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While there are signs that
ultra-high inflation rates are retreating, health care cost pressures are
likely to stick around for some time and have a major impact on payers,
industry experts say.
Medical prices are usually
higher than overall inflation
- The Bureau of
Labor Statistics (BLS) reported on April
12 that the consumer price index (CPI) rose by 5% in March from a year
earlier, the smallest increase since May 2021 and the ninth consecutive
month that annual inflation has declined. Meanwhile, the CPI for medical
care services increased by just 1% year-over-year, including a 0.5%
increase in physicians’ services and a 2.7% increase in hospital
services.
- Still, health
care costs are likely to increase at a faster rate in the next few
years, according to Tim
Stawicki, the chief actuary for WTW’s health and benefits practice. That
could have major implications for payers, particularly self-insured
plans that could see their reimbursement rates to providers
significantly increase and shoulder more of the costs.
- “I think it’s
easy to look at the news and say, ‘Inflation peaked back in June and
it’s coming down, so that means medical trend rates are going to come
down,’” Stawicki tells AIS Health. “I think we’re going to see sort of
those headwinds and those challenges maybe for the next couple of
years.”
- While medical
prices as measured by the CPI have been below overall inflation, that is
an anomaly. A Kaiser Family Foundation (KFF) report from last month found that
since 2000, the price of medical care had increased 115.1%, compared
with a 78.2% increase in prices for all consumer goods and services
during that time period.
Rate negotiations may
impact insurers, beneficiaries
- Stawicki points
to two main factors that could lead to higher medical spending and
prices: unit costs and utilization. He notes that unit costs are based
on negotiations between health plans and providers. Those contracts are
typically for multiple years, so some of the deals were struck before
inflation became a major issue two years ago.
- When those
contracts come up for renewal or provider groups assess the marketplace
for other insurers, they will be asking for higher reimbursement,
according to Stawicki. He cites the rising costs for hospitals and
health systems, including paying for medical equipment, drugs, supplies
and salaries for employees.
- “In that sort
of environment, I think it’s in many ways reasonable for these hospitals
to come to the negotiating table and say, ‘Look, we need higher
reimbursement rates. We need a better contract. Otherwise, we’re going
to have to close our doors,’” Stawicki says.
- Self-insured
employers are also seeing increasing costs due to expanding their
offerings to their employees to attract or retain them in a tight labor
market and to improve their well-being, according to Stawicki. That
includes an increased emphasis on mental health care. While reducing
such benefits could help financially, it could also alienate employees
and have longer-term effects.
- “If you look
just directly at medical costs, short term, at least, it’s an increase
in cost [by offering those services,]” Stawicki says. “But then you can
sort of strategically ask the question of, ‘Is this the right thing to
do for our employees?’ I think many employers have come to the table and
said, ‘Yes, this is important, and yes, we think there are significant
productivity and soft financial gains even if it doesn’t necessarily
show up directly in sort of our health care budget.’”
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