PWC Medical Trend Report

The summer is the season when health plans typically have to begin giving employers renewal rates for the next year, in this case 2015.  Estimates regarding medical trend are obviously critical to that process.  A PriceWaterhouseCooper report looks at projected medical trend for employer-based health coverage for 2015.   (PWC Report)   The results are based on interviews with industry executives, health policy experts and health actuaries.  The headline number is a projected 6.8% increase in medical costs, a slight rise over the 6.5% projected for 2014.  Because benefit changes can affect the trend, after estimated changes in benefit structures, primarily higher deductibles, the rise is projected to be a net 4.8% to employers.  While the report characterizes this as “moderate”, we never tire of pointing out that it is more than twice the rate of general inflation, the rate of GDP growth and far, far higher than the wage or income growth the average employee is experiencing.  PWC attributes the growth to general economic improvement, which typically precedes an upswing in health spending; specialty drugs, such as the new hepatitis C medications, which have high prices, but whose better outcomes might actually limit longer-term spending on other categories of care; continued shifting of physician practices to the hospital setting, where higher prices are charged for the same services; and HIT investments.  Some factors PWC sees as slowing the growth rate are the various components of the health system working more efficiently together, more price awareness and shopping by patients and an increase in risk-based payments to providers.  But a very important factor in restraining trend is the continued growth of high-deductible health plans.  According to PWC, 44% of employers are considering using such a design as their only plan option, and 18% already do so.  In addition, 33% are considering use of private exchanges, which tend to focus heavily on plans with this high-deductible feature.  The report concludes with a set of recommendations for various participants in the health system.

The recent revision to first quarter GDP suggested that health spending actually fell in early 2014.  That seems hard to believe and it was an astounding revision from the early projection of 9% growth.  Other indicators suggest that there is increased utilization among the newly covered, both in Medicaid and through the exchanges.  The projected premium increases in the exchanges for 2015 would suggest that plans are experiencing higher costs in 2014.  It seems astounding that we can’t in this age of technology get a faster picture of where health spending is going.