The respected accounting and auditing firm PwC has released a new report titled “Medical Cost Trend: Behind the Numbers 2025.” It contains valuable forecasts for the upcoming year in healthcare, crucial insights behind the trends, and ideas around cost containment in a fiscal environment that will present continued challenges for payers.

To compile the report, PwC’s Health Research Institute (HRI) conducted an in-depth survey of actuaries from more than 20 American health plans.

Key Takeaways

Healthcare cost growth from 2024 to 2025 is forecast to rise to its highest level in 13 years. Addressing affordability will be key in meeting this challenge, and examining organizational business strategy will be the entry point for managing costs.

The Factors Behind Rising Costs

Going deeper into the numbers, commercial healthcare spending will grow an estimated 7.5% during that span for Individual markets, and 8% for Group markets. The report identifies this as a “near record high” driven by these specific factors:

• Continued pressure from inflation. Inflationary pressures, felt by payers since 2022, will continue. Providers are expected to continue to pass along their operational rising expenses to payers and plans. The PwC report indicates: “Given stringent regulations on government-based fee schedules, private Commercial contracts are expected to most heavily feel the burden.”
• Prescription drug spending. Innovation in prescription drugs for chronic conditions will continue to impact costs, particularly in the “expected high utilization (of) top of high-unit cost” pharmaceutical products.
• Behavioral health utilization. Use of behavioral health services is on the rise, reflecting societal trends and exerting financial pressures. Cost of delivery and providers looking for higher reimbursement rates will also present challenges. The adoption of biosimilars was noted as a potential deflator, but not in sufficient measure to offset inflation and other factors. Instead, the report suggests looking inward with an enterprise-wide lens on addressing costs.

A Holistic Approach to Addressing Rising Costs

The PwC report reveals that 70 % of health plans “identified inflationary impacts on providers as one of two top drivers” in rising costs. In an intertwined system, these costs and pressures will move through every level. (Plans also identified “hospital, private equity and other physician consolidation” as significant factors.)

From the payer perspective, these cost factors are unlikely to go away even after the alarming increases forecast for the coming year. Looking at the entire scope of operations for payers and plans, the report identifies the following areas of emphasis for strategic cost containment: value-based care, targeted care management, data analytics and utilization of AI technology.

Breaking down silos in care delivery is one avenue for cost cutting that the report explores. Another is automated technology combined with human expertise delivered by expert partners in areas such as provider network management.

Unique Opportunities for Small and Medium-Sized Plans

Intriguingly, the report identifies great potential benefits for small and medium-sized plans and payers that might not have made the investment in operational efficiencies that deliver substantial savings. “Smaller plans should look to external vendors or collaborative investments with other like-minded health plans to build competitive total cost of care management capabilities,” the report relates, suggesting that the cost savings benefits enjoyed by large national plans can be accessed by small plans and payers in collaboration with expert partners.

The PwC report goes on to highlight regulatory and rule changes, and legislation as other factors to watch in the evolving national healthcare landscape.