PwC, the accounting and consulting company, is projecting slower growth in healthcare costs again in 2014. In a recent study, PwC’s Health Research Institute (HRI), estimates medical costs will increase by 6.5% in 2014. However, when adjustments to benefit plan design, such as higher deductibles are made, the net projected growth rate drops to 4.5%.
For many years healthcare spending in the U.S. has grown significantly faster than the economy and workers’ wages. However, since the recession, the rate of increase has slowed dramatically and is now at some of the lowest levels since the government began tracking national health expenditures in 1960. The question is whether the rate at which healthcare costs grow will continue to trend downward or rebound as the economy recovers.
The answer is critically important to companies and their employees as well as taxpayers who must foot the bill for Medicare, Medicaid and expanded coverage resulting from the Patient Protection and Affordable Care Act.
In the above referenced study, Mike Thompson of PwC’s HRI stated: “There are some underlying changes to the system that are having an impact, and we can expect lower increases as we come out of the recession.” Cost “is still going up, but not as much as it used to.” The report cites four major factors that will push costs down in 2014:
1. As deductible levels increase, patients are choosing more affordable options, like walk- in clinics, instead of going to their doctors or to emergency rooms. 24% of consumers visited a retail clinic in 2012— more than triple the level five years earlier. The number of telemedicine visits is also skyrocketing. According to the report, one industry analysis projects the number of telemedicine visits will increase by 55% in 2013.
2. More and more major employers are directly contracting with hospital systems with proven records of success for heart surgeries, back operations and other complicated procedures. They are paying bundled fixed rates that are saving the employers significant dollars, even when patient transportation costs are added.
3. The government has increased penalties for hospitals that have too many readmissions soon after patients are discharged.
4. Employers are utilizing higher annual deductibles to shift more costs to workers. In the last five years in-network deductibles have grown from $680 to $1,230, based on employee health plans with deductibles. Out-of-network deductibles have risen even more quickly, more than doubling from $1,000 to $2,110 a year.
According to the report, two factors that will lead to increase in costs in the coming year are:
1. The increased use of newly available, high priced “specialty” drugs for treating serious chronic illnesses including some types of cancer and autoimmune diseases.
2. Price increases resulting from large hospitals buying smaller hospitals, medical practices and rehab centers. Hospital merger and acquisition activity has increased almost 50% since 2009 to the highest point in the last 10 years. The report states that in concentrated markets hospital mergers can increase prices by 20% or more.
Will the trend toward smaller and smaller increases in healthcare costs continue in 2014 and beyond? Only time will tell, but there are many promising signs.