PwC’s Health Research Institute (HRI) projects U.S. medical inflation will dip to 6.5 percent in 2016, capping a 10-year trend of slowing employer medical cost-trend growth in the employer-sponsored market. In the latest installment of its annual report Medical Cost Trend: Behind the Numbers, HRI identifies three factors that are expected to reduce the medical growth rate in 2016:
The Affordable Care Act’s looming “Cadillac tax” on high-priced plans which is accelerating cost-shifting from employers to employees to reduce costs;
Greater adoption of “virtual care” technology that can be more efficient and convenient than traditional medical care; and
New health advisers helping to steer consumers to more efficient healthcare.
Despite the year-over-year slowdown, HRI also reported that medical inflation still outpaces general inflation, underscoring the challenges ahead for the health industry. In fact, Behind the Numbers identified two factors that will likely exert inflationary pressure on health spending in the year ahead:
New specialty drugs entering the market in 2015 and 2016 will continue to push health spending growth upward; and
Major cyber-security breaches are forcing health companies to step up investments to guard personal health data, adding to the overall cost of delivering care.
“While the health industry has improved in efficiency over the past decade, the slowing employer medical cost growth is because of the increased role of savvy health consumers facing higher cost-sharing responsibilities and more complex decisions,” said Kelly Barnes, PwC’s U.S. health industries leader. “This will continue to impact the New Health Economy in the coming years.”
Health spending continued to grow at a slow rate last year the Office of the Actuary (OACT) at the Centers for Medicare & Medicaid Services (CMS) reported today. In 2013, health spending grew at 3.6 percent and total national health expenditures in the United States reached $2.9 trillion, or $9,255 per person. The annual OACT report showed health spending continued a pattern of low growth—between 3.6 percent and 4.1– percent for five consecutive years.
The recent low rates of national health spending growth coincide with modest growth in Gross Domestic Product (GDP), which averaged 3.9 percent per year since the end of the severe economic recession in 2010. As a result, the share of the economy devoted to health remained unchanged over this period at 17.4 percent.
“This report is another piece of evidence that our efforts to reform the health care delivery system are working,” said CMS Administrator Marilyn Tavenner. “To keep this momentum going, we are continuing our efforts to shift toward paying for care in ways that reward providers who achieve better outcomes and lower costs.”
Total national health spending slowed from 4.1 percent growth in 2012 to 3.6 percent in 2013. The report attributes the 0.5 percentage point slowdown in health care spending growth to slower growth in private health insurance, Medicare, and investment in medical structures and equipment spending. However, faster growth in Medicaid spending helped to partially offset the slowdown.
Other findings from the report:
Medicare spending, which represented 20 percent of national health spending in 2013, grew 3.4 percent to $585.7 billion, a slowdown from growth of 4.0 percent in 2012. This slowdown was primarily caused by a deceleration in Medicare enrollment growth, as well as net impacts from the Affordable Care Act and sequestration. Per-enrollee Medicare spending grew at about the same rate as 2012, increasing just 0.2 percent in 2013.
Spending on private health insurance premiums (a 33 percent share of total health care spending) reached $961.7 billion in 2013, and increased 2.8 percent, slower than the 4.0 percent growth in 2012. The slower rate of growth reflected low enrollment growth in private health insurance plans, the continued shift of enrollees to high-deductible health plans and other benefit design changes, low underlying medical benefit trends, and the impacts of the Affordable Care Act.
Medicaid spending grew 6.1 percent in 2013 to $449.4 billion, an acceleration from 4.0 percent growth in 2012. Faster Medicaid growth in 2013 was driven in part by increases in provider reimbursement rates, some states’ expanding benefits, and early Medicaid expansion.
Out-of-pocket spending (which includes direct consumer payments such as copayments, deductibles, spending by the insured on services not covered by insurance, and spending by those without health insurance) grew 3.2 percent in 2013 to $339.4 billion, slightly slower than annual growth of 3.6 percent in both 2011 and 2012.
Among health care goods and services, slower growth in spending for hospital care and physician and clinical services contributed to slower growth in national health care spending in 2013. However, faster spending growth for retail prescription drugs in 2013 partially offset the overall slowdown.
Hospital spending increased 4.3 percent to $936.9 billion in 2013 compared to 5.7 percent growth in 2012. The lower growth in 2013 was influenced by slower growth in both price and non-price factors (which include the use and intensity of services). Growth in private health insurance and Medicare hospital spending decelerated in 2013 compared to 2012.
Spending for physician and clinical services increased 3.8 percent in 2013 to $586.7 billion, from 4.5 percent growth in 2012. Slower price growth in 2013 was the main cause of the slowdown, as prices grew less than 0.1 percent. Growth in spending from private health insurance and Medicare, the two largest payers of physician and clinical services, experienced slower spending growth in 2013, while Medicaid growth accelerated as a result of temporary increases in payments to primary care physicians.
Retail prescription drug spending accelerated in 2013, growing 2.5 percent to $271.1 billion, compared to 0.5 percent growth in 2012. Faster growth in 2013 resulted from price increases for brand-name and specialty drugs, increased spending on new medicines, and increased utilization.
In 2013, households accounted for the largest share of spending (28 percent), followed by the federal government (26 percent), private businesses (21 percent), and state and local governments (17 percent).