Employer medical cost trend has plateaued. While the predictability is a welcome change from the wild swings and peak double-digit trends in the 2000s, steady as she goes is not good enough. Medical costs continue to grow as a percent of total employee compensation, making even the current trend unsustainable.
PwC’s Health Research Institute (HRI) projects a 6 percent medical cost trend in 2019, consistent with the 5.5-7 percent range of the previous five years. But employers continue to struggle to contain their employee coverage costs. Medical costs continue to grow, yet the workforce’s health and performance aren’t improving. Average labor productivity growth of 1.1 percent over the last 10 years falls far below the 2.3 percent average of the last seven decades, according to a report by the US Bureau of Labor Statistics.
Efforts by employers to cut utilization have mostly run their course. Employers and consumers are plagued by high prices that continue to grow because of new, expensive medical services and drugs, and other factors, such as consolidation.
HRI’s analysis measures anticipated medical cost trend in the employer-based market, which covers about half of non-elderly Americans, according to a report by Kaiser Family Foundation. Changes to government health insurance, including Medicare, Medicaid and plans sold on the public exchanges created by the Affordable Care Act (ACA), are not within this analysis’ scope.
HRI’s research points to three factors inflating medical cost trend in 2019:
Some forces affect medical cost trend year after year. These include economywide drivers such as demographics, social factors, lifestyle choices and general economic growth. They also include healthcare-specific drivers such as medical technology and innovation, government actions, payment model changes and drug spending growth, including generics’ offsetting effects.
General economic conditions are strong and show signs of continuing to improve, putting upward pressure on trend beyond 2019. Deal activity picked up steam in the second half of 2017 and into 2018 with the announcement of major combinations such as CVS Health-Aetna, Cigna Corp.-Express Scripts Holding Co. and Optum-DaVita Medical Group.
Organizations not usually considered healthcare companies also are dipping their toes into the healthcare industry, such as Amazon, JPMorgan Chase & Co. and Berkshire Hathaway Inc. These disruptive deals have created a lot of excitement because of their scale and the organizations involved.
Industry trends and efforts by employers and health plans have driven medical cost trend down from double digits in 2007 to 5.5-7 percent a year for the last five years, according to an analysis of medical cost trend projections by HRI. But trend seems stuck at that growth rate. To drive it down even more, employers and health plans likely will have to tackle prices—and not just drug prices, which have been a focal point in the last few years.
“It’s not like you can point the finger at one bad guy,” said Niall Brennan, president and CEO of the Washington D.C.-based Health Care Cost Institute, in a conversation with HRI. “There appear to be multiple offenders in different segments of the industry.”
Addressing prices will require employers and insurers to collaborate with employees, providers, pharmaceutical companies, pharmacy benefit managers, community health resources, retail pharmacies and new entrants to the industry.
It will mean sharpening focus on three areas: justifying the price of products or services by demonstrating their value, getting comfortable working with third parties advocating on patients’ behalf, and targeting investments that improve the customer experience.
Some forces affect medical cost trend year after year. These include economywide drivers such as demographics, social factors, lifestyle choices and general economic growth. They also include healthcare-specific drivers such as medical technology and innovation, government actions, payment model changes and drug spending growth, including generics’ offsetting effects.
General economic conditions are strong and show signs of continuing to improve, putting upward pressure on trend beyond 2019. Deal activity picked up steam in the second half of 2017 and into 2018 with the announcement of major combinations such as CVS Health-Aetna, Cigna Corp.-Express Scripts Holding Co. and Optum-DaVita Medical Group.
Organizations not usually considered healthcare companies also are dipping their toes into the healthcare industry, such as Amazon, JPMorgan Chase & Co. and Berkshire Hathaway Inc. These disruptive deals have created a lot of excitement because of their scale and the organizations involved.
Industry trends and efforts by employers and health plans have driven medical cost trend down from double digits in 2007 to 5.5-7 percent a year for the last five years, according to an analysis of medical cost trend projections by HRI. But trend seems stuck at that growth rate. To drive it down even more, employers and health plans likely will have to tackle prices—and not just drug prices, which have been a focal point in the last few years.
“It’s not like you can point the finger at one bad guy,” said Niall Brennan, president and CEO of the Washington D.C.-based Health Care Cost Institute, in a conversation with HRI. “There appear to be multiple offenders in different segments of the industry.”
Addressing prices will require employers and insurers to collaborate with employees, providers, pharmaceutical companies, pharmacy benefit managers, community health resources, retail pharmacies and new entrants to the industry.
It will mean sharpening focus on three areas: justifying the price of products or services by demonstrating their value, getting comfortable working with third parties advocating on patients’ behalf, and targeting investments that improve the customer experience.
Some forces affect medical cost trend year after year. These include economywide drivers such as demographics, social factors, lifestyle choices and general economic growth. They also include healthcare-specific drivers such as medical technology and innovation, government actions, payment model changes and drug spending growth, including generics’ offsetting effects.
General economic conditions are strong and show signs of continuing to improve, putting upward pressure on trend beyond 2019. Deal activity picked up steam in the second half of 2017 and into 2018 with the announcement of major combinations such as CVS Health-Aetna, Cigna Corp.-Express Scripts Holding Co. and Optum-DaVita Medical Group.
Organizations not usually considered healthcare companies also are dipping their toes into the healthcare industry, such as Amazon, JPMorgan Chase & Co. and Berkshire Hathaway Inc. These disruptive deals have created a lot of excitement because of their scale and the organizations involved.
Industry trends and efforts by employers and health plans have driven medical cost trend down from double digits in 2007 to 5.5-7 percent a year for the last five years, according to an analysis of medical cost trend projections by HRI. But trend seems stuck at that growth rate. To drive it down even more, employers and health plans likely will have to tackle prices—and not just drug prices, which have been a focal point in the last few years.
“It’s not like you can point the finger at one bad guy,” said Niall Brennan, president and CEO of the Washington D.C.-based Health Care Cost Institute, in a conversation with HRI. “There appear to be multiple offenders in different segments of the industry.”
Addressing prices will require employers and insurers to collaborate with employees, providers, pharmaceutical companies, pharmacy benefit managers, community health resources, retail pharmacies and new entrants to the industry.
It will mean sharpening focus on three areas: justifying the price of products or services by demonstrating their value, getting comfortable working with third parties advocating on patients’ behalf, and targeting investments that improve the customer experience.