Dive Brief:
- Medical cost growth is estimated to reach its highest level in 13 years in 2025, according to a report by consultancy PwC.
- The analysis projects an 8% year-over-year increase for the group health insurance market and a 7.5% bump for the individual market.
- The increase is driven by inflationary pressures, growing prescription drug spending — including on pricey weight loss medications — and rising utilization of behavioral healthcare, according to the report.
Dive Insight:
The results are an “urgent call” for healthcare organizations to consider how they’re managing costs of care, according to the research, which surveyed actuaries at more than 20 employer-sponsored and Affordable Care Act exchange health plans.
Though there are some trends that could push down medical cost growth, like a growing use of biosimilars and more holistic cost management by insurers, they’re not enough to offset factors increasing healthcare spending, according to PwC.
Affordability is already a major concern for consumers. Financial strain surrounding healthcare, including problematic medical debt and high out-of-pocket costs, is common for Americans, according to a study published last year in Health Affairs. High medical costs are even a challenge for people who have health insurance.
Medical cost growth estimated to rise to highest level in 13 years
Inflationary pressures are a significant contributor to increasing medical cost growth next year, with 70% of health plans picking impacts to providers as one of the two top drivers of cost growth, the latest PwC report found.
Though many hospital systems reported improved margins in recent quarters, some providers are still struggling with increased operational expenses, including high costs for supplies and labor.
Hospitals will pass those increased costs onto insurers in contract negotiations, the report noted. Consolidation among providers could amplify inflationary impacts too.
“[H]ealth plans can expect continued pressures on contract negotiations as providers look to rebound on financial performance and make up for flat reimbursement on Medicare and Medicaid rates,” the report’s authors wrote.
Another trend pressuring medical costs are new drugs for managing chronic conditions, including glucagon-like peptide-1 agonists, like Ozempic and Wegovy, that can be used to treat obesity.
A large number of Americans are obese and could be prescribed the medications, but they’re expensive — and patients need to continue taking them long-term to continue seeing effects.
Utilization of other drugs, like new gene therapies for sickle cell disease and central nervous system medications for Alzheimer’s and schizophrenia, could also drive up medical costs, according to PwC.
More people are using behavioral healthcare services too, inflating medical cost growth next year. Spending on mental healthcare has increased more than 50% since the pandemic, according to the analysis.
“Further, the availability and supply of [behavioral health] services have not kept pace with the surging demand as hospitals are underfunded and understaffed, resulting in a supply-demand imbalance that exacerbates the strain brought on by utilization trends,” the report’s authors wrote.
There are trends slowing the increase in medical costs. More biosimilars, or knockoffs of expensive biologic drugs, are coming onto the market, which could create savings. Insurers are also taking a more holistic, enterprise-wide approach to managing the total cost of healthcare while aiming to maintain quality, the report found.
