2014 Trends and Issues

Making predictions is a perilous business, particularly because our biases and beliefs will undoubtedly cause us to state what we wish would happen as much as what we think might really happen.  So forecasting 2014’s health care trends is a dangerous task, but people ask, so here is our best guess.  As with predicting what individuals will have high costs in the forthcoming year, where high spending in the prior year is about the best predictor, so it is with general trends.  What happened in 2013 is likely to persist into 2014.  The reform law will continue to dominate all other issues and to struggle, with its high costs imposing significant burdens on many Americans and on Medicaid programs.  The mid-term elections in the fall will be heavily influenced by how the reform law has affected or is perceived to have affected people.  And the results of that election may determine the ultimate fate of the law.  At some point, we think the Medicaid expansion will have to be rolled back.  We think employers will continue to expand use of private exchanges and in some cases send employees to the public ones, with an underlying defined contribution benefit plan. Employees and dependents with employer coverage will see lower benefits and greater cost-sharing.  And most people seeking individual coverage will simply find it too expensive, upsetting insurers’ calculations about the nature of their risk pools.  So, again, at some point, greater flexibility will be permitted in benefit design, to lower costs.   During the year, however, all the uncertainty and the higher costs will create great stress for everyone in the system and unforeseen effects on revenue and profitability.

Providers will increase their rebellion against the onslaught of government regulations and initiatives, from the health information technology mandates to value-based purchasing.  And they will likely begin to demand higher revenue and incomes, after years of relative quiescence.  The hiatus in high per capita spending growth may end, with costs re-accelerating.  ACOs and other forms of provider consolidation will facilitate demands for higher payments.

The mobile app business may flare on for a while, but eventually investors will recognize that building lasting businesses for price transparency, provider comparisons, health engagement, etc. is going to be exceedingly difficult, as there are no barriers to entry and no real differentiators between products.  The pharmaceutical manufacturers will continue to do just fine and they continue the migration to very expensive and high margin specialty drugs.  They can respond to price outrage by lowering prices a little and still having very strong profits.

Finally, I predict that my forecasts will almost certainly be shown to be wrong!