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PWC’s 2020 Medical Cost Trend Report

By June 24, 2019Commentary

Larger employers begin thinking about health plan design issues for the upcoming calendar year in the summer.  What will benefits look like, what will premiums be, how much cost-sharing will be pushed to employees.  The benefit consultants and health plans that work with employers on these issues occasionally share some of their thinking.  PriceWaterhouseCooper’s Health Research Institute has issued its report on expectations for 2020 medical cost trend.   (PWC Report)   The base projection is for an increase of 6%, which employers are anticipated to reduce to 5% when the effects of benefit design changes are taken into account.  For the last five years, medical trend has been in a range of 5.5% to 6.2%; which is higher than economic growth but lower than it was in the early part of the decade.  Price growth is the major factor behind the rise in medical spending, as utilization is expected to show little change. The lower utilization may be in part due to the continued growth of deductibles and other cost-sharing for employees, which also contribute to dissatisfaction with health benefits and cost.  The rise in prices charged to private health plans is driven by consolidation among providers.

Some specific items expected to fuel the rise in spending are higher drug prices, the ongoing growth in prevalence of chronic diseases and more use of mental health services.  Drug spending is expected to increase by over 3% in 2020 and further accelerate in subsequent years.  Biologic therapies have few generic equivalents and very high prices.  People with multiple chronic diseases account for 3 to 8 times the average annual spending of a healthy employee.  An aging population and a lifetime of bad health behaviors are hard to reverse.  Obesity is related to some of these chronic diseases such as diabetes, high blood pressure and coronary artery disease.  Among actions cited as being taken by employers to control trend are more use of worksite clinics, and adding to the range of services provided by those clinics and using financial incentives, like lower cost-sharing, to encourage use of cheaper sites of care.  Worksite clinics not only can provide cheaper care, they improve productivity by reducing time lost for medical visits.  Telehealth, retail clinics and less-expensive urgent care centers are other methods of catering to employee demands for convenience, while also using lower-priced services.  Right now the economy is pretty good, so employers and to some extent employees can bear the ongoing growth in medical costs.  But people will feel more stressed if and when the economy slows or goes into recession.

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