cost structure needed to make them profitable in doing so. Providers should understand and manage both the risk inherent in their ability to deliver care and the risk of the population they are managing—from health status to the social determinants impacting their health—to help them design appropriate clinical interventions as well as non-clinical support services.

Redesign the care delivery model: Focus on having the right channels of care—from primary care to nutrition support to physical therapy—for the population being served. This could mean implementing a primary care model to manage both the utilization and price of healthcare through the care coordination and gateway role that primary care can serve. But this also means not allowing the primary care model to become a barrier to care.

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Pharmaceutical and life sciences companies

Tell your value story using data: Try not to rely on the too-frequently-used research and development argument to justify the drug’s cost. Instead show the financial savings of the drug compared to other, potentially more invasive medical treatments.

Lead the way with alternative financing for specialty drugs: Pharmaceutical and life science companies should go beyond the basic outcomes-based arrangements currently in place and consider exploring and expanding alternative financing arrangements, such as subscription models for unlimited access to a product for a set period of time or a mortgage model to finance expensive specialty drugs over time.

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Contact us

Kelly Barnes

Kelly Barnes

Global and US Health Industries Leader, PwC US

Barbara Gniewek

Barbara Gniewek

Principal, Health and Welfare Practice Leader, PwC US

Rick Judy

Rick Judy

Principal, Health Industries, PwC US

Benjamin Isgur

Benjamin Isgur

Health Research Institute Leader, PwC US

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