Employer health costs projected to rise 6.5% in 2022 due in part to COVID-19
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Due to a COVID-19 “hangover” — marked by the increased use of medical services combined with more high-acuity patients and digital investments — employer medical costs are projected to increase 6.5% in 2022, slightly lower than in 2021 and higher than the period from 2016-2020, according to an annual report published by PricewaterhouseCooper.
Healthcare spending is expected to return to pre-pandemic baselines, with some adjustments to account for the pandemic’s persistent effects. PwC’s Health Research Institute defines the medical cost trend as the projected percentage increase in the cost to treat patients from one year to the next, assuming benefits remain the same.
The report breaks down trends into two categories: inflators and deflators. Inflators are those trends that are expected to bring up medical costs, such as the lingering effects of COVID-19; deflators are the trends that will have a mitigating effect on rising costs.
As the biggest inflator, the pandemic “hangover” is expected to increase utilization and healthcare spending in 2022 thanks in part to the return of some of the care that had been deferred during the public health emergency, as well as the ongoing costs of treating the coronavirus, increased mental health and substance use issues, and worsening population health.
Data shows that 15% of American consumers with employer-sponsored health insurance said they had deferred some care between March and September 2020. The rebound is expected to increase health spending, as is testing, treatment and vaccination costs for COVID-19.
Poor pandemic-era health behaviors will exacerbate this, as many Americans suffered from a lack of exercise, poor nutrition, smoking and increased substance use, PwC found.
WHAT’S THE IMPACT: INFLATORS
The COVID-19 pandemic isn’t the only inflator that could cause healthcare costs to swell. The hardships wrought by the coronavirus have increased calls to prepare for the next pandemic, and preparation costs money.
Pandemic readiness will cause costs to rise, as supply chain shortages and disruptions have spurred health leaders to pledge money toward predictive modeling. Prices for personal protective equipment, infrastructure and staffing have also risen, and providers and healthcare systems are making investments in infection control, technology, connectivity and cybersecurity.
The healthcare industry also continues to invest in addressing health inequities, which will likely dampen health spending in the long run but drive higher prices in the short term. Health organizations have also allocated millions toward addressing the social determinants of health, such as transportation and housing.
Providers are also investing more in their digital experience so they can maintain relationships with patients during the pandemic while potentially reaching new markets. These digital investments include “front door” apps that connect providers to patients, beefed up patient portals and the increased use of customer relationship management tools.
These investments will cost money in the short term but pay off in the long run. These investments are expected to build better relationships and drive growth.
Although health spending is projected to increase, the deflators identified by PwC will likely have a mitigating effect. One is consumerism: More people are shopping around for care, and millions have become more familiar with receiving care in lower-cost and more convenient ways during the pandemic — shifts in behavior that will likely reduce healthcare spending.
As part of this shift, there has been a decrease in emergency department utilization, which has had a significant impact in bending the cost curve for employers. Some ED visits, especially lower acuity ones, may never return to pre-pandemic levels.
The shift to remote work for some healthcare employees could also help to reduce costs. This has a downstream effect on real estate spending, as providers are reimagining the physical spaces they need for administrative functions.
Technology-based efficiencies also are being adopted by providers to reduce costs and boost revenue. Cloud services are growing in popularity as they reduce the physical space and fixed assets of health organizations. They also are an enabling technology that allows employees to work from home.
THE LARGER TREND
A report published in February from Deloitte found that more agency among consumers, and patients who take more active roles in their healthcare journeys, is a trend that will help to curb spending, in part by recognizing the early onset of disease and addressing it proactively.
This is reflected in the numbers: While healthcare spending is projected to rise to $8.3 trillion by 2040, that’s about $3.5 trillion less than an estimate from the Centers for Medicare and Medicaid Services, and the authors attribute this to more proactive consumers and emerging technologies.
A separate study published the same month by RAND Corporation found that reducing hospital prices by setting what private health plans pay would have the most impact as a policy option for reducing annual hospital spending. The study compared three policy options – regulating hospital prices, improving price transparency and increasing competition among hospitals – to find which action would have the most impact.
If the prices that commercial payers paid to hospitals were set as high as 150% and as low as 100% of what Medicare pays, hospital spending could be reduced annually by $61.9 billion to $236.6 billion, respectively, according to the report. That change would create a 1.7% to 6.5% reduction in national health spending.