Understanding medical trend and why it matters

PHILADELPHIA — Health care costs have long followed a familiar trajectory — upward. In 1970, national health expenditures totaled $74.1 billion. By 2000, that figure had grown to roughly $1.4 trillion — and by 2024, it had more than tripled, reaching nearly $5.3 trillion. That translates to  $15,474 per person and represents 18% of U.S. gross domestic product. These increases affect all health plans and insurers across the country; the Medical Plan of the Presbyterian Church (U.S.A.) is no exception. 

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As costs continue to rise, it’s more important than ever to understand what’s behind the increases and what they’re likely to look like in the future.

Why medical trend matters

To effectively steward plan resources, The Board of Pensions of the Presbyterian Church (U.S.A.) must be able to anticipate how much health care costs will rise from one year to the next. In other words, we need to predict, as accurately as possible, medical trend.

PwC’s Health Research Institute defines medical trend as the projected percentage increase in the cost of treating patients year over year, assuming benefits remain unchanged. In other words, it’s the best estimate of how much more expensive health care will be in the coming year.

To do this, the Board of Pensions works with certified actuaries to analyze claims data, assess risk and apply professional judgment to determine the appropriate trend level. While health care claims data from the prior year is key to making this projection, it’s only one part of a broader evaluation.

What drives medical trend?

Three primary components shape medical trend projections:

• Price increases at points of care — Health care services become more expensive over time, often exceeding general inflation rates. For example, an X-ray that costs $500 in 2025 may cost $550 in 2026. These price increases affect all types of care, including prescription drugs.
• Higher utilization of services — When more members use more services, total costs increase. This can be driven by demographics. On average, the Medical Plan’s members are older than those in a typical commercial plan, and older adults generally require not only more services but more complex care as well.
• Erosion of cost-share value — When plan design — including copays, deductibles, and other cost-sharing features — remains the same while cost of care increases, the plan absorbs a larger share of total costs each year. This increases the plan’s financial responsibility over time.  

In addition to these factors, trend projections must account for variables that can shift unexpectedly, including:

• new treatments
• market changes
• new legislative or regulatory requirements
• unanticipated changes in enrollment or utilization

These external factors can amplify or reduce cost growth from year to year.

How medical trend affects pricing 

Insurance companies rely on medical trend projections to set premiums for the coming year. Similarly, The Board of Pensions uses projected trend for the self-funded Medical Plan to determine dues each year. Accurate forecasting ensures the plan remains sustainable while continuing to provide comprehensive benefits to members.

In the next article in this series, we’ll take a closer look at how The Board of Pensions approaches pricing — and how trend fits into that process.

Todd Ingves is Vice President for Health & Well-Being with The Board of Pensions, which supports wholeness in the Presbyterian Church (U.S.A.) community and care for Benefits Plan members. For information, contact [email protected].