How much will healthcare costs go up next year? It's anyone's guess, says PwC

Stethoscope on top of five, ten, and twenty dollar bills.
It remains unclear how the COVID-19 pandemic will impact medical cost trends in 2021, as costs could go up as much as 10%. (Getty Images/PLG)

Healthcare costs for employer-sponsored insurance plans are likely to increase next year.

But just how much is still a very open question thanks to the COVID-19 pandemic.

A new report from PwC, also known as PricewaterhouseCoopers, offers three scenarios to determine the medical cost trend for 2021 for employer-based insurance plans, with increases ranging from 4% to 10%. Medical costs are critical for insurers to figure out as they formulate plans for next year, but COVID-19 has thrown any projections asunder.

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“This is an unprecedented report for us,” said Ben Isgur, leader of PwC’s Health Research Institute, in an interview with Fierce Healthcare. “In the 13 years we have been doing this, we made a projection of the coming year and never felt the need to do scenarios.”

For 2020, PwC estimated that the medical cost trend will increase by 6%.

RELATED: COVID-19 could cost insurers up to $547B through 2021: report

But COVID-19 has turned healthcare on its head. Spending has fallen precipitously in March and April, leaving providers with liquidity concerns due to the cancellation of surgical procedures and lower volume. At the same time, the economy has cratered as retail sales have fallen and job losses mounted.

Health spending is expected to rebound later this year and into 2021, but it remains to be seen by how much.

These factors led PwC to detail three scenarios for medical cost trends for employer-sponsored insurance in 2021:

  • A low-spending scenario where healthcare spending is still low and translates to a 4% medical cost trend
  • A medium-spending scenario where costs grow at the same rate in 2021 as it did from 2014 to 2019: 6%
  • A high-spending scenario of 10%

The type of scenario could vary based on a company’s location and how the pandemic affected its business.

For instance, a company located in a region with few COVID-19 cases would likely find itself in the medium scenario of 6% medical cost trend, Isgur said.

“It could be lower in some cases,” he added. “There could be an upsurge of COVID-19 and then fewer people accessing the health system and pushing off things like hip replacement or knee surgery.”

While PwC did not endorse a particular scenario, it did detail some additional issues that could drive up spending next year: mental health use and new specialty drugs.

Employers have been making mental health a priority in the past couple of years. That emphasis is likely to accelerate after the pandemic increased anxiety and social isolation, driving demand for mental health care, PwC said.

In addition, new specialty drugs such as gene therapies are like to be approved and will come with multimillion-dollar price tags.

RELATED: COVID-19 outbreak could drive up employers' healthcare costs by 7%: analysis

However, there are some tools payers and providers can use to clamp down on healthcare costs.

Chief among them is telehealth, which has exploded in popularity during the pandemic as patients became fearful of going to the doctor’s office. This popularity, fueled in part by flexibility from the Trump administration to get Medicare reimbursement, could help temper costs.

“It is very obvious that telehealth and virtual health is a lower cost and efficient platform for delivering healthcare,” Isgur said.

Another factor that could lower costs is narrow networks.

Prior PwC surveys in 2018 and 2019 showed that nearly a quarter of employers have considered moving to a narrow provider network.

“Some of those employers may move to a narrow network plan in 2021 as COVID-19 and the related economic downturn force employers to shed costs and make health providers more willing in the short term to give price concessions or take more risks in exchange for predictable cash flows,” the report said.

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