PWC: Medical Cost Trend 2024
In 2024, the healthcare industry is expected to face significant pressure due to high inflation, rising wages, and other increasing costs. Compounded by the shortage of clinical staff, the challenges for the healthcare sector are likely to intensify. As hospitals and health insurance companies engage in intense price negotiations, the profitability of healthcare providers is gradually deteriorating. Insurers, too, are grappling with the burden of rising costs due to increasing drug prices and the introduction of new medications.
In the midst of this situation, PwC's Health Research Institute (HRI) conducted surveys and interviews with major US health insurers, including 100 million members of employer-sponsored insurance plans and 10 million members of the Affordable Care Act (ACA) health insurance exchanges. Healthcare executives are grappling with various challenges, such as outdated infrastructure and technology, inefficient management, staffing shortages, and competition from startups, while pondering how to provide better healthcare services to patients and members.
HRI forecasts the average medical cost trend for the individual and group health insurance markets in 2024 to be 7.0% higher compared to the previous year. This represents a continuation of the upward trend, following increases of 5.5% in 2022 and 6.0% in 2023. The primary factors driving the surge in medical costs include higher contracted rates with healthcare providers, increased use of specialty drugs, and a surge in prescriptions for type 2 diabetes and weight-loss medications.
In early 2023, HRI warned that the healthcare industry, facing economic uncertainties, would struggle with chaotic cost increases. To endure, fundamental changes and innovations will be necessary until 2030. Healthcare organizations will need to redesign their financial structures, workforce, and business models, while also preparing for the future through various means, including adopting new technologies, forming partnerships, and pursuing mergers and acquisitions.
HRI anticipates that inflation will have a significant impact on healthcare providers. Hospitals and physicians are demanding substantial fee increases from health insurers, citing the high rate of price inflation. How these fee adjustments are handled during contract renewal processes will likely determine the impact on future medical costs.
The chronic staffing shortage that has persisted in recent years is further exacerbating inflationary pressures. Hospitals struggling with chronic staffing issues are expected to demand higher compensation from insurers due to their financial difficulties. The combination of staffing shortages and the ongoing trend of healthcare facility consolidations is likely to strengthen the bargaining power of hospitals and physicians.
Furthermore, the healthcare industry's staffing shortage is unlikely to be easily resolved due to burnout and high turnover rates among overworked medical staff, compounded by increasing patient demand. The shortage of healthcare services supply is expected to be a fundamental driver of rising medical costs.
Meanwhile, insurers are also feeling the burden of increasing costs due to rising prices of existing drugs and the introduction of new medications. The expanded coverage of new and innovative therapies by health insurance plans has led to a surge in the use of high-priced drugs. In particular, the expanded coverage of advanced biopharmaceuticals, such as cell and gene therapies, is placing a significant strain on health insurance finances. For 2024, HRI forecasts that drug cost increases will reach the high single-digit or even double-digit percentages.
The US healthcare system is facing chronic cost inflation pressures driven by high inflation, staffing shortages, and the introduction of new drugs. While hospitals are expected to aggressively pursue fee increases to overcome financial difficulties, health insurers are focusing their efforts on improving contract terms with hospitals to curb the rising insurance payouts.
In the long run, strategies are needed to streamline the healthcare delivery system through measures such as consolidating healthcare facilities, promoting telemedicine, and introducing artificial intelligence (AI) technologies. Simultaneously, expanding investments in preventive medicine and health management could reduce overall healthcare demand. To break the vicious cycle of rising medical costs leading to increased insurance premiums and greater financial burdens on citizens, comprehensive restructuring within the healthcare sector seems indispensable.
The government must also play its part in stabilizing health insurance finances by encouraging appropriate healthcare utilization and reducing unnecessary medical procedures. At the same time, policy efforts should be made to strengthen healthcare coverage for vulnerable populations. It is crucial to establish safeguards to ensure that rising medical costs do not diminish access to healthcare for low-income groups.
Ultimately, the healthcare sector, government, and citizens must collectively strive to build a sustainable healthcare system. Rather than short-term prescriptions, a long-term vision is needed to gradually improve the healthcare delivery system. A wise approach must be sought to enhance the public nature of healthcare while also improving efficiency.
The challenges faced by the US healthcare system in 2024 are not unique to the United States. Globally, issues of rising medical costs and healthcare inequalities are intensifying. Particularly in South Korea, where healthcare expenditures are rising rapidly due to an aging population and an increase in chronic diseases, the US experience cannot be viewed as someone else's problem.
How to efficiently allocate limited healthcare resources and protect vulnerable populations is a common challenge facing the global healthcare community. Our society must also contemplate a sustainable healthcare model befitting the aging era. To achieve this, the government, healthcare sector, and citizens must pool their wisdom to find creative solutions.
The issue of medical costs is not merely a matter of money; it also reflects the values and ethical consciousness of a society. While prioritizing public healthcare over profit-seeking, a social consensus that harmonizes efficiency and equity is crucial. It is time to explore a medium- to long-term healthcare policy direction that ensures high-quality healthcare for all citizens while maintaining financial sustainability.
Medical cost trend 2024