Commercial healthcare costs will increase by a projected 8% in 2025, driven by inflationary pressure, prescription drug spending and behavioral health utilization, according to a report from the PwC Health Research Institute.
The report estimates the projected increase in per capita costs of medical services and prescription medications that affect payers' group and individual plans. Health insurers use the projection to calculate health plan premiums for the coming year.
For example, a 5% trend means that a plan that costs $10,000 per member in 2024 would cost $10,500 in 2025. The medical cost trend, or growth rate, is primarily influenced by changes in the price of medical products and services and prescription medications, known as unit cost inflation, and changes in the number or intensity of services used or changes in per capita utilization.
Six things to know:
1. Commercial healthcare spending is estimated to grow to its highest level in 13 years.
2. Hospital performance has improved through the year-to-date relative to the industry’s low margins in 2022, but providers continue to face operational difficulties and rising expenses, according to the report. Faced with greater regulation related to government fee schedules for Medicare and Medicaid, providers are looking to commercial health plan contracts to recoup rising operating expenses.
3. Half of health plans surveyed said hospital, private equity and other physician consolidation among the top three cost inflators, "reflecting the lasting impact of consolidation on contract negotiation as existing contracts come up for renewal," the report said.
4. The costs of GLP-1 drugs are on a rising trajectory that affects overall medical costs, according to the report. New central nervous system drugs are also likely to drive significant increases in healthcare costs in the coming years.
5. The cost and utilization of behavioral healthcare has grown since the pandemic. There is also a growing demand for behavioral healthcare workers and not enough workers to meet that demand. The report also said reimbursement challenges imply future unit cost inflation as well.
6. Cost deflators, such as the growing adoption of biosimilar medications may provide some relief, but are not enough to offset the cost inflators.
Read the full report here.