Health Insurance

Health Care Cost Increase Projected to Slow to 6.5% in 2023

The expected rise in health care costs in North America in 2023 is lower than this year's estimated jump of 9.4%, according to Willis Towers Watson.
Health Care Cost Increase Projected to Slow to 6.5% in 2023
Photo: Kunakorn Rassadornyindee

As health care costs are projected to rise in 2023 worldwide, according to the Willis Towers Watson’s 2023 Medical Trends survey, North America is the lone region that is projected to a smaller increase  in health care costs in 2023.

While inflation and increased healthcare utilization will cause average projected increases as high as 10% globally next year, health care costs in the United States and neighboring countries aren’t predicted to rise nearly as rapidly, yet.

 Combating Rising Costs

“The changes from 2022 to 2023 reflect the high degree of variability in North American trends expected by the major medical carriers over the last two years,” Dr. Jeff Levin-Scherz, population health leader at Willis Towers Watson (WTW) and assistant professor at the Harvard T.H. Chan School of Public Health, told CFO. “The variability is attributed to uncertain pandemic risks, changes in utilization patterns, medical cost inflation, and pricing changes across the health care system.”

According to Levin-Scherz, the lower increase next year is only temporary. He believes this may be the last time the annual percentage increase declines from the previous year, at least for the foreseeable future. “While insurers are indicating a lower trend, we don’t necessarily think it will drop as much in 2023 based on what we are hearing from employers,” he said. “In fact, price increases will likely persist for the next few years, since many provider contracts are for multiple years.”

Levin-Scherz.jpg

  Dr. Jeff Levin-Scherz

Levin-Scherz believes finance executives should recognize that two of the drivers of higher health care prices are medical providers’ higher labor costs and the discontinuation of federal funding for COVID-19 treatment and prevention. 

“Many health care workers were emotionally exhausted from the care they delivered during the pandemic, so the medical field has seen its own Great Resignation,” said Levin-Scherz. “[CFOs] should proactively evaluate the effectiveness of their carrier contracting and their management programs to help their company address this projected increase in costs.”

The WTW survey results resonated with Levin-Scherz’s suggestions, as more than three-quarters (78%) of health care insurers worldwide expected a significant rise in those kinds of costs after next year. 

The most expensive condition for health insurance providers is cancer treatments. WTW projects it will stay that way going into 2023. Cancer-based insurance claims ranked fifth in terms of number of claims in 2022. That ranking is projected to rise to number two in 2023, stemming from delayed doctor visits and diagnoses due to the pandemic, according to the WTW survey.

“People are sicker,” said Levin-Scherz. “For example, in the U.S., three times as many Americans have had major symptoms of anxiety and depression, and many have missed screening, preventive care, and have neglected chronic diseases like heart disease and diabetes.”

Half of insurers also indicated that costs are driven up annually by the lack of preventive treatments and services, possibly due to the avoidance of medical offices during the pandemic. More than half (52%) of insurers also told surveyors that the poor health habits of the insureds are a top factor in rising costs. 

While the technology in health care has given new hope for some of the sickest individuals, the costs of the latest treatments to patients and their insurance companies are becoming astronomical. “Advances in health care can prolong lives — but cost money,” said Levin-Scherz. “For instance, most new cancer drugs can cost $10,000 or more a month.”

Leveraging What’s Available

“Globally, leading employers are looking to provide employees with better support tools to help triage the best or optimal level of care they need, including the use of virtual or telehealth services to identify if hospital or emergency rooms, which can be a high-cost event, are required in a situation,” Francis Coleman, managing director of WTW, told CFO. “In addition, there is more information provided on the use of lower cost network options or alternatives to the most highly-priced hospitals.”

Francis Coleman.jpg

  Francis Coleman

Coleman hinted at strategies that are being implemented overseas, like leveraging telehealth to cut the cost of the most common conditions among employees. “Outside of the U.S. we are also seeing the introduction of more digital services and apps which could help provide a lower cost delivery and easier access alternative for high claims incidence areas.”

Employees’ work environments can play into the costs of medical benefits. Musculoskeletal disorders are the top condition by incidence of employee health insurance claims. According to the survey, the high number of claims is likely the result of the subpar ergonomics in many employees’ home working environments. If employees are also less physically active, it increases the risk of such injuries. 

When asked how CFOs can help drive down the cost of conditions resulting from home office setups, Coleman spoke about the importance of executives being aware of the newest and most relevant information in the health care space. Not only does this give companies the best chance to get employees the best care possible, but it can help cut overall costs of health care benefits moving forward.

“We see more and more organizations asking the question, ‘Am I investing in benefits that matter most to employees?’” said Coleman. “We see a shift in focus of being aligned to market on the things that matter most to employees. We [also] see leading global employers use employee surveys, focus groups, and total reward optimization tools to really understand what matters most to employees and then realign to those, to maximize the value of benefits packages.”

While economic conditions have an impact on rising health care costs, survey results yield that they are not the only determining factor. Some factors are not only outside the realm of control for executives entirely, but are also the direct result of medical professionals using the system’s structure of testing and follow-up appointments to boost their practices’ revenues.

The survey found that the leading driver of costs tends to be doctors leveraging unnecessary testing to earn more revenue, as nearly three quarters (74%) of insurers told surveyors that medical professionals are recommending too many services for their patients or are over-prescribing them treatments that may not be warranted.

The 2022 WTW survey tracked medical costs from a global network of 209 insurers in 61 countries. The data is collected year between July and September.