Payers could see 7% spike in healthcare costs in 2024

Healthcare costs are expected to increase as much as 7% in 2024 due to continued labor shortages, drug price increases, and new contracts between payers and providers –which represents a larger jump in costs than in either of the previous two years.

According to a new PwC report, the higher medical cost trend in 2024 reflects health plans’ modeling for inflationary cost impacts from their contracted healthcare providers, as well as persistent double-digit pharmacy trends driven by specialty drugs.

PwC updated its 2022 medical cost projection for the group market to 5.5%, 1.0% down from the initial projection in 2022, primarily driven by a shift in sites of care from inpatient hospital settings to less costly alternatives, such as outpatient and ambulatory surgical centers.

The impact of inflation is further exacerbated by continued clinical workforce shortages in 2023-24, prompting hospitals to increase salaries and consequently seek higher reimbursement from payers. Inflation, and its ramifications across the healthcare industry, are the main factors driving spending in 2024, according to PwC.


In looking at current trends, PwC identified a couple of primary “inflators,” or factors contributing to the projected cost increases. For one, hospitals and physicians are expected to seek higher rate increases (potentially also at a higher frequency) in contract negotiations. Workforce shortages and physician consolidation can further amplify the effect. On top of that, provider burnout and increased patient demand are expected to keep the pressure up on clinical workforces across the industry.

Another factor is the increasing cost of pharmaceuticals. Plans are experiencing inflationary pressure from the rising median price of new drugs, as well as the increasing price of existing drugs. Combined with the accelerated approvals of new cell and gene therapies, pharmacy trends are not expected to slow down in 2024.

On the pharmacy side, some positive trends are expected to counteract some, but not all, of the inflationary pressure. For instance, the prices of biosimilars are, on average, more than 50% lower than the reference products at the time of biosimilar launch. The launch of adalimumab biosimilars to Humira in 2023 is a new milestone in the market that is already driving significant savings, the report found.

Plans also reported a decrease in inpatient utilization as well as a shift towards outpatient care, which allows a two-pronged benefit to contain costs.


In addition to the factors contributing to (and mitigating) inflationary pressures, there were other notable trends reported by health plans, such as the total cost of care management. Many health plans continued to invest in total cost of care management initiatives, such as value-based care, that helped maintain the year-over-year trend. National health plans generally demonstrated better cost management and subsequently achieved lower cost trends, PwC found. As these national plans continue to grow, they will have a dampening effect overall on medical cost trends.

The impact of Medicaid redeterminations, meanwhile, is likely to only be felt in the individual market, with the magnitude and direction dependent on the number, and the risk profile, of disenrolled people who eventually purchase individual plans.

The Price Transparency Rule from the Centers for Medicare and Medicaid Services is expected to be neutral as far as its impact, given the immaturity of the data. Plans could see both upward and downward pressures over time.

And then of course there’s COVID-19. The impacts of changes in federal and state policies and the need for vaccines, testing, and treatment will vary, with the net effect likely being neutral. Health plans did not report a causal relationship between pent-up demand for care during the pandemic and utilization of care. The consensus among health plans is that inflationary pressures continuing in 2023 and going into 2024 will be driven by provider unit cost increases and pharmacy trends, rather than a recovery in surgery utilization post-pandemic.

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