Cyber security joins specialty drugs in contributing to projected health spending

Medical spending among people with private coverage may continue to grow at relatively slow rates in 2016, according to the latest Medical Cost Trend: Behind the Numbers report from PwC’s Health Research Institute.

Each year, PwC reports projected medical cost trend (an estimate of the underlying growth in costs that reflects changes in the prices and utilization of services) and the net growth rate, which also accounts for changes in the generosity of coverage. The medical cost trend, which PwC projects will be 6.5% in 2016, is used by insurers in setting their premiums for the coming year. The projected growth of 6.5% is among the lowest since PwC began its annual report 10 years ago. After adjusting for changes in benefits (such as higher deductibles and narrower networks), PwC projects net cost growth in these markets will be 4.5% in 2016.

Echoing last year’s projections and adding to continuing analysis of the role of specialty drugs in overall spending, the PwC report suggests that costly new specialty drugs entering the market in both 2015 and 2016 will contribute to spending growth. Additionally, increasing concern over potential breaches of personal health information is also expected to spur investments in enhanced cyber security.

“Although costly specialty drugs have gone mainstream and a few additional blockbusters are slated to be released this year and next, insurers will be more prepared to price the cost into premiums. Unlike the unanticipated impact of the Hepatitis C drugs on costs, insurers are more closely tracking the drug development pipeline and the patient populations who will take them.”

– PwC Health Research Institute, Behind the Numbers 2016

The report points to three factors that will likely moderate spending growth. Foremost is the continuing shift of health costs from employers to their employees. As the consumer cost burden increases, enrollees tend to use less care or seek less costly treatments. PwC suggests that the trend toward increasing deductibles may be accelerated as employers prepare for the Affordable Care Act’s “Cadillac Tax” to go into effect in 2018. (This provision of the health law would impose sizable taxes on plans with premiums over $10,200 for individual plans and over $27,500 for self and spouse or family plans).

PwC also suggests that telehealth will become more popular in 2016 and help to moderate spending, in part as it allows increasingly penny-pinched consumers an alternative to some office visits. Also expected to moderate spending is the advent of new health advisors who will guide employees in choosing efficient health care services.