Consumers who buy their own insurance could expect big premium increases next year.
Soaring rents and food costs have company. Health care costs are also rising and are likely to rise much faster, which experts say could help keep headline inflation high for some time. Inflation is expected to increase annually US national health spending $370 billion by 2027 compared to pre-pandemic forecasts, estimates consulting firm McKinsey. The medical supplies index, which is part of the consumer price index, accelerated to 0.7% in August, from 0.4% in July. Last year it was up 5.4%, the largest 12-month increase since 1993, but still below the pace of inflation, which totaled 8.3%. This lag in healthcare inflation versus headline consumer inflation could be an ominous sign for consumers. “This is unusual given that healthcare prices have historically outpaced prices in the rest of the economy,” said a team of analysts led by Emma bet pg the Peterson-Kaiser Health System Tracker in a recent report. “This may lead to stronger premium increases in the coming years.” Why is healthcare getting more expensive? Higher utility and labor costs are contributing to the increases. At the beginning of the pandemic, healthcare prices rose sharply due to supply disruptions and higher demand. According to McKinsey, between 2019 and 2022 drug prices increased by 21% and consumables by 18%. This cost is still higher than normal but is showing signs of slowing down. By contrast, labor costs are still rising sharply and are likely to exceed headline inflation, analysts say. “Work is very important because it has the potential to be persistent,” he said Shubham Singhalworld’s leading supplier of McKinsey’s Healthcare, Public and social sector practice. He expects wages to continue to rise as health care labor shortages worsen while demand for services grows, partly due to an aging population. Between 2019 and March 2022a measure of hospital labor costs called median labor effort per adjusted discharge rose 37% $5,494 out $4,009, Merchant Hall consulting firm said in a report in May. Will health insurance premiums go up? Consumers who buy their own insurance could expect big premium increases next year. Over 72 insurers in 13 states and the District of Columbia In Affordable Care Act marketplaces, the median proposed premium increase next year is 10%, higher than in recent years, according to Peterson-Kaiser Health System Tracker estimates. Health care prices are priced at least a year in advance, creating a delay before wage increases and other costs related to general inflation fully feed into health care costs, renegotiating payments and passing some extra costs on to insurance companies or government agencies . By 2024, all employer costs “will be in full force,” Singhal said. “A lot of that will go to consumers because employers share bonuses with workers.” “It’s a slow moving train,” he said, but he’s coming. How do medical costs affect inflation? Because health care, like rent, doesn’t typically experience regular price hikes, economists consider this “sticky,” or persistent, inflation when prices go up. They take a long time to rise and a long time to fall. Inflation could remain elevated for longer, leading to the Fed raising its short-term interest rate even more to curb inflation. Most consumer rates follow the Fed’s policy rate higher, making borrowing more expensive and discouraging spending. Less spending means less demand, which cools inflation. How can health care costs be reduced? Layoffs and increased productivity can reduce costs, McKinsey said. More than 25% of executives in a McKinsey survey said they believe they may have to cut at least 10% of their workforce over the next six to 18 months, mostly nonclinical workers like personal care assistants. In the longer term, Singhal said, the industry can accelerate value-based care that ties payments to the quality of care provided. This is in contrast to the prevailing fee reimbursement where providers are paid for services rendered based on billing fees or annual fee schedules. Another strategy would be to move some of the hospital care to other locations. “Some surgeries can be performed cheaper in an outpatient surgery center than in a hospital,” Singhal said. “Home care can be of the same or better quality, even at a lower cost.” Read more below usatoday.com