The cost of health care is going to rise dramatically. Analysts describe the dramatic effects of inflation

Richard A

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Health care costs are about to skyrocket:(Pixabay/Pexels)

Rising rent and food costs are not alone: healthcare costs are also on the rise, and what's worse is that economists predict they will rise even further and contribute to long-term high inflation rates.

According to a Kaiser Family Foundation (KFF) study released on Thursday, consumers are only experiencing minor increases in premiums that have lagged overall inflation, but those rates might rise significantly next year as healthcare expenses catch up.

A component of the consumer price index called the medical care index increased from 0.7% in August to 0.8% in September. It increased by 6% over the past year, the most since 1993 but still less than the general inflation rate of 8.2%.

It may not be good news for consumers if healthcare inflation lags behind total consumer inflation.

According to the KFF survey, which involved 2,188 interviews with non-federal public and private companies from February through July, "many of the premiums for 2022 were negotiated in the fall of 2021 before the extent of rising prices became known." We might anticipate a greater increase in average premiums for 2023 than we have in prior years if inflation keeps growing at high rates.

According to a report released in September by consulting company McKinsey, inflation is predicted to increase annual U.S. national health expenses by $370 billion by 2027 compared to pre-pandemic forecasts.

How much do people currently spend on health insurance?

Employer-sponsored health insurance for families has an average yearly premium of $22,463, slightly up from $22,221 in the previous year. This year, employees will each pay an average of $6,106 toward the cost of the family premium, with employers covering the remaining costs.

According to KFF, employees at small businesses with fewer than 200 employees earn more than their counterparts at larger companies. Small business employees typically deduct $7,556 from their paychecks each year for family coverage, compared to $5,580 for employees of bigger businesses.

Employers are already anxious about the cost of health insurance premiums, but new inflation data implies that higher increases are on the way, according to Drew Altman, president, and chief executive of KFF. Due to the tight labor market and rising wages, "it will be difficult for businesses to shift costs onto workers when costs increase."

Why is health care becoming more expensive?

The increases are partly caused by higher labor and supply expenses.

Early on in the pandemic, supply disruptions and increased demand caused healthcare supply prices to soar. According to McKinsey, pharmaceutical costs increased by 21% and supplies by 18% between 2019 and 2022. While still above average, those costs are beginning to decline.

Labor expenses, on the other hand, are still rising quickly and are predicted to do so in the future.

According to Shubham Singhal, global leader of McKinsey's Healthcare, Public Sector, and Social Sector practice, "Labor is very significant because it has the potential to be persistent."

He expects that wages will rise as healthcare labor scarcity intensifies and service demand rises, partially as a result of an aging population.

The Kaufman Hall consulting firm stated in a report in May that a measure of hospital labor expenses known as the median labor expense per adjusted discharge increased 37% to $5,494 from $4,009 between 2019 and March 2022.

When will medical insurance premiums increase?

Next year, insurance premiums for consumers who purchase their own coverage may rise significantly.

Early estimates from Peterson-Kaiser Health System Tracker reveal that the median proposed premium rises for the upcoming year among 72 insurers in the Affordable Care Act (ACA) Marketplaces in 13 states and the District of Columbia will be 10%, higher than in recent years. However, subsidies might help some customers escape full price increases.

Because healthcare prices are determined at least a year in advance, it takes longer for salary increases and other expenses associated with general inflation to be completely factored into healthcare costs.

The opportunity to renegotiate payments and shift some additional costs to insurance companies or the government is now available to providers that have struggled with rising prices over the past 18 months.

All employer costs "will be crushed in full force" by 2024, according to Singhal. Due to premium sharing between companies and employees, "a large portion of that will go to consumers."

He said, "It's a slow-moving train, but it's coming."

What impact do healthcare prices have on inflation and Fed rate decisions?

Economists refer to increases in health care costs as "sticky" or persistent inflation because, like rent, these costs often do not see regular price increases. They take a very long time to increase and decrease.

The Fed might decide to combat inflation by hiking its short-term benchmark fed funds rate even further if inflation continues to rise. The Fed's benchmark rate is generally followed by increasing consumer rates, which makes borrowing more expensive and discourages expenditure. Spending less reduces demand, which lowers prices.

How can the cost of medical care be reduced?

Costs can be reduced through layoffs and increased productivity, according to McKinsey.

In a McKinsey survey, more than 25% of executives claimed they could have to eliminate at least 10% of their employees in the upcoming six to 18 months, primarily nonclinical workers like personal care assistants.

Executives (66%) also want to use technology to increase productivity, particularly when processing paperwork.

In the long term, value-based care, which links payments to the standard of care delivered, can be accelerated, according to Singhal. In contrast, the prevalent fee-for-service payment model reimburses service providers for goods and services rendered in accordance with bill charges or yearly fee schedules.

Costs can be reduced through layoffs and increased productivity, according to McKinsey.

In a McKinsey survey, more than 25% of executives claimed they could have to eliminate at least 10% of their employees in the upcoming six to 18 months, primarily nonclinical workers like personal care assistants.

Executives (66%) also want to use technology to increase productivity, particularly when processing paperwork.

In the long term, value-based care, which links payments to the caliber of care delivered, can be accelerated, according to Singhal, if the industry works together. This contrasts with the prevalent fee-for-service reimbursement, which reimburses service providers for goods and services provided according to bill charges or yearly fee schedules.

Moving some hospital services to different locations would be an alternative plan of action. According to Singhal, "Some surgeries can be performed more cheaply in an ambulatory surgery facility as opposed to a hospital." The quality of home care settings might also be the same or better quality at lower costs.

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Richard Appiah is a blogger and 2X top writer in Business and Finance on Medium. I write about money, business, investing & finance.

West Haven, CT
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