Healthcare Costs - Trends to (Still) Keep an Eye on in 2024

On May 11, 2023, the Public Health Emergency (PHE) officially ended, marking a new stage in the pandemic era. 

Over the past three years, there has been a concerted effort to make available safe and effective COVID-19 diagnostics, therapies, and vaccines. Additionally, there have been significant shifts in how and where Americans access healthcare, accelerated by technology and alternative care sites. 

While some changes are temporary, others will persist, shaping a different future in healthcare.

Understanding Medical Cost Trend

What is the Medical Cost Trend?

The medical cost trend is the projected percentage increase in healthcare costs from one year to the next, assuming benefits remain unchanged. It includes:

• Unit Cost Inflation: Changes in the price of medical products, services, and prescription medications.

• Utilization Changes: Variations in the number or intensity of services used.

For example, a 5.0% trend means a health plan costing $10,000 this year would cost $10,500 next year. This helps insurers set premiums and allows employers to adjust benefits to manage cost increases.

Numbers for 2024

According to Price Waterhouse Cooper's Health Research Institute (HRI), the projected medical cost trend in 2024 is 7.0% for both Individual and Group markets, up from 5.5% in 2022 and 6.0% in 2023. This rise is attributed to inflationary pressures from healthcare providers and persistent high costs of pharmaceuticals, particularly specialty drugs and GLP-1 agonists for Type 2 Diabetes.

Key Factors Influencing Healthcare Costs in 2024

1. Inflationary Impacts on Healthcare Providers

• Clinical Workforce Shortages: Healthcare employment after the pandemic hasn't returned to pre-COVID levels, leading to higher wages and increased reliance on temporary staff. This shortage pressures hospitals to seek higher reimbursements.

• Increased Patient Demand: Higher demand for care, coupled with provider burnout, contributes to rising costs.

1. Increasing Cost of Pharmaceuticals

   • Specialty Drugs and GLP-1 Agonists: These drugs, used for chronic conditions like Type 2 Diabetes, are significant cost drivers.

   • New Cell and Gene Therapies: Expensive to develop, these therapies add to the cost burden as their prices are passed on to payers.

2. Impact on the Individual Market

   • Individual plans, often using narrow networks to lower premiums, may face higher percentage increases due to inflation than Group market plans.

Strategies to Mitigate Rising Costs

Providers

• Address Workforce Shortages: Attract talent and use technology like AI to ease workforce strain.

• Enhance Efficiency: Improve operational processes to manage costs better.

Employers

• Network Strategies: Utilize narrow/high-performing networks and centers of excellence to target high-cost claims.

• Plan Design Adjustments: Implement designs that direct patients to lower-cost providers and use effective navigation tools.

Health Plans

• Biosimilars: Adopting biosimilars to specialty drugs can help manage rising drug costs. Savings from biosimilars are expected to impact the overall medical cost trend in 2024 to a moderate degree.

• Shift in Site of Care: Continued shift from inpatient to outpatient care and increased use of virtual care are estimated to help contain costs.

Deflators: Counteracting Inflationary Pressures

• Biosimilars: Their introduction helps manage drug costs due to their lower prices than reference products.

• Shift to Outpatient Care: Increasing outpatient care and virtual services is expected to reduce overall healthcare costs.

Trends to Watch in 2024

a. Managing Total Cost of Care

Health plans focus on value-based care, which ties payments to quality and value. This approach can deflate costs for some plans. Advancements in digital intelligence and payment integrity are also emerging to manage costs effectively.

b. Health Equity

Health equity remains a priority, with CMS's Framework for Health Equity 2022-2032 guiding efforts. Although current impacts on medical cost trends are minimal, health plans are working to address health disparities.

c. Behavioral Health

The pandemic increased the utilization of behavioral health services, particularly through telehealth. This trend is expected to continue as expanded provider networks and outpatient behavioral health services improve access and potentially reduce overall medical spending.

What you need to remember is this: