How Does Inflation Affect Healthcare Services and Costs?

We’re all feeling the pinch of rising costs due to inflation, increasing the cost of goods and services to the consumer. As a result, your money loses value, and you can’t buy as much with the same amount of money — this is known as a loss of purchasing power.

Some cars now cost nearly as much as a house just a few years ago. About two out of three employees say their salaries can't keep up with the rising expenses, so it's no wonder many young adults are struggling to make ends meet. A recent Pew study found that almost 60% of parents have financially supported their adult children, aged 18–34, the previous year. So, how does inflation affect U.S. healthcare costs, and what does it mean for insured like you?

Why does inflation affect healthcare costs?

Healthcare is a labor-intensive industry with highly skilled and compensated professionals. As costs for goods and services rise with inflation, healthcare workers' wages increase to maintain their same purchasing power. Since labor makes up a large portion of healthcare costs, those rising wages are passed to consumers.

Medical care requires expensive, high-tech equipment. When the prices for this advanced technology climb with inflation, healthcare providers must cover those higher costs by charging more.

Rising administrative costs also make healthcare more expensive, especially as insurers increasingly require policyholders to pay more out-of-pocket.

Administrative expenses have been growing as a percentage of overall healthcare spending and currently are estimated to be around 15% to 30% of total healthcare spending.

Fred Turner, CEO of Curative

This is also true for prescription medication costs. When corporations feel the pressure of inflation-driven price increases, they often pass those increases to the consumer. "For the companies developing and manufacturing prescription medications, those cost increases could include wages to maintain their workforce supply chain, the cost of supplies, conducting research and clinical trials, and more," says Joseph Kleiman, BuzzRx's CFO and COO.

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How does inflation impact healthcare in the U.S.?

Typically, when housing, clothing, and food prices rise, healthcare costs increase faster than the rest of the economy. “In the last 50 years, healthcare costs have increased at a rate of about 5.13% per year, while general inflation has been about 3.56% per year,” says Turner.

Generally, many factors contribute to healthcare costs rising faster than general inflation. Turner explains that it’s a complex set of factors, including the increased rate of chronic diseases like diabetes, heart conditions, and cancer.

This is in addition to the aging general population needing more medical care and the lack of price transparency and true competition in the healthcare market. Turner adds that advances in medical technologies and specialty medications, while beneficial, also come with high price tags that drive up overall expenses.

“Lack of access to care has also contributed to increasing healthcare costs as patients are less likely to get the care they need early when conditions are more easily treated. Instead, conditions that fester and become more severe generally require more expensive intervention,” Turner explains.

Many individuals without access to medical care are insured with high-deductible health plans that have become a barrier to care.

Healthcare affordability issues

The Kaiser Family Foundation (KFF) found that about one out of every two U.S. adults reports difficulty affording their healthcare expenses. The lack of affordability causes these working insured to avoid or defer needed care until they’re so sick they have no other options but to seek treatment, notes Turner.

When consumers face unaffordable prescription pricing, they are sometimes forced to ration their medication supply or choose between filling their prescriptions and securing other necessities, says Kleiman.

In fact, the CDC recently reported that 9 million Americans are not taking their medications as prescribed due to cost.

Joseph Kleiman, BuzzRx's CFO and COO

Approximately one in five people are also opting for over-the-counter alternatives versus prescription.

Mounting healthcare debt

Healthcare debt weighs heavily on many Americans. Roughly four out of every 10 adults report owing money for medical or dental bills.

This debt can come from credit cards, collection agencies, loans from family and friends, banks, or other lenders used to cover healthcare costs.

How does inflation affect health insurance coverage?

It’s not just your doctor’s or hospital’s bills that get pricier with inflation. Healthcare affordability is also impacted. The amount you pay for health insurance (your premium), which is meant to protect you from expensive medical bills, generally goes up with rising healthcare costs.

“Healthcare inflation is a key factor driving companies to look for new ways to provide health insurance coverage to their employees,” explains Turner. As employers face double-digit premium hikes year after year, they often switch to health insurance plans that require employees to pay much more out-of-pocket.

Not only does your health insurance premium increase, but your cost-sharing also rises with inflation as insurers shift more of the financial burden to you. Cost-sharing refers to the portion of your medical expenses that you pay out-of-pocket, such as deductibles, copayments, and coinsurance.

According to the KFF, about half of adults with health insurance are worried about paying their monthly premiums. Many adults with employer-sponsored insurance (ESI) and those covered through the Marketplace consider their insurance to be only "fair" or "poor." Three in four adults are very or somewhat worried about being able to afford surprise medical bills or general healthcare service costs. And half needed to go into debt to pay an unexpected $500 medical bill.

"These new policies, with high deductibles and coinsurance, result in employees deferring or avoiding needed care, leading to worse health outcomes. We have seen this effect in studies of employees getting healthcare through work," Turner explains.

When insurance plans require higher out-of-pocket costs, employees are more likely to skip or delay getting treatment due to the upfront expense. Yet, this avoidance of preventive or early care allows minor conditions to escalate into serious, potentially costlier diseases down the road.

A surprising shift in healthcare inflation

However, there’s been a shift since 2021. According to an analysis from the KFF, inflation in the rest of the economy has been rising much faster than healthcare costs.

From March 2023 to March 2024, medical care prices went up by 2.2%. This is lower than the 3.5% price increase for all goods and services. But, hospital and nursing home costs rose faster than prescription drugs and doctor visits. This trend has caught the attention of experts, raising questions about the contributing factors.

Turner finds this recent trend intriguing, given the history of healthcare inflation rates. He suggests that several factors could be at play, including the pandemic's impact on patients delaying medical care. "It's possible that some of this catch-up care is now easing, leading to a temporary slowdown in medical inflation," he explained.

Kleiman offers another perspective. "I'm inclined to believe that innovation, new solutions, and competition are helping to keep certain healthcare costs in check," he said. For example, consumers now have more resources and information at their fingertips than ever before to find and take advantage of the most affordable options for getting their medications filled, he added.

It is still unclear why healthcare costs have stabilized recently while overall inflation remains high. It remains to be seen whether this pattern will continue.

Strategies for managing healthcare costs during inflation

The news about soaring medical costs sounds bleak. While coping with rising healthcare prices can be challenging, here are some strategies to help you manage the expenses:

1. Understand your health plan’s coverage. Look through your health plan’s summary of benefits and coverage (SBC) to understand what your insurance does and doesn't cover. If the SBC looks intimidating, call the insurer’s customer service to ask. Get familiar with your expectations in terms of cost-sharing and network requirements. Knowing the nitty-gritty details can help you avoid surprise costs and make the most of your benefits.
2. Stay in-network. Speaking of networks, consider using the healthcare providers, facilities, and pharmacies in your insurer’s network. Using a service or provider outside of this network could result in higher out-of-pocket costs or even having to pay the full amount.
3. Check for hospital financial assistance. If you received inpatient or emergency room care at a nonprofit hospital, you may qualify for income-based discounts and sometimes complete bill forgiveness. You can get financial assistance or a charity care application by calling the hospital's billing department. Some for-profit hospitals may also offer grants.
4. Take advantage of preventive benefits. Many health plans cover routine screenings, vaccines, and prenatal care at little or no cost. These tests can detect health problems early when they’re usually easier and potentially less costly to treat.
5. Shop around. Don't assume all medical services cost the same at all facilities, even within your insurance network. Hospitals are now required to post their prices online, allowing you to compare costs for different treatments before you receive care. Doing a little research by checking prices at various facilities can lead to significant savings.
6. Try negotiating cash prices. For some non-emergency care, it's sometimes worth asking about cash discounts for paying upfront without using your insurance. This is especially true for prescription medications. “Consumers can fill their prescriptions without going through their insurance plans, and sometimes, this option, in combination with a prescription discount service, can save them money on their medications,” explained Kleiman.
7. Save on medication costs. Ask your doctor about getting 90-day prescriptions instead of 30-day supplies. Kleiman says that a 90-day refill can sometimes provide advantages in shipping and pickup costs for chronic conditions requiring daily medication.

Keeping up with rising healthcare costs due to inflation can be a burden for many people. Inflation's effect on medical bills has made it increasingly difficult for many people to afford necessary care or even health insurance premiums — the very thing intended to mitigate healthcare expenses. With rising costs being passed on to consumers, inflation impacts not only your finances but also threatens your overall health and emotional well-being when access to care becomes restricted. While there's no perfect solution to this issue, being an informed, proactive consumer can at least help navigate the challenges of healthcare inflation with some smart strategies.