Healthcare costs are set to rise between 7% and 8% in 2025, according to a new report from PwC.
The analysis comes from PwC's Health Research Insitute and projects that costs will rise 8% year-over-year in the group market and 7.5% in the individual market. That spending growth is likely to reach a 13-year high, according to the analysis.
Factors behind the increases in spending include ongoing inflationary pressures, prescription drug spend and increases in utilization for behavioral health, according to the report.
"Today’s medical cost trend is an urgent call to action for healthcare organizations to rethink their strategies to manage the total cost of care more effectively – a challenge that is inextricably linked to the broader challenge of affordability, defined by the Affordable Care Act as the percentage of a member’s household income used for healthcare expenses," the PwC analysts said.
Medical cost trends have steadily risen since the COVID-19 pandemic reversed several years of declines. Cost increases were as high as 11.9% in 2007 but fell to about 6% by 2020.
The report highlights several factors that are driving the rise while also noting some deflators. However, these trends are not enough to dampen rising costs, the analysts said.
Inflationary pressures on hospitals are a key element in cost increases for the commercial space, for example, according to the report. Because the federal government is trimming payments in public plans, providers are turning to increased payouts from the commercial sector to cover rising operating costs.
In addition, new and innovative prescription drug products are also playing a key role in driving up costs, according to the report. The analysts call out GLP-1s in particular as a driver to watch. Costs per member on GLP-1s have risen steadily over the past several years, reaching $23.16 in the first half of 2023 compared to $8.99 in 2021.
Drugs that treat central nervous system conditions like Alzheimer's disease or Parkinson's disease are also set to be significant cost drivers in the coming years, according to the reports.
"Historically, CNS drugs have had failure rates in clinical trials. Recent advancements have introduced a wave of innovative drugs," the analysts wrote. "While these advancements hold promise for improving patient outcomes, they may bring cost challenges as well."
Biosimilar adoption has been considered by some in the industry as major way to address rising pharmaceutical costs. Uptake has been slow, however, though the analysts noted an uptake starting in April of this year that could drive future cost savings.
Health plans have also matured their approach to tackling rising costs, which is a deflationary trend to watch for the future, according to the report. While insurers have traditionally focused on improving operations to reduce costs, such as looking at administrative tasks, that doesn't necessarily address underlying issues or broader, more complex challenges.
In more modern initiatives to tackle affordability, though, insurers have worked to address interconnected factors that drive up costs and deploying resources from across their respective enterprises.
"By executing this holistic approach through a dedicated function, health plans are striving to moderate medical cost trends and improve affordability by reducing over-utilization, improving efficiency of operations, and enhancing the effectiveness of medical management operations," the analysts said.