PwC: Healthcare inflation decline to continue

Healthcare inflation will fall to 6.5 percent in 2016, continuing a 10-year trend, according to a new medical-cost growth report from PwC.

Employer medical-cost growth has slowed consistently in the employer-sponsored market over the past 10 years, according to PwC's Health Research Institute (HRI) report, and this year the trend will continue due to several factors, including:

  • Increased proliferation of virtual technologies that increase efficiency and convenience
  • The Affordable Care Act's (ACA) "Cadillac tax" on plans higher than $10,200 for individuals and $27,500 for families, which takes effect in 2018
  • Health advisers guiding consumers to the best, most efficient options in an increasingly consumer-focused healthcare market

Despite the downward trend, however, the report notes medical inflation is still growing faster than that of the general economy, demonstrating the industry's continual struggle with the transition to value-based care. Even as healthcare makes changes to deliver more efficient, higher-quality care, a significant portion of the slowed growth is the result of cost-shifting to consumers, according to HRI.

Moreover, a combination of new specialty drugs entering the market and the cost of increased security after a wave of cybersecurity breaches will increase inflationary pressure on healthcare. After controlling for likely changes such as higher deductibles and narrower networks, the net growth rate of inflation will come to 4.5 percent, according to HRI projections.

The report also identified several reasons behind healthcare spending's continued growth but declining growth rate, including a flatlining spending trajectory; cost-sharing slowing consumer service use; the ACA's negligible direct impact on employer health costs; and the lower costs associated with reduced inpatient care.

In the transforming health climate, consumers have more changes than ever before, Michael Thompson, principal, PwC's human resource services practice, said in a statement, "but at the same time, the pressure on employers to control their health budgets means that employees are having to pick up more of their healthcare tab than ever before."

To learn more:
- download the report (.pdf, registration required)
- here's the statement

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