What Will Actually Bend the Healthcare Cost Curve?

Employer-sponsored insurance continues to cover the majority of Americans, but employers are facing mounting cost pressures driven by several converging trends across pharmaceuticals, healthcare services, and provider economics, according to Philip Sclafani, PwC’s pharmaceutical and life sciences lead.

One of the most significant cost inflators on the commercial side is prescription drugs, particularly the rapid growth and uptake of new therapies. GLP-1 medications stand out as a major driver of per-member-per-month (PMPM) costs. Although manufacturers have begun lowering prices through public announcements and negotiated deals, utilization is expanding rapidly as more Americans initiate treatment. This dynamic echoes an earlier era of mass-market primary care drugs: therapies priced under $500 per month but prescribed to tens of millions of patients, resulting in a substantial aggregate cost burden for employers.

Beyond GLP-1s, specialty drugs remain a persistent pressure point. While they account for roughly 2% of prescriptions, they represent about 50% of total drug spending. Growth in rare disease treatments—including cell and gene therapies with multimillion-dollar price tags—is accelerating, shifting what was once an occasional expense into a more regular budget concern. At the same time, continued innovation in areas such as oncology, central nervous system disorders, and depression is adding incremental costs across a broader patient population.

Outside of pharmaceuticals, behavioral and mental health services are another major contributor to rising employer costs. Health plans are projecting annual trend increases of 10% to 20% in this category alone, reflecting higher utilization and expanding access expectations.

Structural healthcare inflation compounds these pressures. Labor and infrastructure account for roughly two-thirds of health system costs, both of which have risen sharply in recent years. Industry consolidation—through hospital mergers and private equity–driven physician group acquisitions—further increases market power and commercial reimbursement rates.

Finally, improvements in hospital revenue cycle management, supported in part by AI, are enabling providers to bill more accurately and efficiently, increasing overall payments from commercial payers and adding yet another layer to employer cost growth.

Sclafani also describes how he sees the interaction between public programs and employer-sponsored coverage affecting overall healthcare affordability; the structural factors that are responsible for employers absorbing fewer healthcare cost increases and shifting more responsibility to employees; and much more.

A transcript of his conversation with PC can be found below.

PC: Looking ahead to the next few years, what policy or market-based interventions do you believe could most effectively address affordability across employer-sponsored plans, Medicaid, and Medicare without simply shifting costs from one stakeholder to another?

Sclafani: I’ll start from the deflators of cost that we see in the market today. There's a lot of opportunity for those to continue to expand and get there. Biosimilars made a little bit of a breakthrough in ‘24-‘25 heading into ’26, and we expect to see continued adoption. Just from the initial wave of anti-TNF biosimilars, the market saved billions of dollars, especially through the adoption of the private label model that came in ’24. There are many, many blockbuster drugs, 120-ish over the next decade coming, and some really big oncology drugs in ‘28 and ’29. The market really being able to capture that opportunity will be significant.

Drugs are for any given plan, let's say between 10% and 15% of costs, so the other 80%,85%, 90% of medical cost. The second deflator to look at is really better managing total cost of care. And I think that's when we did our medical cost survey, that was about three quarters of respondents said that's a top-three deflator for them is right patient, right treatment, right site of care, right time, and then that kind of gets into the third piece of site of care management.

That’s nothing new, but it costs the most to treat a patient in a hospital or acute institutional site like that; it costs less to treat them in an ambulatory surgery center, outpatient clinic. It's even best if we can treat them at home or remote and digital. I guess even better if, as AI technology and better remote monitoring comes again, they're prevented and treated in different sites. I think we expect to see a lot more of that.

I mentioned AI—we couldn't make it through the 30 minutes without saying AI—that goes a little bit of both ways. It increases costs in the near term, as it's being rolled out for different uses, and folks invest in that. The long-term hope is it does save even the 15% of administrative costs and operational sort of waste in the system, and eventually getting to better prevention, you think about those things. I think that's a key part, the natural deflators.

You also asked about legislation, regulatory, other things. There's two angles to that. The regulatory side—we do see more regulatory and policy. Value-based healthcare, outcomes-based reimbursement hasn't really picked up significantly on the commercial side, but within Medicare, we did reach the halfway point of reimbursements having some outcome-based component to it, and that's significant, and we expect to continue to see that. We do see CMMI putting out policies and moving towards more two-sided risk and policies that would potentially drive more value-based and outcomes-based savings on that side.

On the legislative side, I think anybody's guess that will get through the administration and Congress and all of that. What I would say is, in times of high, sustained increases in medical cost, we have typically seen legislation come in to knock that down, going back to the 2007-2010 period, where we had ACA come in, the medical cost was almost hitting 12% and got knocked down. From there, all the way hitting 6.5ish percent in 2014, and then we saw another rise leading up through the pandemic, was obviously a big spike, and there was a ton of funding and legislation that knocked it back down. Now, we're up in the 8%/8.5% again, and we did have both IRA and One Big, Beautiful Bill come in, so I think we have to sort of wait and see how that plays out.

The market forecast is inflation is going to stay high despite those policies of the laws and policy changes, but I think that's the big question. It’s always a delay from one of those big legislative packages comes in to when we see the cost savings, and if it looks sustained, there presumably will have to be some government intervention to bring it down.