Why the 'new normal' for healthcare cost growth isn't sustainable

The healthcare cost trend — the projected percentage increase in the cost to treat patients from one year to the next, assuming benefits remain the same — is expected to rise 6.5 percent next year for people with employer-sponsored insurance, which is in line with the 6 to 7 percent increases recorded since 2014. Single-digit growth is the "new normal" for medical costs, but this trend is unsustainable, according to a PricewaterhouseCoopers report published Tuesday.

Medical costs are growing at a rate about three times higher than general inflation and premiums for employer-sponsored coverage are rising faster than wages. According to PwC, the average health plan premium for family coverage purchased through an employer climbed 20 percent from 2011 through 2016. At the same time, wages rose by just 11 percent. "This gap erodes consumers' ability to pay for other goods and services, including housing, food and transportation," the report states.

According to PwC, medical costs are projected to continue to rise faster than gross domestic product. This means healthcare will continue to represent a greater share of the economy, which could lead to budget deficits or less spending in areas such as infrastructure and education.

For the healthcare cost trend to drop below the "new normal," healthcare organizations and businesses will have to tackle the price of services and the rate of utilization.

The PwC report identifies several factors driving the healthcare cost trend higher, including lowered interest in high-deductible health plans. Employers offered HDHPs to employees in recent years to curb health spending, but that trend may be plateauing. According to PwC, the share of major U.S. employers offering HDHPs as their only benefit option to employees has remained flat for the last three years.

"High-deductible health plans aren't taking off as quickly as we thought they would," Barbara Gniewek, principal at PwC, tells Becker's Hospital Review.

Individuals enrolled in HDHPs are far more likely to skip or delay receiving medical care than those with lower deductibles, and employers spend less on healthcare as employees with these plans use less care. However, the slowdown in the shift to HDHPs will push the medical cost trend up in 2018 by easing some of the downward pressure on utilization.

Ms. Gniewek says HDHPs may become more popular in future years due to ongoing health reform efforts that expand the use of health savings accounts that are paired with HDHPs.

More articles on healthcare finance:

CHI Health closes Nebraska hospital, opens new ED
UHS hospital in Oklahoma faces Medicare termination on heels of Buzzfeed News investigation
Dallas hospital files for bankruptcy 3 years after opening




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