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Health Cost Trend According to PWC

By June 15, 2015Commentary

Price Waterhouse Cooper’s Health Research Institute issues an annual “Behind the Numbers” report, providing the firm’s current projection for medical cost trend for employment-based health plans in the next year, in this case 2016.   (PWC Report)   For 2016, the overall trend is projected at 6.5%, but the authors expect that benefit changes such as higher deductibles and narrower networks will bring that down to a net 4.5%.  For 2015, the Institute projected at 6.8% growth rate, so this is a slight slowing, if it occurs.  The authors believe the spending growth slowdown will occur because the excise tax on high-value plans is already encouraging employers to increase employee cost-sharing (oh, goody); because technologies like virtual visits and remote monitoring allow use of lower unit-cost services; and because new health advisors or information sources are steering consumers to less-expensive treatment options.  Two factors that may push spending up are specialty drugs and the costs of cyber security.  The report notes the conundrum that greater employee cost-sharing creates–it might lead to patients foregoing needed care, but says the new information sources and health advisers will help them shop wisely, while spending less.  It does appear that inpatient use is declining or at least stable and virtual visits–telemedicine through phones and the internet, have increased somewhat.

The report does not decompose trend into price factors and utilization factors.  I am leery about the projected trend.  Economy-wide evidence in 2015 suggests a significant uptick in overall health spending, driven now largely by utilization.  Higher cost-sharing undoubtedly deters some health spending, but as people feel, and maybe even are, a little more financially secure, that deterrent effect may lessen.  Telemedicine I view as a very good development because it rationalizes capacity and has a lower unit cost, usually.  But it is also unclear the extent to which it is substitutive or additive and how big a portion of all health care services it could handle.  Technologies like remote monitoring have yet to show that they actually save money.  And the idea the price-comparison sites or “health advisors” are really going to result in lower spending is completely untested.  On the other hand, we know with certainty that a very large number of specialty drugs are coming to market in the next year or so, with high price tags, and we know that there is other medical technology on the way which also likely will raise spending, at least in the short-term.  But the biggest wild card is whether the usual consumer response to better economic times–they spend more on health care–plays out as it has in past recoveries.  If it does, I doubt spending growth will be constrained to 6.5% in 2016.  And even that growth rate will be at least double current projections for GDP growth next year.

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