Medical Cost Trends Continue to Outpace Inflation and Wages

While medical cost increases have slowed in recent years, insurers in the U.S. still report trends between 7% and 9% per year, from 2015 to 2017, according to Willis Towers Watson’s 2017 Global Medical Trends Survey Report.

With costs per employee (for employer and employee) approaching $13,000 per year—12% of typical employee pay—Willis Towers Watson suggests little has been done to address growing affordability concerns for employees, especially in the wake of a prolonged period of relatively stagnant wage growth. In addition, cost trends are still much higher than general medical inflation rates and have outpaced wages for much of the last few decades.

Rising pharmacy prices and utilization, especially for specialty drugs, are a key driver of health care cost trends, the survey found. A dominant market trend, which has been ongoing for the last decade, has been a move toward greater point-of-care cost designs through higher deductibles. In addition, many new developments focus on achieving higher-quality care at lower costs through alternative payment and delivery models (e.g., centers of excellence and other value-based designs, expansion of telemedicine services, and increased use of data to drive care management decisions), which are dramatically changing the U.S. health care delivery system.

Employers expect their plan trend to increase 5% for both 2016 and 2017 after plan design changes, higher than the 4% rise in 2015 and much higher than the general inflation trend (about 1.5% to 2.0%), the survey report notes. As in recent years, employers continue to make changes to their plan designs to keep employee cost increases to a minimum. But in this prolonged period of relatively stagnant wage growth, they are increasingly concerned about affordability. By 2018, more than half will make changes specifically designed to lower premium contributions for low-wage workers and out-of-pocket costs at the point of service. Likewise, most offer account-based health plans with tax-advantaged health savings accounts, and many seed these accounts to help cover increased out-of-pocket costs.

At the same time, a majority of employers focus their most aggressive cost cutting on minimizing the most expensive and commonly overused procedures, adopting cost-effective options to manage pharmacy spend (especially for high-cost specialty drugs) and redefining coverage for spouses who can obtain coverage from their own employers.

In addition, more employers are beginning to leverage new sources of higher-quality care at lower cost, dramatically changing the U.S. health care delivery system, according to the report. These include accountable care organizations, expanded telemedicine services and, increasingly, use of data to drive care management decisions.

The survey was conducted between October and November 2016, and reflects responses from 213 leading medical insurers operating in 79 countries. The full report may be downloaded from here.