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August 30, 2022

Inflation is (finally) hitting health care

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    While health care prices have so far been largely unaffected by record-high U.S. inflation, prices will likely increase more quickly going forward, leading to higher insurance premiums and more costly services for both consumers and employers in 2023.

    Get 4 pharmacy-led tactics to reduce your employee benefit costs

    Health care costs are on the rise, but still below inflation

    Since 2000, health care costs, including medical services, insurance, medication, and medical equipment, have typically increased more quickly than other costs in the overall economy. Over the last two decades, health care costs have increased 110.3% while prices for all consumer goods and services increased by 71%.

    However, the usual trend has been reversed this year, with health care costs increasing at a lower rate than overall inflation. According to an analysis of Bureau of Labor Statistics data by the Kaiser Family Foundation, health care costs increased by 4.8% in July compared to the same time last year, while overall prices increased by 8.5%.

    Overall, the consumer price index showed that health care costs increased in several different areas, including:

    • Nursing homes and adult day services (4.5%)
    • Inpatient hospital services (3.9%)
    • Outpatient hospital services (3.5%)
    • Prescription drugs (2.8%)
    • Physicians' services (0.8%)

    In addition, the producer price index showed that year-over-year costs for health services increased 4.1% for private insurers and 3.4% in Medicaid in July, while costs decreased by 0.6% for Medicare. In general, costs for private insurers are higher and increase more quickly than those paid by public insurers.

    Typically, health care costs see a relatively stable 1% to 5% increase in costs every year, but high inflation rates may lead to higher medical prices, particularly steeper insurance premiums, in the future. According to a survey of around 2,500 Medicare beneficiaries from eHealth, 95% said they are worried about how inflation will impact health care costs, and almost 50% said their health care costs have already increased because of inflation.

    Employer health care costs to increase to nearly $14K in 2023

    According to a new analysis by financial services firm Aon, health care costs for employers are also expected to rise in 2023.

    Using data from almost 700 U.S. employers that represent roughly 5.6 million employees, Aon determined that employers' health care costs are expected to increase from $13,020 per employee to more than $13,800 per employee in 2023. This 6.5% increase in costs is more than double the increase they experienced from 2021 to 2022.

    Aon also noted that new technologies, the severity of catastrophic claims, blockbuster drugs, and an increasing share of specialty drugs are likely to impact health care costs in the future.

    Aon's analysis found that employer costs for health plans increased by 3.7% in 2022, while employee premiums from their paychecks increased by a more modest 0.6%. Typically, employees subsidize 81% of the cost of health plans for their employees.

    "In what remains a tight labor market, employers are absorbing most of the health care cost increases," said Debbie Ashford, the North America chief actuary for health solutions at Aon, said in a statement. "Employers are budgeting higher due to uncertainty and the anticipation that inflationary pressures will increase the cost of health care services."

    To reduce high health care costs, Aon recommends employers identify and predict when costs associated with chronic and complex solutions may occur to find solutions ahead of time. According to Ashford, 1% of a plan's members may make up 40% of its spending in a given year.

    "The effect of chronic conditions has far-reaching implications beyond what we see with health care costs, out to the other areas of the business, like absence and productivity, disability and worker's compensation," said Farheen Dam, Aon's North America health solutions leader. "By focusing on chronic conditions, not only are we improving the health and happiness of employees, but we're helping to improve the way they live and work."  (Lagasse, Healthcare Finance, 8/26; Wager et al., Peterson-KFF Health System Tracker, 8/24; Asser, HealthLeaders, 8/26; Aon news release, 8/18)

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