Brace yourselves: A key measure of employer healthcare costs is poised for its biggest annual increase in more than a decade as more people use mental health care and get prescriptions for new, expensive drugs—yes, including Ozempic—according to a new PwC report.
For CFOs concerned about employee healthcare costs, the news isn’t great.
Shifting up. PwC’s report looks at the medical cost trend, i.e., the “percentage increase in the cost to treat patients from one year to the next, assuming benefits remain the same.” PwC analysts said they now expect those cost trends for 2023 and 2024 to be higher than they’d originally thought, after health plans said that more people were getting prescriptions for the new class of weight loss drugs and more treatment overall that’s “driven by demand from care deferred since the pandemic.”
The 8% now projected for 2023’s final data would be the largest jump since 2012; it’d also be a return, following a dip in 2022, to accelerating cost growth that began in the late 2010s, the analysts said. Costs for 2024 are expected to grow 7.5% from 2023.
A team effort. In 2025, health plans will pay 8% more for a patient to get the same treatment they received in 2024, according to PwC’s July 15 report. But it won’t just be understaffed, highly-in-demand mental health care or weight loss drugs pushing up the costs for commercial insurance. New cell and gene therapies and drugs for Alzheimer’s disease and other neurological conditions, the analysts wrote, will be (1) expensive and (2) used a lot. The report projects hospitals that are unhappy with how much they can charge Medicare and Medicaid may try to make up for it with commercial insurance plans. Healthcare providers paying higher wages takes time to get passed on to health plans and employers. Also, the consolidation of providers, including from PE purchases, appears to be pushing up costs, according to the report.
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The pace of M&A in 2023 continued to slide from a peak in 2021, but overall deal value is still higher than before the pandemic. More health plans reported that consolidation was a top factor in raising costs this year than last: “likely a manifestation of the lasting impact of consolidation on contract negotiation as existing contracts come up for renewal over time,” PwC analysts wrote.
What’s next. The labor market is tight enough that most employers won’t push a bigger share of healthcare costs on to employees, according to PwC. One concrete thing they can try is to “reevaluate employee assistance programs and behavioral health resources” the report reads, “to proactively support the mental health of the workforce, potentially reducing the need for more intensive and costly interventions later on.”
Employers can also try “seeking more transparency and better reporting” on how well their health plan has been keeping costs down to encourage better cost management. To close with some high, high-level advice: The report suggests that employers “reengineer financial, workforce, and business models and capitalize on each transformational opportunity—from investments in innovation and technology to deals.”