Health care costs paused in 2020, will rise again in 2022
Health plan trends have increased between 5% and 7% each year for the past 10 years before seeing a hiccup in 2020.
Although COVID-19’s disruption of health-care-as-usual created a historic pause in rising costs, a new report predicts cost trends will continue their upward trajectory in 2022. However, the industry remains in flux, the report added, because factors such as virtual care and reduced use of emergency rooms (ERs) could reshape how health care is delivered in the U.S.
The 2022 Health Plan Cost Trend Survey was released by Segal, a benefits and HR consulting firm that has tracked cost trends in health insurance for 25 years. It found that 2020 marked the first time in the report’s history that health care cost trends decreased.
Related: 2021 benefit predictions: Where will utilization, costs increase the most?
In its years of tracking health care costs, the report has found that health plan trends increased between 5%-7% each year for the past 10 years, and its analysts had set the projected trend for 2020 at 6.8%. However, with the pandemic shutting down many types of nonessential care, the actual trend in 2020 was -2.1%.
“This is the first time in 25 years of Segal’s trend survey that we saw a negative trend in average costs for plan sponsors. This was driven by a significant drop in claim activity in Q2 2020, as the COVID-19 pandemic resulted in shutting down routine medical procedures to free up capacity,” said Edward Kaplan, senior vice president and the national health practice leader at Segal. “Elective surgeries didn’t really come back in full force until September 2020. We can expect that 2022 will return to pre-pandemic cost trend levels.”
The industry expects a rebound
In its survey of stakeholders, Segal found that for all types of health plans, there is a projection of an upward trend of between 7% and 7.8% for 2022. This builds on the increased cost trend for 2021, which was between 6.6% and 7.7%. Expected hospital price inflation is the largest driver of these projections. And although greater utilization is expected, the cost of goods and services will be a stronger driver of cost trends, the report said.
“For more than a decade, hospital price increases have been a leading cost driver of trend,” the report said. “Consolidation and mergers of regional hospitals have given these larger hospital systems new bargaining power to increase their prices well beyond overall inflation rates. Additionally, the growth of enrollment in Medicare and Medicaid, which offer lower reimbursement rates to hospitals, have put pressure on hospitals to replace lost income by raising their rates to private payers.”
The report noted that cost transparency regulations are coming into effect across the country, but that the complexity of the various systems and slow adoption of the necessary technology may mean that any meaningful changes brought about by improved transparency could take years to develop.
In the area of prescription drugs, specialty drugs continue to drive cost trends; for 2022 the report predicted a cost trend of 8.4% for outpatient drugs. The high costs of specialty drugs remain a “challenge” for health plan sponsors, the report said.
Changes from the pandemic are real, but not yet transformative
At this point, the report said, changes brought about by the pandemic are likely to have a minimal effect on 2022 trends. Direct costs of the COVID-19 pandemic, such as testing, vaccines, and treatment are not expected to have a dramatic effect on health care costs. The increased use of telemedicine and virtual care is continuing, the study said, and a new emphasis on urgent care could be even more significant. The study noted that health systems are seeing cost savings from that last development, since the average cost of an ER visit is around $2,000, while a visit to an urgent care clinic averages less than $200.
“We expect ER visits will continue to be down compared to previous years as people have made a shift to using Urgent Care centers, and that will continue to save health plans money. There will also be a higher use of telehealth services, it is here to stay,” said Eileen Flick, senior vice president and director of health technical services at Segal. “Americans are being smarter about where they are getting services. This year resulted in dramatic changes in the delivery of health care.”
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