Mid-Year Healthcare Cost Update

We're halfway through 2023, and the cost picture is coming into focus. After a few years of pandemic-driven volatility, employers are seeing a return to more predictable—but still elevated—cost growth.

Here's what we're tracking.

The Headline: Costs Are Up

No surprise here. Healthcare costs continue to climb. But the drivers have shifted.

During 2020-2021, utilization dropped as people delayed care. In 2022, we saw catch-up utilization as deferred procedures came back. Now in 2023, we're seeing something closer to normalized utilization patterns combined with underlying cost inflation.

The result: steady, meaningful increases.

What's Driving It

Provider rate increases. Hospitals and health systems are pushing through larger rate increases than we've seen in years. Staffing costs, supply chain pressures, and their own inflation challenges are being passed along to payers.

Specialty pharmacy. High-cost specialty drugs continue to grow as a share of total spend. New therapies are coming to market, and existing specialty utilization keeps climbing.

Mental health demand. The surge in mental health utilization that started during the pandemic hasn't receded. If anything, it's become the new baseline. More people are accessing care, and employers are paying for it.

Deferred care hangover. Some of the catch-up utilization from 2022 is still working through the system, particularly for complex procedures that were postponed multiple times.

What Employers Are Doing

We're seeing employers respond in a few ways:

Holding on plan design. Most employers aren't making dramatic plan design changes mid-cycle. They're absorbing cost increases for now and planning more significant adjustments for 2024.

Watching pharmacy closely. Pharmacy benefit reviews and carve-out evaluations are on the rise. Employers want to understand what's driving their specialty spend.

Investing in navigation. Care navigation, centers of excellence, and second opinion services are gaining traction as employers look for quality-based cost management rather than pure cost-shifting.

Looking Ahead

The second half of 2023 will tell us whether this is a temporary spike or a new normal. We'll be watching the data closely and will share a full-year analysis in our year-end review.

For now, the message is clear: costs are up, and the drivers are structural rather than transitory.