Session 2: A Look at PwC Health Research Institute's 2020 Medical Cost Trend Report
Nov 14, 2019
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 Session2 of 11 sessions, per the PwC Health Research Institute (HRI) report.
Session #2: Putting trend in perspective
Last week, we covered the three inflators and deflators of the 2020 predicted cost trend. Plus, we shared the definition of the medical cost trend and the actual annual results starting in 2007. This week we will provide some perspective that impacted the cost trend.
Three broad factors emerged as key drivers of medical trend:
1. Prices are driving health care spending.
Over the past 15 years, benefit cost growth has been driven by the prices of medical services and prescription drugs. Prices have been a larger component of employer benefit costs than utilization since 2004. Since 2006 overall utilization has been relatively flat while prices from 2013 – 2017 rose 17%. (12)
The Medical Cost Equation
Unit price (cost of service) X Utilization (# of units used) = Total Medical Cost
Components of growth in employer benefit costs, 1991 – 2018
2. Deductibles dampen utilization and spending as employees feel the pain.
Employees often don’t understand their financial exposure with high deductible health plans (HDHP). They may be skipping preventive care because of cost concerns, when the visit based on plan design would be covered at no cost to them.
Another frustration comes from the fact that growth in employee cost sharing has outpaced growth in wages in recent years.
On average employees pay 15% of total healthcare costs through premiums, deductibles, and co-pays.
Employees’ disappointment with HDHPs may be driven less by what they are spending on healthcare and more by what they are at risk for spending and might be unable to afford
For all deductible levels across individuals and families, one-third or more did not have enough savings to cover their deductible. (21) Often the employee is influenced by the lower monthly premium and choose the HDHP without considering the much higher deductible and either the available disposable income or existing personal savings.
3. End of the cost-shifting story and the beginning of employer activism.
The employer activist is eager for new ways to slow or drive down healthcare costs.
Some employers are more aggressively negotiating with health plans and pharmacy benefit managers (PBMs), as well as, exploring direct contracting with providers and pharmaceutical companies.
Others are actively helping their employees manage their health and their healthcare spending.
“Employers are very frustrated with slow progress and we are no longer willing to let the healthcare ecosystem evolve on its own.”
As key purchasers and payers of healthcare, self-insured employers are positioned to use their market power to accelerate the advance toward value-based care and increased system efficiencies,” said Dr. Diana Han, CMO, GE Appliances, Louisville, KY.
With all that is stated in this recap concerning the medical cost trend, each employer needs access to data that will allow them to determine the unique 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
(12) Health Care Cost Institute, “2017 Health care cost and utilization report,” February 2019, https://www. healthcostinstitute.org/research/annual-reports/entry/2017-health-care-cost-and-utilization-report.
(21) PwC Health Research Institute consumer survey, spring 2019.