Medical cost trends for 2018: Healthcare industry must adjust to the ‘new normal’

stethoscope on money
A new report finds that the healthcare industry will soon see an end to volatile swings and double-digit growth in employer medical costs. (Getty/Maudib)

Looks like the era of volatile swings and double-digit growth in employer medical costs is coming to an end.

That’s the findings of PwC’s Health Research Institute’s annual report, "Behind the Numbers," which analyzes medical cost trends—the projected percentage increase in the cost to treat patients from one year to the next—in the employer insurance market. The main drivers that influence the trend are changes in the prices of medical products and services and changes in the number or intensity of services used.

Analysts project the industry will see a 6.5% growth rate in 2018, half a percentage point higher than in 2017. And, after likely changes made to benefit plan design, such as copays and network size, the net growth rate will be 1 percentage point lower at 5.5%. 

"With medical cost trend hovering in the single digits for several years, the industry has been waiting for the inflection point when spending will take off. But that spike appears unlikely to happen," the report states. "The New Health Economy is settling into a 'new normal,' typically characterized by more attenuated fluctuations and a single-digit trend."

But analysts say this new normal isn’t sustainable. In order to reduce medical costs, the report says the industry must tackle the price of services as well as the rate of utilization. Analysts predict that employers will seek strategies, such as narrower provider networks and value-based purchasing, that bring costs, rather than utilization, down.

To help keep costs down, researchers say healthcare providers must focus on improving care management and optimizing their use of physician extenders and nonclinical staff. Health insurers could work to steer patients to the most effective treatments and help providers accelerate price transparency efforts. Drug companies could collaborate more with industry stakeholders by providing greater insight into their pricing.

Other factors that could affect next year’s medical cost trend, according to the report, include:

  • General inflation, which will put upward pressure on wages, medical prices and the overall cost trend in 2018. Healthcare costs have historically tracked general inflation, the report notes.
  • The movement to high-deductible health plans to curb health spending may lose steam in 2018. Recent research indicates that only 28% of employers are considering offering high-deductible health plans as the only benefit option to their employees in the next three years, down from a peak of 44% in 2014, according to the report. Furthermore, the share of employers already offering high-deductible plans as their only option has been flat for the last three years.
  • Fewer cost-saving generics coming to market in 2018. Beginning in 2016, dollar sales of branded small-molecule drugs going off patent protection have been declining, according to the report. As a result, fewer cost-saving generics will likely come to market in 2018, leading to a faster drug price growth rate and upward pressure on overall healthcare spending, analysts say.
  • Public and political scrutiny of skyrocketing drug prices may encourage drug manufacturers to moderate their price increases. President Donald Trump has criticized the pharmaceutical industry for high prices, and lawmakers have introduced legislation that may tackle the price of drugs. Drug companies are beginning to respond. After the public backlash from Mylan’s 400% price increase in the cost for the lifesaving EpiPens, the company offered a generic version at a 50% discount.
  • Employers may look for more efficient ways to maintain access to care for their employees, such as requiring prior authorizations for costly new specialty drugs and paying closer attention to where treatments are delivered in order to shift care to lower-cost settings.