Medical costs estimated to increase 6 percent in 2020
PcW is projecting a 6 percent increase in medical cost trends in 2020, higher than 2019’s medical cost trend.
Medical costs continue to trend higher, according to PwC’s latest Behind the Numbers report. The firm’s Health Research Institute is projecting a six percent increase in medical cost trends in 2020, which is a five percent net growth rate and higher than 2019’s medical cost trend.
The report attributes these increases to three trends:
- Prices are continuing to fuel health care spending
- Utilization continues to be dampened by high deductibles and other cost-sharing
- Employer activism strategies are beginning to replace the cost-sharing in the past
“It’s no longer just about the six percent trend,” says Michael Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions. “For employers, compared to other players in the healthcare industry, it is now about inequity in cost and misaligned incentives across the board.”
Related: Health care spending hits record high despite flat rates of utilization
The report notes three factors in particular contributing to rising prices: drug spending, spending on chronic diseases and mental health treatment. The latter is driven by an increase in employers expanding access and encouraging employees make use of mental health benefits.
Meanwhile, there are factors that are working to keep medical spending in check, including worksite clinics, which offer increased access to preventive services; lower-cost alternatives such as telemedicine; and increased communication with employees about their benefits.
For businesses, PwC stresses that companies need to understand the specific needs of employee populations and buy the best benefits at the best prices with the best outcomes. Also, as a purchaser of health care, employers need to be more active and pursue new solutions to lower costs and improve access. Finally, employers need to manage the plans they design.
“Start by removing paralyzing deductibles and giving employees access to real-time pricing,” recommends Tony Miller of Bind On-Demand Health Insurance, responding to the report. “Use data to adjust copayments based on the value and quality of the care. In doing so, you can guide consumers down effective and efficient paths. People buy better, and it saves everyone money.”
PwC says that over the past decade, employers have focused on utilization to keep health care costs under control, but this is no longer working. The next big focus is how can employers provide health care for employees that is efficient and convenient. Employers are taking matters into their own hands and looking for ways to help their employees make better decisions, manage their health care costs and fully take advantage of their benefits.
“High deductible plans and consumerism programs in and of themselves aren’t going to help employees (or employers) reduce or manage the cost of these medications—they cost what they cost, and if they’re needed, they’re needed,” says Kim Buckey, VP of client services at DirectPath. “I don’t expect to see a substantial change next year as the optics of dramatically increasing the employee share of a life-saving medication could pose an employee-relations challenge.”
The report also tackles the responsibilities of the pharmaceutical and life sciences companies: “Try not to rely on the too-frequently used research and development argument to justify the drug’s cost. Instead show the financial savings of the drug compared to other, potentially more invasive medical treatments.”
“Specialty medications have been the scapegoat for projected employer medical cost increases for years,” Buckey agrees. “And that’s likely quite valid, as the cost of these drugs is something employers have little to no control over.
Buckey recommends taking the following steps to ward off significant increases in spending on specialty drugs:
- Step therapy
- Case management
- Pharmacy limits (e.g., only the PBM’s specialty pharmacy)
- Delivery-site programs (e.g., home infusion is typically less costly than in-patient or outpatient infusion centers)
- Voluntary benefit programs that provide additional financial support for those employees facing illnesses requiring these high-cost drugs
- Stop-loss coverage, if self-insured and not already in place
PwC also advises companies to “go beyond the basic outcomes-based arrangements currently in place and consider exploring and expanding alternative financing arrangements, such as subscription models for unlimited access to a product for a set period of time or a mortgage model to finance expensive specialty drugs over time.”
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