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PwC Provides 3 Spending Scenarios to Address Implications of COVID-19 on the 2021 Medical Cost Trend


With the growing uncertainty of the coronavirus disease 2019 (COVID-19) pandemic and the emergence of services such as telehealth and behavioral health, PwC's Health Research Institute provided 3 spending scenarios for employers managing the insurance market. It projects a 4% to 10% increase in the medical cost trend for 2021 based on these scenarios, said Ben Isgur, MPA, Health Research Institute leader at PwC.

The economic and health impact of the coronavirus disease 2019 (COVID-19) pandemic have caused extensive accomodations among employers, policy makers, and health care actuaries nationwide to ameliorate related effects. For instance, while last year’s projections by PwC’s Health Research Institute (HRI) on the medical cost trend for 2020 were aligning with real data for the year, once the pandemic struck, utilization rates in certain categories of health services reached almost 0, noted Ben Isgur, MPA, HRI leader at PwC.

In an interview with The American Journal of Managed Care®, Isgur spoke on how these effects affected PwC’s projections from last year, as well as how they have been implemented into current projections for this year’s annual report, “Medical Cost Trend: Behind the Numbers 2021,” that released today.

The report, which helps guide employers and payers as they determine health plan premiums for the coming year, sought to account for pandemic waves and what health services may or may not come back. Additionally, the emergence of services precipitated by the pandemic such as behavioral health and telehealth, and innovations in COVID-19—related treatment were also noted to potentially affect the medical cost spend.

As Isgur describes, “a lot of different variables there, including how many people are going to be insured, how many people are going to be uninsured, the changes for employer-based plans as layoffs have happened in certain industries and certain geographies.”

To address this uncertainty, Isgur and colleagues at PwC’s HRI provided 3 different spending scenarios for employers managing the insurance market, categorized as low, medium, and high. Based on tailored factors for employers, researchers expect a 4% to 10% increase in the medical cost trend for 2021.


AJMC®: Hello, I'm Matthew Gavidia. Today on MJH Life Sciences News Network, The American Journal of Managed Care® is pleased to welcome Ben Isgur, Health Research Institute Leader at PricewaterhouseCoopers, or PwC. Can you just introduce yourself and tell us a little bit about your work?

Isgur: Sure, Matt! Yeah, I'm Ben Isgur, I lead PwC’s Health Research Institute and we actually conduct primary research on health care trends, and try to come up with blueprints on how health executives can navigate those changes.

AJMC®: Can you speak on the history and goals of the annual report on medical costs in the employer insurance market by PwC’s Health Research Institute? What factors influence projections?

Isgur: Sure, well, this is a report we've actually done for over a decade where we look at medical cost trends. So, this is really the inflation number of health care costs. We focus solely on the employer-based insurance market.

So, there's 155 million Americans that are active employees that are covered by commercial insurance plans or by self-insured companies, and our analysis each year looks at a projection—we developed a projection of that inflation rate for the coming year for medical costs trend, which is simply the utilization of services times the price of services. We try to put together a national average, which helps businesses in the United States and insurance companies think about what they're going to put in as premiums for the coming year. Although our number is not the premium number, it is an input into the development of premiums.

AJMC®: Based on last year’s report, how have this year’s medical costs compared with projections? Were there any notable implications from the COVID-19 pandemic on these prior projections?

Isgur: Well, I tell you, our projections were kind of, I would say, moving right along the real numbers for this year until COVID hit, and the big change there is we saw utilization go almost to 0 in certain categories of health services. So, yes, that does have an effect on trends, and we've seen some public reports with insurance companies that are having to actually provide some premium reimbursements to consumers.

What that tells you is that not as many services have been used as what was once thought, and that is largely to do to COVID. Now, after a few months into it, we are starting to see those health services pick back up and people are able to get back into the doctor and surgeries are being scheduled—maybe not to the level that we had pre-pandemic pre-COVID, but certainly getting closer to that what we call the kind of a normal level of utilization. Where it all nets out at the end of the year, you have to kind of think about the cost associated with a pandemic—testing, people in the ICU [intensive care unit], some cost that maybe weren't expected, but then you also have to kind of subtract out some of those services that were not done this year.

So, we projected a 6% medical cost trend for 2020, we may come in actually a little bit lower than that due to the pandemic.

AJMC®: Getting into PwC's new report on the 2021 medical cost trend in the employer insurance market, a 4 to 10% increase was cited. Can you discuss how PwC came to this conclusion?

Isgur: Well, this was a really precedent year for us because it's the first time ever that we've actually put together scenarios instead of 1 single projection, and we just felt like there were too many variables on the table to not have to do something like that to be more accurate and to help guide—provide in some ways, a little bit more guidance.

So, we actually have a high projection of a 10% medical cost trend, which would be maybe something we haven't seen in over 12 to 13 years—a double digit increase in medical cost trend; to a low projection of 4%, so, actually a slower growth rate than we've seen in the last couple of years; to our medium of 6%, which is similar to what we saw last year.

The question is what went into the development of those scenarios for us. So, we were trying to think about the pandemic waves and what may come back or not come back, and that relates very heavily to access to services. So, again, going back to there can be some additional costs when you're treating people with COVID, but there could also be some additional quote savings because we're not doing as many services because hospitals are trying to keep patients cleared out, doctors aren't seeing as many patients because there's questions around access, around the pandemic itself.

So, a lot of different variables there, including how many people are going to be insured, how many people are going to be uninsured, the changes for employer-based plans as layoffs have happened in certain industries and certain geographies. So, that's really why we really decided to come up with the scenarios because we felt that would be most helpful.

Now, how do you act on those scenarios? Well, different companies—you may be a company that's in a geographic region where there just hasn't been a lot of COVID cases, there may not be a lot in 2021. Well, then you might be more towards the medium or lower scenario. So, it's that type of thinking where companies are going to have to think about their specific issue and think about which scenario may make the most sense for them or even could there be some variability during the course of next year.

AJMC®: As you just alluded to, with the growing unpredictability of the pandemic, the report provided 3 spending scenarios: low, medium, and high. What factors are involved in these scenarios?

Isgur: Well, some of them I just discussed. So, factors like the pandemic itself and do we see waves come in and out in in 2021? And how big are those? I tell you 1 that would be when we think about COVID, what we saw early on in the pandemic, where health systems were really trying to clear out a lot of their volume and open up and get ready to receive a lot of patients that needed isolation and needed to be separated from their other patient populations. That's a huge variable.

The other variables I haven't talked about yet are a vaccine, medical countermeasures, and just knowing how to treat the pandemic better—knowing how to treat people with COVID cases better and that actually changes utilization as well. So, as medical science gets better at treatment, even if we don't have a vaccine yet, even if we can't solve the issue, but we get better at treatment, that might mean fewer people in the ICU, it might mean fewer days in the ICU, it may mean that we stop keeping people from having to go to the ICU and needing that really intense treatment in the first place.

All of those things have the ability to really reduce costs. One other thing I'll just mention is in terms of the demographic that the COVID virus is affecting, primarily that is sitting at the above-65 population. So, I think 1 thing we all need to keep in mind is that actually, the insurance program that's going to be paying for a lot of these COVID-related costs is Medicare with the over-65 set.

AJMC®: Just to build off on that, how can this assist employers and payers in determining health plan premiums?

Isgur: Well, medical cost trend is an input into the development of premium. So, the way I describe it as is health plan actuaries and others that are thinking about future year costs, you have to make sure that you've got enough money in your pool to pay for those health costs. That's really what the premiums are all about that we're gathering—we have to kind of make an educated guess in terms of what the spending is going to be in the next year so when we set the premiums, we're going to have all of those costs covered.

Self-insured employers have to do that, insurance companies of employer insured plans—they all have to do that. So, medical cost trend becomes really important because it's simply saying, if we think about all the medical services that we provided a patient population this year, what do we think that same bucket of services is going to cost next year? So, if there's a 6% trend, that means that just providing the same services are going to cost 6% more in the next year. So, that's 1 part of premium that's going to be built in.

Other things that get built into premium are administrative costs, profit for health insurers—things like that. So, there's a lot of different factors that go in, and generally, people thinking about this, they're going to want to be a little bit conservative. The last thing they want to do is be caught off guard and have a lot of expense come in and not have the dollars to cover it.

AJMC®: Can you discuss the influence of emerging trends such as behavioral health and telehealth in health care costs? And what can we expect from these services in the 2021 medical cost trend?

Isgur: Well, behavioral health is a really interesting 1 to think about it. It's 1 that we featured in our behind the numbers report this year. This goes in the category of sometimes it's actually worth it to spend a little bit more upfront to save money down the road, and behavioral health services are 1 of those. We know that people are really suffering because of the pandemic and COVID and mental health has become a really important issue.

Many US employers have been recognizing that over the last few years, even before the pandemic, the importance of treating mental health issues. Our own analysis shows that those with mental health conditions often have very, very expensive health care costs, especially when they're paired with other types of health conditions. So, like a mental health condition with COPD or with diabetes can really increase the cost a lot because often people that have behavioral health issues or are suffering from mental health issues may have a harder time managing other parts of their health as well.

So, employers are starting to see that. They see it in the data, they see it in their expenses, and their costs around health care. They also understand that a healthy employee, a mentally healthy employee, is going to be more productive, is going to be on the job longer, and with fewer days absent and things of that nature. So, it's very much front and center for employers. The pandemic has only accelerated that as people have been suffering from being at home with isolation, the stress of the pandemic, the stress of the economic issues going on the US, the stress of things like racial injustice happening in the US—all those cause a lot of stress.

We think employers are going to spend more money on behavioral health in 2021, because we think there'll be more utilization, but that's not a bad thing. That firmly goes into the category of you're going to spend more money now because more people are going to use it, but it's going to save you a lot of money in the long run as it's going to keep people healthy. So, that's 1 issue that we really focused on.

The second one is around what you mentioned telehealth and virtual health. Again, here's one where we may see an increase in utilization—in fact, we have. Over the course of the pandemic, our own consumer survey showed about 5% of the total US population use telehealth for the very first time during the pandemic, about 17 million people use telehealth for the very first time.

So, that's an incredible number of new users. Some of those are people with employer-based insurance, and so, there's some cost associated with that, but again, there's a lot of efficiency there. It's a very efficient way to see people. It gives people access during a pandemic, when there was no other way to get access. So, again, it's something that we think is going to actually save a lot of money for employers down the road.

AJMC®: Lastly, are there any topics that you want to address that have not been talked about?

Isgur: Well, I think we've covered a lot of them. One other that I would mention, it's especially important for employers and US businesses to think about, and that's really the design of the networks. So, 1 of the things that we are seeing for 2021 is more interest in what are called narrow networks. So, that's where your employees don't have a very wide choice in terms of hospitals and doctors that they can go to, but the choices they do have are high quality providers that are willing to provide the services at a very efficient price.

So, there's a bit of a trade off there. You don't have as many choices, but you might have a lower premium, and it's one way to kind of keep some of these medical costs in check, which is to develop narrow networks. Our consumer survey showed a little bit over a third of consumers with employer-based health plans said they will be willing to engage in that trade off—they'd be willing to have a narrow network and have fewer choices of doctors and hospitals if it actually lowers their premium.

AJMC®: Thanks, Ben!

Isgur: Thank you!

AJMC®: To learn more, visit our website at ajmc.com. I'm Matthew Gavidia. Thanks for joining us!

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