Health care cost increases remain steady in 2019, but this is not necessarily good news

Employers and insurers expect health care costs to increase 6 percent, consistent with the 5.5 percent to 5.7 percent increases seen over the past five years, according to PwC’s Health Research Institute. However, the report, Medical cost trend: Behind the numbers 2019, noted that employers continue to struggle to contain their employee coverage costs. And, in many cases at least part of those costs are passed onto employees.

“Health-care cost increases, although steady, are still not sustainable,” said Barbara Gniewek, principal at PwC. “The economy, wages and the Consumer Price Index are not growing at the same rate as health-care costs, and that’s troubling. Health care accounts for 12 percent of wages, double what it was 30 years ago, and that’s without accounting for inflation.”

The report found that medical costs continue to grow, yet the workforce’s health and performance aren’t improving. Average labor productivity growth of 1.1 percent over the last 10 years falls far below the 2.3 percent average of the last seven decades. Efforts by employers to cut utilization have mostly run their course. Employers and consumers are plagued by high prices that continue to grow because of new, expensive medical services and drugs, and other factors, such as consolidation.

The report pointed to three trends that are fueling health care cost increases:

  • Care anywhere and everywhere. Responding to increased consumer pressure, employers and health plans are improving convenience by giving consumers more ways to get care. The long-term goal is to decrease spending, but in the short term, more access points can raise utilization.
  • Provider mergers. The provider landscape will grow more concentrated after several recently announced mega-deals are completed. Prices tend to rise when two health systems merge and the consolidated entity gains market share and negotiating power.
  • Physician consolidation and employment. More doctors are practicing as employees of hospitals, health systems, and medical groups. These organizations tend to charge higher prices than independent doctors. The report found that 42 percent of physicians were employed by hospitals in 2016, up from 25 percent in 2012.

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