Inflation is declining, but health premiums and medical costs are heading higher

WASHINGTON (TNS) — During the pandemic, health care costs — usually a main driver of U.S. inflation — remained surprisingly stable, rising just about 2% annually even as prices for many goods and services soared more than three or four times that rate.

But signs are emerging that medical inflation is back as demand for non-COVID-19-related health services recovers and health care providers seek to make up for soaring labor costs and losses during the pandemic.

Prices for hospital services, the single biggest component of medical care, accelerated in December and even faster in January, to an annual rate of 5.5%, according to personal consumption expenditures data, the Federal Reserve’s preferred measure of inflation.

"Unfortunately, it’s going to be a problem that is pretty sticky in terms of consuming more and more of consumers’ pocketbooks," said Sunit Patel, chief actuary of health and benefits at Mercer, the consulting firm.

Consumer cost increases for nursing homes ran at a slightly higher rate of 5.7% over the past year; dental services rose even faster.

Hospitals are pressing for higher payments as their long-term contracts with medical insurers come up for renewal.

And greater market concentration caused by chains buying out smaller hospitals is helping to push medical inflation upward, as is the historically opaque nature of health care pricing.

"I’m very worried we’re looking at a big jump in [health insurance] premiums and out-of-pocket costs," said Glenn Melnick, an expert in health economics and finance at USC.

Until recently, health care bills weren’t really a concern for Rex Thomas, a retired U.S. Postal Service maintenance mechanic who lives in Moreno Valley, Calif. They weren’t anything like his soaring gas and grocery bills, including the 40% more he’s paying to feed his two Siberian Huskies.

But even as inflation on many things has been declining, he’s noticed his health bills moving in the opposite direction.

At open enrollment last fall, he learned his union-sponsored Cigna health plan premium would cost him 4.8% more this year after increasing 3.6% in 2022. He switched to another plan.

He said Loma Linda University Medical Center, his preferred hospital, began getting tougher on billing, wanting $1,500 payment upfront for an upper endoscopy that he had sought.

"They were pricing it out of my reach," Thomas said.

A hospital spokesperson responded in a statement that the medical center is "committed to providing our patients with clear and transparent billing practices. We strive to ensure that our billing processes are simple, efficient and that our patients understand their financial responsibilities."

About half of the nation’s population is covered by employer-sponsored health insurance. In a tight labor market, many employers will be reluctant to pass on the rising costs directly to their employees, who typically pay a part of the premium.

But at the same time, Melnick said, employers are likely to adjust other parts of employee compensation, offsetting higher health care costs by giving smaller wage increases.

"That premium isn’t free. It’s reducing your take-home pay," he said.

American households already are straining from loss of purchasing power because wage gains haven’t kept up with inflation. And many consumers are struggling with medical bills, which are the single biggest debt-collection item and factor in personal bankruptcies.