Health spending may bounce back in 2015, but double-digit increases still unlikely

The growth of health costs in the employer-sponsored insurance market is expected to increase in 2015, according to PwC’s Health Research Institute (HRI) annual medical cost trend projection. Though this may mark the end of five years of slowed growth, HRI suggests that several factors will prevent a return to the double-digit inflation of previous decades.

The report includes projections of the 2015 medical cost trend (an estimate of the underlying growth in costs that reflects changes in the prices of services and changes in the amount of services used) and the net growth rate, which also accounts for changes in the generosity of coverage (plans with higher deductibles and other cost-sharing contribute toward a lower net growth rate because enrollees in these plans tend to use less care).

“For 2015, PwC’s Health Research Institute (HRI) projects a medical cost trend of 6.8%. Taking into account likely adjustments to benefit design such as higher deductibles, HRI anticipates a net growth rate of 4.8%.”

PwC Behind the Numbers, 2015

HRI identifies the primary drivers of cost growth as: the rebounding economy, spending on costly specialty drugs, a shift to hospital-based payments as physician practices are acquired, and investments in IT integration.

Conversely, several other factors may be working to contain medical cost growth, including: a shift towards integrated health services, reduced hospital operating costs through standardization of hospital clinical and administrative processes, and the advent of risk-based payment models.

“Insurers and employers are increasingly using risk-based payments in their physician and hospital contracts to reduce costs. Risk-based contracts can include quality bonuses and penalties, shared savings programs that encourage physicians to cut costs, and patient-centered medical homes (PCMH), which pay physicians to manage and coordinate care. Most health plan actuaries interviewed by HRI reported that these strategies are starting to reap cost savings.”

PwC Behind the Numbers, 2015

The study notes that the continuing trend of employers shifting health costs to consumers through higher cost-sharing has a moderating effect on cost growth. Enrollment in high-deductible employer-sponsored health plans has jumped from 8% in 2009 to 26% in 2014. Eighteen percent of surveyed employers limit enrollment to one high-deductible plan, while 44% are considering doing the same.