Healthcare Costs Continue Slowdown

There's good news for most companies that provide health benefits for their employees: America's slowdown in medical costs may be turning into a trend, rather than a mere pause.

A report Tuesday from accounting and consulting giant PwC projects lower overall growth in medical costs for next year, even as the economy gains strength and millions of uninsured people receive coverage under President Barack Obama's health care law.

If the calculations are correct, cost spikes because of the new health care law should be contained within a relatively narrow market segment. That would come as a relief for Democrats in an election year during which Republicans plan to use criticism of "Obamacare" as one of their main political weapons.

"There are some underlying changes to the system that are having an impact, and we can expect lower increases as we come out of the recession," said Mike Thompson of PwC's Health Research Institute, which produced the study. Cost "is still going up, but not as much as it used to."

The report comes with a caveat that sounds counterintuitive at first: Self-employed people and others who buy coverage individually could well see an increase in premiums in 2014.

The reasons have to do with requirements in the health care law. For example, starting next year insurers must accept patients with pre-existing medical problems, who cost more to cover. Also, new policies have to provide a basic level of benefits more generous in some cases than what's currently offered to individual consumers.

About 160 million workers and family members now have job-based coverage and are less likely to be affected. The individual market is much smaller, fewer than 20 million people. Still, it's expected to grow significantly over the next few years as a result of the health care law, which will also provide tax credits to help many people afford their premiums.

The U.S. spends more than $2.7 trillion a year on health care, well above any other developed country. But quality is uneven, there's widespread waste and fraud, and the system still leaves about 45 million people uninsured.

For years U.S. health care spending has grown much faster than the overall economy and workers' wages, but since the recession those annual increases have slowed dramatically. The debate now is whether that's a continuing trend. The answer will be vitally important, not only for companies and their employees, but for taxpayers who foot the bill for government programs such as Medicare, Medicaid and Obama's coverage expansion.

PwC's report forecasts that direct medical care costs will increase by 6.5 percent next year, one percentage point lower than its previous projection. The cost of care is the biggest component of premiums, followed by administrative expenses and overhead.

Cost-shifting to workers and efficiency measures from employers got most of the credit for slowing growth. PwC also said the health care law's push for hospitals and doctors to be more accountable may be starting to have an impact.

Four big factors were seen as pushing costs down next year:

-Patients seeking more affordable routine services in settings like clinics springing up in retail stores, as opposed to a doctor's office or the emergency room.

-Major employers contracting directly with hospital systems that have a proven record for complicated procedures such as heart surgery and certain back operations.

-The government ramping up penalties on hospitals that have too many patients coming back with problems soon after being discharged.

-Employers' ongoing effort to shift more costs to workers through higher annual deductibles, the amount people must pay each year before insurance picks up.

By using such shifting, PwC estimates that employers may be able to drive their share of next year's cost increase even lower than 6.5 percent.

On the other hand, two big factors will push costs upward:

-The high price of new "specialty" drugs to treat serious chronic illnesses such as autoimmune diseases and some types of cancer.

-Industry consolidation, with big hospitals buying up smaller ones, as well as medical practices and rehab centers. The downside of the demand for greater efficiency by employers and government is that it may be fostering new health care monopolies.