Medical Inflation Projected to Rise 6.8% in 2015

Higher growth next year tempered by purchaser demands for value

By Stephen Miller, CEBS June 24, 2014

After a five-year contraction in employer health care spending growth, medical inflation in the U.S. is projected to rise to 6.8 percent in 2015, according to consultancy PricewaterhouseCoopers (PwC). In its annual report, Medical Cost Trend: Behind the Numbers 2015, PwC’s Health Research Institute projects that the stronger economy is now reaching the health sector, releasing a pent-up demand for care and services.

The higher expected growth rate in 2015 is modest compared to the double-digit annual increases seen throughout the late 1990s and early 2000s. But health spending continues to outpace overall economic growth as measured by gross domestic product.

The forward-looking report is based on the best available information through May 2014, including interviews with industry executives, health policy experts and health plan actuaries whose companies cover a combined 93 million members.

The high cost of specialty drugs is a significant factor behind increased health care spending, according to the report. However, over the long term, these innovative new therapies may improve quality of life and reduce other medical costs.

The report notes that factors helping to moderate the growth rate include:

Cost-conscious consumer shopping brought about by employees shouldering more of the financial responsibility for their health care.

Health care providers streamlining administrative activities and standardizing clinical programs to eliminate redundancies and lower operating costs.

Risk-based contracts in which health care providers are held accountable for patient outcomes.

Plan Design Changes

After accounting for likely changes in benefit design, such as higher deductibles (see box below) and narrow networks, the researchers project a net growth rate in health benefit costs of 4.8 percent in 2015. Benefit design changes typically hold down spending growth by shifting financial responsibility to consumers, who often choose less expensive options.

"It’s still too early to tell whether the drive for transparency and better value for each health care dollar will be able to temper spending growth once millions of newly insured [individuals] access the health care system" through the Affordable Care Act, said Kelly Barnes, PwC’s U.S. health industries leader.

Top Strategies: Cost-Shifting and Wellness Promotion

The ninth annual report also includes findings from PwCs 2014 Health and Well-being Touchstone Surveyof 1,200 employers from 35 industries, also released in June.

High-deductible health plans (HDHPs) continue to grow in popularity:

67 percent of employers offer HDHPs, up from 62 percent last year. Health savings account (HSA) compatible HDHPs are growing the fastest—47 percent in 2014, up from 39 percent last year.

The in-network deductible in the highest enrolled plan is $1,000 or more (individual coverage) for 40 percent of employers, up from 22 percent in 2012.

44 percent of employers are considering offering a HDHP as a full replacement to their current plans, and 18 percent of employers now offer a HDHP as the only insurance option for their employees.

HDHPs are now the highest enrolled plan for 26 percent of employers, up from 17 percent in 2012.

Wellness continues to be a major investment for employers:

71 percent of employers offered wellness programs in 2014, up from 68 percent in 2013.

Most common was an employee assisted program (EAP), followed by biometric screening, health risk questionnaire, tobacco cessation and physical activity program/fitness discount.

53 percent offer disease management programs, up from 49 percent in 2013. The most common programs were for diabetes, asthma, cardiovascular disease and chronic obstructive pulmonary disease.

25 to 30 percent are expanding their focus to broader definitions of well-being (financial, emotional, social, community, career).

Stephen Miller, CEBS, is an online editor/manager for SHRM. 

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