Consumers buying their own insurance could start to see big premium increases next year.
Skyrocketing rents and food prices have company. Healthcare costs are also skyrocketing and will likely rise much more, which could help keep headline inflation high for some time, experts say. Inflation is expected to increase annually WE national health expenditure per $370 billion by 2027 compared to pre-pandemic projections, estimates consulting firm McKinsey. The medical care index as part of the consumer price index accelerated to 0.7% in August from 0.4% in July. Over the past year, it has risen 5.4%, the largest 12-month increase since 1993, but remains below the headline inflation rate of 8.3%. This lag between health care inflation and overall consumer inflation could be a worrying sign for consumers. “This is unusual, as healthcare prices historically outpace 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 could lead to larger premium increases in years to come.” Why is healthcare becoming more expensive? Higher costs for supplies and labor are contributing to the increases. At the start of the pandemic, prices for healthcare supplies rose sharply due to supply disruptions and rising demand. Between 2019 and 2022, pharmaceutical prices increased by 21% and supplies by 18%, according to McKinsey. These costs are still higher than normal, although they are showing signs of slowing down. By contrast, labor costs continue to grow strongly and will likely outpace the headline inflation rate, analysts said. “The work is very important because it has the potential to be persistent,” said Shubham Singhalworld leader in McKinsey Healthcare, Practice Public Sector and Social Sector. He said he expects wages to continue to rise as the shortage of health workers worsens, while demand for services increases, partly in due to the aging of the population. Between 2019 and March 2022a measure of hospital labor costs called median labor expenditure per adjusted discharge rose 37% to $5,494 of $4,009, Kaufman Hall consultancy firm said in a report in May. Will health care premiums increase? Consumers buying their own insurance could start to see big premium increases next year. Through 72 insurers in 13 states and the District of Colombia In Affordable Care Act marketplaces, the median premium increase offered next year is 10%, higher than in recent years, according to estimates from the Peterson-Kaiser Health System Tracker. Health care prices are set at least a year in advance, creating a delay before wage increases and other costs associated with wider inflation are fully factored into health care costs. renegotiate payments and pass on some additional costs to insurance companies or government entities. By 2024, all the costs to employers “will be overwhelming”, Singhal said. “A lot of that will come back to consumers because employers share the premiums” with employees. “It’s a slow-moving train,” he said, but it’s coming. How do medical care costs affect inflation? Because health care, like rents, does not typically experience regular price increases, when its prices rise, economists consider this inflation “sticky” or persistent. They take a long time to rise and a long time to fall. Inflation could stay higher for longer and lead the Fed to raise its short-term federal funds rate even further to crush inflation. Most consumer rates track the Fed’s benchmark rate higher, making borrowing more expensive and discouraging spending. Less spending means less demand, which dampens inflation. How can the cost of health care be reduced? Layoffs and increased productivity can reduce costs, McKinsey said. More than 25% of executives taking part in a McKinsey survey said they believe they may need to cut at least 10% of their workforce, mostly non-clinical employees like nursing aides, in the next six to 18 years. next few months, he said. Longer term, Singhal said, the industry can accelerate value-based care, which ties payments to the quality of care provided. This contrasts with the dominant fee-for-service, which remunerates providers for services provided on the basis of fees charged or annual fee schedules. Another strategy would be to move some hospital care to different sites. “Some surgeries can be performed more cheaply at an outpatient surgery center instead of a hospital,” Singhal said. “Home care facilities can also be of the same or higher quality at lower cost.” Learn more at usatoday.com