What does inflation mean for health care?

By Susan Rupe

We see the impacts of inflation whenever we shop for groceries or any of life’s necessities. But how is health care being affected? A KFF panel examined health care inflation in the U.S. and what it means for providers as well as consumers in a webinar this week.

One truism is that medical costs grow faster than the rate of inflation, said Larry Levitt, KFF executive vice president for health policy. But more recently, health care cost increases lagged behind the rate of inflation. The webinar panelists delved behind the numbers to determine what is behind the health care inflation statistics and what the future might bring.

Corey Rhyan, senior analyst of health economics and policy with Altarum, said health care prices typically rise faster than the rate of inflation when the economy is in recession. This was true up until the first one of two months of the COVID-19 pandemic, when there was a dip in the economy.

“But as that initial recession waned, things generally leveled up,” he said. “Beginning in early 2021, we saw increased labor costs as well as supply chain disruptions and energy disruptions impacting health care.”

One reason for the lag in health care cost increases, he said, is that many insurers establish their payment structure for the future based on what they predict costs will be. Insurers predicted 2021 would not be as extreme a year for cost increases as it was.

Inflation pressure for hospitals

Hospitals are seeing inflationary pressures in three areas: wages, supplies and construction costs, said Suzie Desai, senior director at S&P Global Holdings. Labor costs are hitting hospitals especially hard, Desai said, with wages increasing an average of 8%-10% in the past year.

A review of 75 health insurers showed that carriers plan to raise rates by an average of 10% for 2023, said Cynthia Cox, KFF vice president and director for its program on the Affordable Care Act. Rising prices due to inflation as well as increased usage are driving these rate hikes, she said.

Cox also noted that rising wages are impacting nursing homes and other care facilities in addition to affecting hospitals.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.