Healthcare prices to increase 7% next year

For the report, researchers spoke with actuaries working with insurers who cover 100 million employer-sponsored members and 10 million Affordable Care Act members to predict healthcare inflation for the coming year.

Overall, PwC projected that healthcare costs will increase by 7% in 2024, a higher rate than the last two years. In 2022, healthcare costs were projected to increase by 5.5%, and costs were projected to increase by 6% in 2023. 

According to Thom Bales, principle and U.S. services health sector leader at PwC, the company's projections have generally been close to actual cost growth, but researchers will sometimes adjust previous estimates. For example, researchers initially projected a 6.5% cost growth in 2022, but later revised it to 5.5%.

In 2024, growing provider expenses, insurer rate increases, and rising pharmaceutical prices will drive healthcare inflation, the researchers said.

How the healthcare industry will be impacted                      

As healthcare costs grow in the coming year, several stakeholders will be impacted, including:

Providers

Over the last three years, providers have experienced significant increases in both labor and supply costs due to more clinicians retiring or leaving the industry, the rise of contract work, and inflation. Because of this, providers will likely push for higher rate increases when they negotiate their contracts with insurers.

In addition, hospital and physician group consolidation is expected to give providers more negotiating leverage. According to research, consolidation leads to higher prices, which then often leads to higher premiums, more patient cost-sharing, and stagnant employee wages.

However, Bales said there could be a delay in providers' price increases depending on when they negotiate their contracts with insurers. "The impacts of the inflationary pressures that health systems are facing have not been full[y] realized," he said.

Drug manufacturers

According to report, drug manufacturers are expected to increase their prices in either the high single digits or double digits next year, largely due to more expensive treatments, such as gene and cell therapies, being introduced. In 2021, the median annual price for new drugs was $180,000, but this increased to $222,000 in 2022.

Current ongoing drug shortages have pushed providers to spend more money as they find alternative treatments and train their staff on unfamiliar products. Although two-thirds of insurers say biosimilars are a good way to reduce healthcare costs, physicians and patients have been relatively slow to adopt them.

Insurers

According to insurers, inpatient utilization has decreased while more patients receive care in lower-cost outpatient, virtual, and home-based settings. This shift has negatively impacted hospital revenues, and it's not clear whether inpatient utilization and hospital-based surgeries will rebound to pre-pandemic levels.

However, insurers expect cost growth will primarily come from increases in provider and pharmaceutical prices instead of more utilization.

Employers

Going forward, employers will likely push for lower-cost options from insurers, as well as health plans with narrow networks that direct patients to low-cost, high-quality providers. Employers will also likely encourage telehealth for counseling and other mental health treatment, which could potentially limit cost increases. (Kacik, Modern Healthcare, 6/29; PwC "Medical cost trend: Behind the numbers 2024" report, accessed 6/29)