Medical costs are projected to rise 6% in 2020 as prices continue to swell and utilization stagnates, according to a new report.

Despite employers' efforts to stem unnecessary care through high-deductible health plans, medical cost growth still outpaces general inflation, PricewaterhouseCoopers Health Research Institute's analysis of employer-sponsored healthcare spending found. The 2020 projection aligns with the average medical cost inflation over the past five years and is down from double-digit spikes in the 2000s. That estimate lowers to a 5% net growth rate after figuring in health plan changes such as increased employee cost-sharing and network and benefit changes, HRI notes.

"Utilization is basically flat, and it is all on the price side," said Benjamin Isgur, who leads the Health Research Institute. "Employers realize that it isn't going to help if they put more cost-sharing on employees, and they are starting to get a bit of backlash."

Prices have been a larger component of employer-benefit costs than utilization since 2004, according to HRI's research, which is supported by related reports. Utilization has hovered around 0% growth since 2006. Last year's report identified consolidation and physician employment driving prices up, which will likely continue in the short-term, the institute said.

This has hit consumers harder as deductibles for employer-sponsored plans have tripled between 2008 and 2018, outpacing wage growth. Thus, they have delayed or refused care. Twenty-eight percent of consumers surveyed by HRI with high-deductible health plans said they had $500 or less in emergency savings. For all deductible levels, across individuals and families, at least one-third did not have enough savings to cover their deductible.

Cost sharing has effectively limited utilization, but it is reducing both unnecessary care as well as needed care, Isgur said. The runway for high-deductible health plans may be running out as 84% of employers have implemented one, HRI notes.

"In many cases they could be delaying care and making it worse, especially in chronic-disease management," Isgur said. A healthy individual costs an employer about $1,300 a year while someone with a chronic condition is about $4,700 and a person with multiple chronic conditions is nearly $11,000, he added. A person with a complex chronic condition and mental illness costs their employer about $15,000 annually.

Retail drug spending is projected to grow between 3% and 6% a year as the impact of generics plateaus and biosimilars continue to see slow uptake, PwC researchers said. Generic competition will not affect 46% of the estimated sales revenue of the top 100 drugs through 2023, according to the report. Generic utilization rates are hovering around 86%.

Also, the value of branded drugs coming off patent decreases through 2020. Many are particularly expensive biologics that will require biosimilars, of which there are only seven on the market. Seventy-three percent of clinicians surveyed by HRI said they rarely or never prescribe biosimilars in place of biologics, saying that they weren't significantly cheaper for the patient.

The industry is at an inflection point with drugs in the pipeline, where new life-altering drugs bring a price tag of $1 million to $2 million per treatment, said Dan Rachfalski, senior vice president and chief actuary at Wellesley, Mass.-based Harvard Pilgrim Health Plan.

"As an industry, we have not figured out how to pay for these life-changing, extremely high-cost drugs," he said in an interview with HRI.

Caring for those with chronic diseases will drive medical cost inflation, researchers said. Sixty-two percent of individuals with employer-based insurance have a chronic or complex chronic disease—increasingly diabetes and obesity—making up 85% of total employer-based healthcare spending, HRI found.

More access to mental health treatment aided in part by the Mental Health Parity and Addiction Equity Act will also increase costs, although the long-term impact will overshadow short-term costs, Isgur said.

Three-quarters of employers offer depression and mental health in 2018, up from 34% in 2014. But only 27% of individuals with employer-based insurance surveyed by HRI who face depression and mood disorders, post-traumatic stress disorder, addiction and/or suicidal thoughts as their primary health issue report participating in a mental health and well-being program over the last two years.

To combat rising costs, employers are more actively addressing medical costs by creating expansive work-site clinics that boost productivity, pushing narrow networks with lower-cost providers, urging home care and helping employees navigate the system, according to the report.

"For employers, compared to other players in the healthcare industry, it is now about inequity in cost and misaligned incentives across the board," Michael Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, said in an interview with HRI.

The institute's analysis measures anticipated spending growth in the employer-based market, which covers about half of all Americans. PwC conducted 55 interviews with healthcare executives, health plan benefit experts and actuaries whose companies cover more than 95 million employer-sponsored large group members. Its research institute also pulled data from a national survey of 2,500 consumers as well as another survey polling more than 550 employers. The report did not factor in changes to government payers and ACA exchanges.