Health and Science

Medical costs to tick higher in 2015: PwC

Get ready to dig deeper into your pocket for health care
Get ready to dig deeper into your pocket for health care

The party's over—somewhat.

A half-decade-long contraction in employer health-care spending is set to end in 2015 and resume an upward trend, according to a new forecast by PricewaterhouseCoopers.

But the bad old days of the 1990s and early 2000s, which saw double-digit percentage increases in medical costs, aren't necessarily returning, PwC's Health Research Institute said in its report issued Tuesday.

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The report also noted a strengthening trend toward having employees pay a bigger share of the medical costs under their employer-based insurance plans, nearly 20 percent of which now offer only high-deductible plans to workers.

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"We're projecting a very modest increase in the medical cost trend," said Benjamin Isgur, a director of the Health Research Institute.

Medical costs will rise by 6.8 percent in 2015 "as the stronger economy releases pent-up demand for care and services," according to the institute, which based its projection on costs in the large employer insurance market that covers about 150 million people.

That's a small increase from the 6.5 percent medical cost inflation rate PwC had projected for 2014.

After adjustments in the benefits design of insurance plans—particularly due to the trend toward higher deductibles for workers and narrower networks of medical providers covered—the institute said the net growth rate in medical costs should be 4.8 percent in 2015.

Isgur said it remains to be seen if medical cost inflation eventually swings back to the 9-plus percent rates that PwC projected in the years after the 2008 financial meltdown.

"We do think that we are entering a phase of 'new normal,'" he said.

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But while PwC's new medical inflation rate projection remains much lower than those prior rates, it's still significantly higher than the overall 2.1 inflation rate for the entire U.S. economy.

"The fact that health spending continues to outpace [gross domestic product] underscores the need for a focus on productivity, efficiency and better value for purchases," the report said.

Michael Thompson, principal on the Health Research Institute's advisory team, noted that "health care tends to lag as an indicator," which is why the medical cost inflation rate kept decreasing for several years even though the recession had officially ended.

Thompson said the economy's continued strength "is probably the distinguishing factor" in why PwC is not forecasting a resumption in the upward trend in the inflation rate.

"Based on economic data," he said, "This is normally when we see the uptick."

Still, it's not as much of an uptick as in the past.

The report identified several factors it says are constraining the growth rate of health-care spending, including increased efficiency among doctors and hospitals and financial penalties for hospitals linked to patient outcomes.

"Structural changes aimed at delivering better-quality care at lower costs are starting to hold health-care spending in check," the report said.

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Another big factor is the movement by more employers to have their employees shoulder a larger amount of the costs of their insurance.

"Benefit design changes typically hold down spending growth by shifting costs to consumers, who often choose less expensive health-care options," the report said. "According to a recent study, families in consumer-directed plans used fewer brand-name drugs, had fewer visits to specialists and were hospitalized less."

PwC noted that 85 percent of the 1,200 employers it surveyed either have or are considering increasing the amount of insurance costs borne by their workers over the next three years.

Eighteen percent of employers now offer a high-deductible health plan as the only insurance option for their employees, and 44 percent are considering offering a high-deductible plan to replace their current plan offerings, according to PwC.

Since 2009, enrollment in high-deductible employer-sponsored plans has significantly increased, from just 8 percent of overall enrollment that year to 26 percent this year.

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At the same time that workers are bearing an increasing amount of the costs of their medical benefits, several factors are pushing costs upwards, PwC noted.

They include the costs of specialty drugs, particularly those used to treat hepatitis C, which afflicts 3.2 million Americans.

A three-month regimen of the hepatitis C drug Sovaldi can cost a whopping $86,000.

"Only 4 percent of patients use specialty drugs, but those drugs account for 25 percent of total U.S. spending," the report said. "In 2013, 70 percent of the 27 drugs approved by the FDA were specialty medications, raising the specter of a series of expensive treatment decisions in future years."

Another inflationary factor PwC singled out was the increasing trend of hospitals acquiring physician groups. After such acquisitions, hospitals are allowed to charge an additional "hospital facility fee" for services performed at those physician group locations, "even though services are not performed in a hospital," the report noted.

"This shift has been commonly observed in cancer care," the report said. "Between 2011 and 2012, the number of oncology practices owned by hospitals increased by 24 percent. The result: Hospital oncology outpatient costs were more than double physician office costs during the same time period."

—By CNBC's Dan Mangan.