Health Care Costs Projected to Grow 7% in 2024

The compounding impact of inflation is magnified by persistent shortages in the clinical workforce and prevailing pharmaceutical trends. As indicated by research conducted by PwC, health plans are expected to witness a 7% increase in healthcare costs in 2024, surpassing the projections of the preceding years, 2022 and 2023.

The landscape of healthcare costs continues to evolve, with projections indicating a notable increase of 7% in 2024.. This projection is based on the findings of the annual report by PricewaterhouseCoopers (PwC), a reputable global consulting firm. The report delves into the healthcare cost trends for the upcoming year and provides valuable insights into the factors influencing this upward trajectory. Drawing data from a comprehensive survey of U.S. health plans, the report covers both group and ACA marketplace members, offering a comprehensive scope of the healthcare industry's financial outlook.

This article will explore the key factors contributing to this projected rise in healthcare costs and how it impacts various stakeholders in the healthcare ecosystem. Let us examine the details of PwC's healthcare cost projection for 2024 and gain a deeper understanding of the challenges and opportunities it presents for the industry.

Factors Driving the Projected 7% Growth in Healthcare Costs

Despite the anticipated escalation in healthcare costs, several trends mitigate this pressure. Notable among them is the increased accessibility of biosimilar drugs and the shift of individuals from costly inpatient hospital settings to more cost-effective outpatient care. Additionally, other factors are likely to influence healthcare costs. These trends and considerations are crucial for healthcare stakeholders to navigate as they strive to maintain a sustainable and efficient healthcare system.

Rising Pharmaceutical Expenses

The observed rise in healthcare costs can be primarily attributed to the escalation in pharmaceutical expenses, mainly influenced by specialty drugs. Additionally, health insurers are anticipated to adjust their rates in response to inflationary pressures, contributing to the overall cost increase. Notably, this projected trend surpasses the medical cost rates forecasted for 2022 (5.5%) and 2023 (6%), respectively.

• Impact of Specialty Drugs

The influence of specialty drugs on healthcare costs has been significant, resulting in a considerable surge in expenses. These medications, meticulously designed to treat complex and rare medical conditions, frequently come with substantial price tags. As the demand for and utilization of specialty drugs continue escalating, healthcare industry stakeholders encounter the imperative task of competently managing their budgets. Achieving optimal healthcare delivery while effectively managing cost escalation is crucial for ensuring the sustainability of the healthcare system. This necessitates the implementation of strategies that prioritize effective treatments while reducing expenses.

• Insurers Increasing Rates in Response to Inflation

In response to the prevailing inflationary environment, health insurers are expected to adjust their rates to accommodate the rising medical services and pharmaceutical costs. As healthcare expenses increase across the board, insurers aim to maintain financial viability while ensuring continued access to quality care for their policyholders. However, this move can place additional financial burdens on individuals and businesses, raising concerns about affordability and access to healthcare services.

High-cost Medications and Drug Shortages

Prescription drug shortages remain an ongoing concern in the United States, with limited understanding of their impact on consumer costs and healthcare systems. Such deficits have diverse consumer consequences, leading to higher out-of-pocket costs, increased insurance premiums, and potential adverse health outcomes. Healthcare systems also bear the burden of managing or mitigating these shortages, incurring additional costs.

1. Following a shortage, there is a notable decline in sales volume, ranging from 28% to 35%, compared to the year before the drug entered a shortage. Generic drugs experienced a more considerable reduction in volume (median of 37.6%) compared to brand-name drugs (median of 30.4%).
2. On average, a drug shortage affects at least half a million consumers, with a significant impact on those aged 65 to 85 (32%), 55 to 64 (24%), and 45 to 54 (17%).
3. Data analysis reveals a 16.6% increase in the price of drugs in shortage, primarily driven by a rise in generic drug prices (14.6%). In some cases, the price increase of substitute drugs was at least three times higher than the price increase of the drug in shortage.

Supply Chain Disruptions Affecting Healthcare Costs

Hospitals rely significantly on a global supply chain to access essential supplies and equipment, impacted by inflationary cost increases. Ongoing disruptions in the supply chain have led to higher manufacturing, packaging, and shipping costs, resulting in increased hospital prices. Consequently, hospital supply expenses per patient surged 18.5% between 2019 and 2022, outpacing inflation by nearly 30%. The 33% increase in supply costs for emergency department care is particularly concerning, where critical equipment like ventilators and respirators are vital for patient survival. The COVID-19 pandemic further exacerbated these disruptions, revealing vulnerabilities in the supply chain that had previously gone unnoticed. Delays in obtaining critical medical equipment and pharmaceuticals have increased healthcare providers' costs and hindered patient care.

Emergence of New Cell and Gene Therapies

As reported by The Washington Post, the emergence of new cell and gene therapies presents significant considerations regarding the financial implications for providers and patients. These advanced treatments are projected to carry substantial price tags, exceeding $1 million per procedure. The higher costs are attributed to their unique ability to provide more lasting benefits compared to traditional drugs. For instance, potential gene therapies that can cure certain forms of hemophilia may be priced as high as $4 to $6 million. While these innovative therapies hold promising results for patients with severe medical conditions, stakeholders in the healthcare industry are grappling with intricate challenges in navigating the affordability and accessibility of these transformative treatments.

Inflation and Healthcare Industry

The cost of health benefits experienced a modest increase of 3.2% in 2022, significantly below the general inflation rate of approximately 8%. However, as mentioned earlier, inflation does not immediately impact the cost of health benefits. According to Mercer, health benefits are expected to rise more steeply in 2023, with employers projecting a 5.6% increase in medical costs per employee. Much of the inflation observed in 2022 is anticipated to affect health benefits pricing in 2024.

Concerning the healthcare industry and inflation, the limited impact of inflation was evident in 2022. Providers faced challenges such as worker shortages and increased labor costs. As a result, they sought higher reimbursement rates from payers to recover financial losses. Anticipating 2024, there are valid apprehensions regarding the possibility of heightened healthcare utilization, which may exert a notable influence on the industry. These factors collectively present complex challenges for stakeholders in the healthcare sector to manage and navigate in the coming years.

Mitigating Factors Easing Healthcare Cost Pressure

Several mitigating factors are currently in effect, contributing to relieving the financial burden posed by rising healthcare costs. These factors are instrumental in curbing the upward trajectory of expenses in the healthcare industry. Understanding and implementing these mitigating factors enable healthcare stakeholders to work towards a more sustainable and cost-effective healthcare system.

Expanded Availability of Biosimilar Drugs

The expanded availability of biosimilar drugs presents significant opportunities in the biologics market. Approximately 19% of the market, amounting to $40 billion, is already facing biosimilar competition, while around 64% (around $135 billion) has the potential for future biosimilar competition. However, the remaining 17% (approximately $36 billion) will unlikely face biosimilar competitors.

Introducing biosimilars has resulted in a 2-4% incremental demand for some molecules, indicating their growing acceptance among healthcare providers and patients. Notably, larger pharmaceutical companies with established innovative biologic portfolios have played a dominant role in marketing biosimilars, while smaller companies are actively developing biosimilars but are more inclined to license their products to larger counterparts for marketing purposes.

Transition From Expensive Inpatient Hospital Settings to Affordable Outpatient Care

Since the beginning of the pandemic, hospitals and health systems have experienced a shift from inpatient to outpatient care. This change is primarily due to patients avoiding hospital emergency departments to reduce the spread of the virus and facilities postponing elective surgeries. According to an analysis conducted by HFMA, hospital and health system leaders anticipate a notable increase in emergency department visits, with a third of them projecting a rise of at least 10 percent. Additionally, a quarter of executives expect a 10 percent or higher increase in elective procedures. Despite these projections, most health systems still struggle with volumes below pre-COVID levels, leading to significant challenges in the market. In response to these circumstances, strategic growth efforts should prioritize person-centered care, emphasizing excellence in ambulatory services. This approach aims to establish sustainable business models that attract and retain patients while enhancing financial resilience during times of volatility.

Other Factors Impacting Healthcare Costs

The expanded accessibility of biosimilar drugs and the shift of individuals from costly inpatient hospital settings to more affordable outpatient care significantly influence healthcare costs. Careful monitoring of these factors is essential for employers aiming to control future medical expenses. Moreover, several other factors are likely to affect healthcare costs.

1. Investments in Value-based Care

   Strategic investments in value-based care models have become essential for effectively managing healthcare costs. By emphasizing patient outcomes and cost-efficiency, value-based care encourages the adoption of coordinated, preventive, and chronic disease management services. This approach not only improves patient health but also helps reduce the unnecessary utilization of healthcare resources. Value-based care is a pivotal strategy in achieving better healthcare results while optimizing healthcare expenditures.

2. Behavioral Healthcare Utilization

   Addressing mental health and substance abuse conditions is essential for managing overall healthcare expenditures. Giving priority to behavioral healthcare can result in early intervention and improved management of mental health conditions, potentially relieving the burden on healthcare systems.

3. Health Equity Initiatives

   Health equity initiatives are gaining momentum as a crucial factor in cost management. Eliminating disparities in access to care and health outcomes can mitigate avoidable expenses and inefficiencies in the healthcare system. These initiatives focus on ensuring equitable access to care, preventive measures, and early detection, thus promoting better health consequences.

4. Price Transparency Rules

   With an emphasis on empowering patients with information, price transparency rules aim to clarify healthcare costs and services. Transparent pricing enables patients to make informed decisions and seek more cost-effective alternatives. Moreover, fostering competition among healthcare providers can drive prices, potentially lowering healthcare costs.

5. Impacts of COVID-19

   The COVID-19 pandemic has profoundly influenced healthcare costs. Demand for medical resources and personal protective equipment surged, leading to supply chain disruptions and price fluctuations. Additionally, the pandemic accelerated the adoption of telehealth services, transforming healthcare delivery and impacting associated costs.

6. Medicaid Redeterminations

   Competent Medicaid redetermination processes are critical in managing state governments' healthcare costs. By ensuring accurate eligibility assessments, states can optimize their Medicaid budgets, easing the strain on healthcare expenditures and facilitating cost-effective resource allocation.

Importance of Monitoring and Preparing for Future Costs

Monitoring and preparing for future costs have become essential for employers and healthcare stakeholders. The dynamic nature of the industry, coupled with emerging trends and challenges, demands a proactive approach to navigate cost complexities effectively. Employers can foster a sustainable and patient-centered healthcare environment by examining key factors impacting healthcare costs and devising appropriate strategies. Let's delve into the importance of monitoring and preparing for future expenses through the following concise pointers:

A. Criticality of Monitoring the Identified Factors:

Regularly monitoring value-based care investments, behavioral healthcare utilization, health equity initiatives, price transparency rules, COVID-19 impacts, and Medicaid redeterminations is essential to stay ahead of cost trends. Understanding the implications of these factors empowers employers to make informed decisions and align their resources accordingly.

B. How Employers Can Reduce Medical Costs:

Employers can adopt various cost-containment strategies, such as promoting preventive care, offering wellness programs, and encouraging employee engagement in managing their health. Negotiating favorable contracts with healthcare providers and exploring health options can reduce medical costs.

C. Strategies for Tackling Affordability Challenges:

Employers can implement targeted cost-sharing initiatives, explore self-insurance or health insurance plans, and collaborate with healthcare providers to negotiate bundled payment arrangements. Also, fostering a workplace culture of health and wellness can contribute to addressing affordability challenges.

D. Reworking Business Models and Investing in Innovation and Technology:

Adopting innovative technologies, such as data analytics and remote monitoring, can optimize healthcare delivery and enhance cost-effectiveness. Reworking business models to prioritize value-based care and outcome-driven approaches can further contribute to cost management.

E. Supporting Employees in the Face of Rising Healthcare Costs:

Employers can offer flexible benefit plans or medical benefits plans, health savings accounts, and financial wellness programs to assist employees in managing healthcare expenses. Educating employees on healthcare options and empowering them to make informed choices can improve overall cost awareness.

Driving Financial Resilience: Custom Benefit Consultants, Inc. (CBC) in Healthcare Cost Management

The PwC report underscores employers' persistent challenges in addressing affordability and escalating healthcare costs in the foreseeable future. To effectively mitigate these challenges, employers must proactively explore novel approaches, reevaluate current business models, and capitalize on transformative opportunities, such as investing in innovation and technology. By gaining insights into medical cost trends, employers can take proactive measures to safeguard their organizations against the mounting burden of healthcare expenses and provide enhanced support to their employees.

Custom Benefit Consultants, Inc. (CBC) can be a valuable partner for employers in navigating the complexities of rising healthcare costs. As a trusted consultant, CBC can offer tailored solutions and expert guidance to help organizations optimize their healthcare strategies, achieve cost containment, and prioritize value-based care. By collaborating with us, employers can proactively adapt to the evolving healthcare landscape, ensuring the delivery of high-quality care while managing costs effectively. With a focus on empowering employers with actionable insights, CBC facilitates informed decision-making, promoting financial resiliency and enhancing overall healthcare outcomes.

As the healthcare industry continues to evolve, proactive measures and strategic planning are vital to address the challenges posed by rising costs. With the insights and expertise of CBC, employers can create a sustainable and patient-centered healthcare environment that benefits both their workforce and the organization's bottom line. Employers can navigate the complex healthcare landscape with confidence and resilience through a comprehensive approach to cost management and a focus on value-based care.