Health Spending Projected to Slow Next Year

The growth in private sector U.S. healthcare spending is expected to slow next year, but continues to rise at a rate above the rest of the economy, according to a new report.

The report from PricewaterhouseCoopers projects that private sector healthcare spending will grow by 6.5 percent in 2016. That is a slight reduction from the 6.8 percent growth that was projected for this year, and down from around 10 percent in 2008.

Still, healthcare costs continue to grow faster than the rest of the economy, raising concerns about the future. Health spending is currently at 17.4 percent of the economy.

“Anytime the trend slows, that’s good news, and we’re starting to go in the right direction,” said Ben Isgur, director in PwC’s Health Research Institute.

But he cautioned: “It’s hard to hold up your hands in victory when the medical cost trend is about double the rate of [overall] inflation.

The Obama administration has touted that overall health spending, including Medicare and Medicaid, grew by 3.6 percent in 2013, the lowest level since 1960.

But at around one-sixth of the economy, health spending is still high.

“Eventually you do reach a limit and there are other things society needs to spend money on,” Isgur said.

The PwC report projects that ObamaCare’s “Cadillac Tax” on high-cost health plans, along with more efficient virtual visits with doctors and new health advisers, will help drive down costs.

On the other hand, new high-cost speciality drugs that treat complex conditions and spending on cybersecurity are expected to drive up costs.

The 40 percent Cadillac Tax on high-cost health plans is intended to encourage employers to adopt lower-cost options and drive down spending.

It has met with opposition on Capitol Hill, including from some Democrats. Unions have objected to it, and some Democrats say it will hurt regions with higher costs.

In a PwC survey, 64 percent of employers said they expect the tax to have a significant effect on their company when it takes effect in 2018.

Employers are already shifting to high deductible plans that put more of the costs on consumers, and can help lower overall spending by making consumers more cost-conscious.

The number of employers offering high-deductible plans almost tripled since 2009, and the average deductible grew by $500. PwC projects these changes will help lower the growth in overall health spending to 4.5 percent from 6.5 percent next year.

Overall, the report finds that ObamaCare has had a “minimal direct effect” on employer health costs. Just 4 percent said they had seen a significant effect from the $2,000 per-employee penalty for not providing insurance under the law’s employer mandate. Thirty-six percent said reporting and compliance requirements under the law had a significant effect.

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