PWC Report on Medical Cost Trend for 2022

In case you didn’t notice, it is health care day.  Another report I review every year is PWC’s Medical Cost Trend one, put out by the big auditing and consulting firm.  (PWC Report) Most employer health plans renew on January 1, so this time of year is when actuaries and others are thinking about what costs will likely be in the next calendar year, so they can finalize benefit designs and premiums.  Health care spending is fundamentally a product of the price for each unit of service or a product, times the number of those services or products delivered, plus administrative costs.  So people are trying to project how both prices and utilization will change.  2021 and to some extent 2021 will be goofy years, with spending increased by CV-19, but decreased by missed services, but then there is a rebound on those missed services.  The people who missed care during the epidemic may have worsened health which leads to more costs.  And we have inflation everywhere.  So good luck to the actuaries for 2022!!  Probably means they will jack up premiums by an extra amount just to be cautious, thereby adding further to inflation.

According to PWC, health care cost trend, or growth, was 6% in 2020, will be 7% in 2021, and is projected at 6.5% in 2022.  That is well above economic growth and likely to be above general inflation.  More pain for employers and employees.  New drugs and treatments drive some of this.  PWC believes use of telehealth and other alternative health care delivery mechanisms will reduce costs.  A lot of interesting discussion of factors that may drive spending, up or down, including the effect of substance abuse, which is out of control due to the epidemic and the failure to have any border controls, continued poor population health behaviors, and need to address supply chain issues.  I believe the report ignores the ongoing effect of provider consolidation, which limits competition and leads to continued high prices and price growth, particularly to commercial payers.  I think given the general inflation environment and the likely rebound effects of care-seeking, that 2022 will see higher spending growth than is currently projected.  Buckle up.