PwC Predicts Slower 2014 Healthcare Cost Growth Despite ACA

Ben Isgur
Ben Isgur

Consultant PwC expects lower growth in medical costs, despite the dawning of the health insurance exchanges and Medicaid expansion under the Affordable Care Act, and that inflationary pressures may have slowed permanently.

In a report projecting 2014 healthcare costs, PwC said medical inflation would be 6.5 percent—or 1 percent lower than its 7.5 percent forecast for 2013.

The report listed four major factors that would dampen cost growth:

  • Healthcare is migrating from higher-cost settings such as hospitals to retail clinics and home-health solutions.
  • Major employers are beginning to negotiate bundled payments with national-brand health systems for costly and complex procedures.
  • Hospital readmission rates are declining.
  • The rapid spread of high-deductible health plans (HDHPs) is forcing employees to pick up a greater share of their health costs and encouraging them to be more cost-sensitive.

PwC said two inflationary factors are a raft of new and costly specialty drugs, and industry consolidation that is increasing health systems’ ability to negotiate higher rates with insurers.

Despite the slowdown, PwC said there may be increases in the cost of individual insurance premiums. It said the higher prices reflect payer uncertainty over the newly insured, which is largely an unknown population.

PwC said 17 percent of employers offered only HDHPs in a separate 2013 survey, which represented a 31 percent increase over 2012. It said 44 percent of companies are considering HDHPs as their only option in 2014.

According to a 2012 Health Affairs study, U.S. healthcare costs would decline by 4 percent if 50 percent of works chose HDHPs.

The report’s lead author was Benjamin Igsur, Dallas-based director of PwC’s Health Research Institute.

Isgur said PwC does not rank the impact of deflationary factors, but said, “We have seen over the past years a steady buildup in the mainstreaming of HDHPs. If there is one thing everyone can agree on is that this is full bloom.”

Isgur said many do not see how focused providers are on improving care processes to cut hospital readmissions.

“It’s not just about the penalties. It’s the reputational risk. No one wants to be in the newspaper as the hospital most likely to readmit (patients),” he said.

Isgur said PwC researchers were surprised by the cost impact of specialty drugs. He said reports for the past four years had generic drugs as a cost deflator, which he said represents a “sea change” in pharmaceutical cost trends.

Isgur said the rise of HDHPs and movement to cut readmissions are evident in North Texas as well. He said Dallas-Fort Worth hospitals are working hard to improve quality because of the market’s competitiveness.

“Healthcare cost increases continue to exceed overall growth in wages, but the gap appears to be shrinking.  The long-term trends suggest that as the economy improves, the cycle of runaway cost increases will be broken,” said Michael Thompson, principal with PwC’s human resource services practice, in a statement. “This is critical as employers strategically reevaluate the role of healthcare benefits to their organizations and step up efforts to engage employees more directly in value-based healthcare decision making.”

A second study released this week agreed with PwC’s assertion that slower cost growth could bend the cost curve permanently.

A study by research firm Dobson DaVanzo estimated the lower medical inflation could save Medicare $2.6 trillion and narrow the federal budget deficit by $1 trillion in the next decade. The report, commissioned by The Federation of American Hospitals, credited healthcare policy changes instead of a sluggish economy for the trend.

Steve Jacob is editor of D Healthcare Daily and author of the book Health Care in 2020: Where Uncertain Reform, Bad Habits, Too Few Doctors and Skyrocketing Costs Are Taking Us. He can be reached at steve.jacob@dmagazine.com.

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