What Will Be the Medical Cost Growth Rate For 2016?

A new report projects that medical costs will increase 6.5% in 2016, a slower rate  of growth than before, but still outpacing general economic inflation.

June 10, 2015

3 Min Read
What Will Be the Medical Cost Growth Rate For 2016?

A wholesale reimagining of the healthcare system is underway with the ambitous goal of bending the cost curve.

And while that goal may take years to achieve, a new trend report is suggesting that the growth rate of medical costs is slowing in the United States. PricewaterhouseCoopers' Health Research Institutue published a report Tuesday projecting that in 2016 medical costs will grow 6.5% from this year.

That's lower than the growth rate HRI projected for 2015 — at 6.8% from the year before.

The annual projection is based on HRI’s analysis of medical costs in the large employer insurance market, which covers about 150 million Americans. In other words, the report excludes governmnet insurance programs - be it Medicare or the health insurance exchange market, although spending by Medicare is also slowing.

Here's a chart showing PwC's medical cost trend report dating back to 2007:


What's causing the slowing of the growth rate next year?

The analysis found three main drivers of the change — employers are shifting the burden of health insurance to employees in anticipation of certain changes wrought by the Affordable Care Act - namely, the Cadillac tax that imposes penaties on employers who offer employees high-cost insurance plans; patients are seeking care virtually in lieu of traditional medical care and hospitals are also using telemedicine to remotely monitor patients making the system more efficient; and new heatlh advisers are helping employees to seek care in a more efficient manner.

The new health advisers are entities like e-commerce site SpendWell Health that brings together consumers who want transparency in their health care purchasing and providers who bundle their treatments and services for routine care. Consumers buy healthcare at known prices and providers pay in real time without having to deal with eligibility, claims and other administrative issues related to delivering care.

As consumers access these new health advisers and seek less expensive, efficient care, providers are also looking to trim their cost burden. The report finds that hospitals are reducing costs by moving patients who were traditionally admitted as inpatients to seek care in other venues - ambulatory care, retail clinics and physicians' offices all of which are less expensive ways to deliver care. Hospitals account for more than one-third of overall healthcare spending for the privately insured, the report states.

“For the first time in 16 years, we’ve seen a decrease in hospital prices,” said Charles Roehrig, director of Altarum’s Center for Sustainable Health Spending, according to the report. “While Medicare and commercial insurance payment policies are clearly important here, this could also be a sign that changes in patient delivery models are indeed impacting costs.”

All this is heartening news, but the growth rate of healthcare spending still outstrips the overall economic inflation. And the report projects that several factors will intensify spending in the next 12 months.

This includes the entrance of new drugs to the market as well as higher investment by healthcare entities to manage the threat of cyber attacks. 

But the same factors that has held the growth rate in check are supposed to continue to have a moderating influence on medical costs - more consumer cost-sharing by employers, greater use of technology and moving care from inpatient facilities to physician offices, retail clinics and even the home.

Arundhati Parmar is senior editor at MD+DI. Reach her at [email protected] and on Twitter @aparmarbb  

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