Major changes driven by the Affordable Care Act and rising consumer cost-sharing are slowing the rise in the healthcare growth rate, now projected at 6.5 percent in 2014, a full percentage point from the 7.5 percent predicted for this year, according to PwC's Health Research Institute (HRI).

The deceleration in healthcare inflation will affect the decisions of providers, payers and employers and is likely to continue even as millions more obtain coverage next year when major pieces of the health reform law take effect, including health insurance exchanges, PwC’s HRI said in the news release announcing its annual report, “Medical Cost Trend: Behind the Numbers.”

Taking into account adjustments to benefit design, such as higher deductibles, PwC’s HRI said in the news release that it anticipates a net growth rate of 4.5 percent in 2014.

The healthcare growth rate, or medical cost trend, is a key factor in setting the coming year’s insurance premiums. It reflects changes in spending to treat patients through the cost of products and services and the number of services used, or per capita utilization.

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Major factors in the slowed rate include hospitals reducing readmissions in the face of penalties and employers’ ability to influence employee behavior through wellness programs and accompanying premium discounts or increases, PwC’s HRI said in the report, released Tuesday. 

The report listed four factors that deflate the medical cost trend in 2014:

• Care continues to move outside more costly settings, such as hospitals, to more affordable retail clinics and mobile health.

• Major employers, such as Walmart and Boeing, contract directly with health systems for pricey, complicated procedures and are moving to high-performance networks.

• Medicare readmission penalties aim to improve care and reduce costs, with 70,000 fewer readmissions in 2012 and accelerating in 2014 as hospitals focus on discharge planning, compliance and continuum of care.

• About 17 percent of employers today offer a high deductible health plan as the only option for their employees. More than 44 percent are considering offering it as the only option, according to PwC’s 2013 Touchstone Survey of employers.

Factors inflating the medical cost trend include:

• Rise of expensive complex biologics, which now outpace traditional therapies, are dampening the effect of widespread adoption of generics.

• Health industry consolidation will continue through 2014 and will likely lead to higher prices, especially in markets with one dominant system.

Structural changes within the industry are helping to contain costs and deliver care more efficiently. And consumers, who are paying a greater share of the cost of their care, are making spending adjustments. Many are delaying care, using fewer services and choosing less expensive options, the release said.

“Total spending … should remain at some of the lowest levels since the government began measuring national health expenditures in 1960,” the report said.

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Despite the slowdown, insurance premiums may increase, the report said, especially in the individual market, as health plans shield themselves against the financial risks of a newly insured and largely unknown population.

Although the decline in spending growth indicates progress in bending the cost curve, the slowdown also presents financial challenges for the healthcare industry. Healthcare organizations that have already been hurt by a squeeze on reimbursement and a recession hangover should brace for additional financial pressure.

“Change of this magnitude takes time and will come in stages,” said Kelly Barnes, PwC’s U.S. health industries leader, in the release. “Health organizations should learn to adapt to a market in which growth may be lower in the near term, and pursue new sources of growth often in unlikely places.”