Bad medicine: Inflation hitting health care

Higher costs for medical care and health insurance may be the next burdensome inflation shoes to drop on the U.S. economy.

Upswings in health care costs would be another kick to inflation-weary consumers already battered by higher prices for groceries, energy and housing.

Health care increases could also extend beyond the present-day inflation wave with higher insurance premiums, drug costs and prolonged labor challenges.

The U.S. spends $4.1 trillion annually on health care between private insurance, government-run Medicare and Medicaid and other components of the medical?sector, according to the federal government’s National Health Expenditure report.

That far outpaces health care spending in other countries where universal coverage and government-run systems are more the norm.

Health care costs are projected to increase by as much as $370 billion in the U.S. by 2027 “due to the impact of inflation compared with pre-pandemic projections,” according to an analysis by international consulting firm McKinsey & Co.

Labor shortages and their upward pressures on wages and compensation are big drivers of the increased costs, according to the McKinsey report.

Shortages for medical and other labor could propel health industry costs up as much as $260 billion in 2027.

The McKinsey study also found insurance companies were seeking premium increases of 10% on average and as much as 25% for 2023.

The latest Consumer Price Index for September shows health insurance prices are up 28.2% compared to a year ago, according to the U.S. Bureau of Labor Statistics.

Medical care prices are up 6.5% from September 2021.

The former larger figures stems from rises in annual premium prices, but health care related inflation is complicated by premiums and other prices that are often set on an annual basis.

”Those prices are locked in a year ahead of time,” said Leslie Parker, president of Health Benefits 411, a medical insurance and consulting firm based in Gresham, Oregon, a suburb of Portland. “There’s very little they can do with the cost of the services when they are locked into a contractor.”

That can create more lags in price increases than other items such as groceries.

Parker said the current high-tide of inflation in the U.S. economy will be felt next year as well as in 2024.

She is also starting to see some higher health insurance premium prices in the Pacific Northwest marketplace.

”If I see any increases, it’s around 7 to 10%,” she said.

The 28.2% health insurance price hike figure in the September CPI stands with overall inflation at 8.2% and groceries up 13%. It is in the same company as other items with high inflation such as butter (up 26.6%), eggs (up 30.5%), air fares (up 42.9%) and fuel oil (up 58.1%).

Hospitals, medical practices, doctors and insurance companies, themselves, all have faced higher prices for equipment, supplies and other costs.

”It’s likely we are starting to see that health care prices are picking up more,” said Cynthia Cox, a vice president with Kaiser Family Foundation, pointing to upward price pressures related to labor and medical supplies and equipment.

Cox said the 28.2% CPI figure for health insurance reflects some of the past premium fluctuations and the previous year’s marketplace because annual benefits programs were locked in and some of the impacts of the current inflation are not immediately reflected with the insurance inflation.

“It’s definitely an eye-catching number,” Cox said of the CPI figure.