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Medical cost growth rate has been nearly halved since 2007, but remains above general inflation rates
The 10th-anniversary report, Medical Cost Trend: Behind the Numbers 2016, from PwC’s Health Research Institute projects a 6.5% overall increase, and a net increase (to employer plans and commercial insurers) of 4.5%, for 2016, after factoring in cost-shifting to patients and other changes. That growth rate is down from 2015’s 6.8% (projected a year ago), and from 11.9% in 2007, the first year of the HRI report. The cost curve has been bent downward, based on HRI’s analysis, but it remains above the general rate of inflation, translating into an increasing proportion of US GDP (measured at 17.4% of GDP in 2013).
As the Affordable Care Act, or Obamacare, affects government-insured patients most directly, commercial insureds will see only indirect effects, but ones that have a significant cost. In 2018, so-called Cadillac health plans will begin paying a federal tax, projected at $87 billion over the 2018-2027 period. More specifically, the changes in healthcare delivery wrought by ACA will continue: more value-based coverage, more innovation around delivery.
HRI points to three cost deflators in coming years: cost-shifting to patients via high-deductible plans (now being offered to employees as the only option by twice as many employers as in 2012); “virtual care” such as telemedicine and remote monitoring of patient condition; and the use of third-party health advisers that assist employees in finding lowest-cost healthcare options. HRI also points to two cost inflators: the growth in high-cost specialty drugs (although HRI depends on pharmacy benefit managers to define “high cost” and “specialty” drugs); and dramatic increases in investments in cybersecurity. HRI cites HHS data indicating that 90% of healthcare organizations have had a security breach in the past seven months.
Looking ahead, for life sciences companies, HRI concludes that more patient engagement and more-informed providers and consumers (making use of the investments in healthcare information technology of the past several years) will be key drivers.
The full report is available here.