What You Need to Know about Medical Trend

3.5 minute read

Since 2010, medical trend has grown by 73%, according to the Council for Affordable Health Coverage (CAHC). This is about four times faster than the average American’s wage and five times quicker than the consumer price index. If this current trend continues, the CAHC states that the average family will spend more than 50% of their income on health care by 2030.

With health care rising for the foreseeable future, employers are implementing strategies to ensure that their benefits plans are sustainable and benefit employees. Understanding medical trend can help employers better design plans to meet their organization’s and their employees’ needs.

What Is Medical Trend?

PricewaterhouseCoopers’ (PwC) Health Research Institute defines medical trend as the projected percentage increase in the cost to treat patients from one year to the next, assuming benefits stay the same. These calculations are used by insurance companies to calculate health plan premiums for the upcoming year. Generally, the prior year’s health care spending data is used as input to project medical trend for the upcoming year.

Why Is Medical Trend Rising?

Health care costs in the U.S. are rising. The U.S. spends 90% more as a share of the gross domestic product on health care than other similar countries.

The leading cause for medical trend is the price increase at points of care. However, there are other factors that impact medical trends like government-mandated benefits, health care utilization, impact of fixed deductibles and copays, and high-cost medical treatments and prescriptions drugs.

Inflators and Deflators

PwC’s Research Institute projects that medical trend will increase 6.5% in 2022, slightly lower than the 7% increase in 2021. It was anticipated that health care spending would return to pre-pandemic levels this year. The medical trend was analyzed by looking at inflators and deflators. Inflators are trends that are expected to increase medical costs and deflators are those that can mitigate rising costs.

Impact of Increasing Medical Trend

Increased medical trend usually means higher medical costs for employers. In the past, the employers would pass the cost onto their employees. Now due to the labor market, many employers will avoid shifting these costs.

As a result, many employers are looking for ways to manage growing health care costs while keeping benefits affordable. Some solutions may include, improving health care literacy, adjusting plan design, offering secondary insurance options, and incorporating health care technology.

For employees, this means that a higher percentage of their paycheck will be directed to health care. Many may put off care or reduce their medical spending. Employers can help employees counter inflation’s impact and stay healthy by keeping employee benefits affordable.

Conclusion

By understanding medical trend, employers can better monitor health care costs, respond to its long-term impact on their organization, and find ways to keep benefits affordable for employees. Download the bulletin for more details.