The estimated increase for payers is in both the individual and group market and outpaces projections for 2022 and 2023.
Healthcare costs will swell 7% next year as inflationary pressures impact health insurers' contracts with providers and drug costs continue to rise, according to PwC's annual report.
Researchers surveyed health plans covering 100 million employer-sponsored large and small group members and 10 million Affordable Care Act marketplace members to identify key inflators and deflators in 2024, as well as trends to watch.
The estimated 7% increase in year-over-year healthcare costs for 2024 is higher than the projected costs of 5.5% for 2022 and 6% for 2023.
"The higher medical cost trend in 2024 reflects health plans' modeling for inflationary unit cost impacts with their contracted healthcare providers, as well as persistent double-digit pharmacy trends driven by specialty drugs and the increasing use of certain medications used to treat Type 2 Diabetes or weight loss," the report stated.
The workforce shortage is expected to compound inflationary pressure, with providers continuing to seek higher reimbursement and rate increases from insurers in contract negotiations.
On the opposite end, factors like the shift in sites of care and biosimilar drugs coming to the market are projected to deflate costs.
"With the increased demand for home-based services and virtual care, the healthcare delivery system has reached a new phase," the report said. "Plans are factoring in higher utilization of less expensive care settings and virtual care when pricing their 2023 plans and beyond, helping plans offset the trend inflators."
Researchers also identified six issues that could influence medical costs going forward and are worth paying attention to:
- Total cost of care management: This is expected to be deflator on costs as national insurers grow and acquire other plans.
- COVID-19: The effect will likely be neutral as health plans did not report higher utilization of care stemming from suppressed demand during the pandemic.
- Health equity: As health plans continue to focus on health equity, the short- and long-term effect is yet to be seen on plans' cost of care models.
- Behavioral health: Utilization spiked during the pandemic but has since slowed down, with payers not anticipating it as an inflator in the future.
- Price transparency rule: The regulation for health plans is still in its infancy after going into effect July 2022.
- Medicaid redetermination: Most plans view this as neutral, with the individual market expected to feel the most impact.
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
PwC's annual report, Behind the Numbers 2024, surveys health plans to examine inflators and deflators to medical costs in 2024.
Researchers estimate that healthcare costs will rise 7% in 2024, representing an increase from projections for 2022 and 2023, which were 5.5% and 6%, respectively.
Inflation, workforce shortage, and rising drug costs are the main drivers of the rise in costs for next year, while the shift in sites of care and biosimilar drugs coming to the market will push them down.