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Medical costs to accelerate in 2018, but only slightly, as cost trends stabilize, says PwC

This reflects what HRI calls a "new normal," a continuation of medical cost trends hovering in the single digits and fluctuating modestly.

Jeff Lagasse, Associate Editor

The era if wild swings and double-digit growth in employer medical costs appears to be ending, at least according to PricewaterhouseCoopers: according to the firm's Health Research Institute, there will likely be a 6.5 percent growth rate in 2018, only half a percentage point higher than this year.

And after anticipated changes in benefit plan design, such as changes to copays and network size, the net growth rate is expected to be one percentage point lower, at 5.5 percent.

This reflects what HRI calls a "new normal," a continuation of medical cost trends hovering in the single digits and fluctuating only slightly, with huge cost spikes appearing unlikely for the foreseeable future.

Among the factors that will put upward pressure on medical costs in 2018, according to HRI, is rising general inflation. The U.S. economy, in the midst of a long expansion, is gaining strength, and higher general inflation rates will affect the labor-intensive health sector, driving up wages and medical prices.

[Also: Educating doctors on drug prices, cost-effectiveness key to curbing drug costs]

Additionally, HRI predicts the movement to high-deductible health plans will lose steam. After years of shifting healthcare costs to employees, employers are letting off the gas pedal; growth in high-deductible, employer-based health plans is slowing, leaving less opportunity to stem increases in the use of healthcare services.

Meanwhile, with fewer branded drugs coming off patent, employers will have fewer opportunities to encourage employees to buy cheap generics, another strategy they've historically used to keep costs down, according to HRI.

Yet there are two forces that will likely mitigate those health spending increases. Political and public scrutiny is putting the spotlight on drug prices, which may in turn pressure drug companies to hold price hikes in check. And employers are learning to minimize waste by better managing and deploying new treatments and technologies.

[Also: Insurance is the 'original sin' behind rising healthcare costs, says former emergency medicine professional]

Of course there are also the ongoing forces that influence healthcare costs: demographics, lifestyle trends, hospital consolidation and changes in payment models chief among them. Those will continue to be factors, but not to a degree that will cause wild fluctuations, said HRI.

Even with the medical cost trend hovering between 6 and 7 percent, health spending continues to outpace the economy, the research showed. From 2011 to 2016, the average health premium for family coverage purchased through an employer rose 20 percent. In the same period, wages increased just 11 percent. The gap hinders consumers' ability to pay for other goods and services such as housing, food and transportation.

Nationally, medical costs are projected to keep growing faster than gross domestic product, which means healthcare will take an up ever-greater share of the economy. That, the research said could lead to larger budget deficits or less spending on education, infrastructure and defense.

Twitter: @JELagasse

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