U.S. Healthcare Sees Impacts From Record Inflation Rates

In June 2022, the United States experienced its highest inflation rate since 1981. As costs for goods at the grocery store and gas pump increased, so did healthcare prices — but not as much as it could have been.

For November, the U.S. Bureau of Labor Statistics reported the inflation rate to be 3.1%, just below the average of 3.28%.

Although healthcare costs from year-to-year have traditionally outpaced inflation rates, the tables are now turned.

Medical care inflation

An analysis from the KFF uses Bureau of Statistics data, such as the consumer and producer price indexes, to compare medical care prices to other goods and services. The study shows overall prices for goods and services grew by 3% from June 2023 to the previous year, however, medical care only rose .1% in that period. Since 2000, the price of medical care has increased at a higher rate than all goods and services.

Not all aspects of medical care experienced a minimal inflation rate. For example, KFF found that hospital, inpatient, outpatient, and nursing care all experienced pricing increases above the 3.0% mark for goods and services. The price of medical equipment witnessed the largest price hike, rising by 9.7%.

KFF measured the retained earnings of health insurers, not the monthly premium individuals pay a policyholder each month. The numbers show health insurance’s consumer price index decreased at its fastest-ever rate, -24.9%. As of October 2023, the health insurance consumer price index has declined 34%.

A survey with over 2000 responses from the KFF shows the average annual premium for employer-sponsored health insurance in 2023 increased by 7% to $23,968.

Yang Wang, assistant research professor at Johns Hopkins Bloomberg School of Public Health, explains clearer figures may appear after policyholders adjust their rates.

"I heard thoughts that recent inflation would drive up healthcare pricing and insurance premiums," Wang tells Healthnews. "My understanding is that insurers and providers often negotiate and lock their payment rate for one year (or even two), so the effect of recent inflation on price and premium might need some time to be observed. As researchers, we often get data with one or year lags."

Private insurers outspend public programs

During COVID-19, Congress approved $175 billion in subsidies for hospitals due to the ongoing weight of the pandemic. A study conducted by Johns Hopkins in 2022 found hospitals across the U.S. benefited from subsidies handed out by the federal government. A total of 2,163 hospitals were evaluated in the study.

Johns Hopkins researchers, including Wang, found profit margins remained similar to those in prior years. Additionally, government, rural, and smaller hospitals experienced higher profit margins than in years prior. Wang says, "Given the subsidies are ending earlier this year, it’s possible that this reduced revenue source could have impacts on pricing."

Government-sponsored insurance plans like Medicare and Medicaid combine for 39% of major health spending in 2022. Meanwhile, private health insurance accounted for 29%, a total of $1.3 trillion. Wang notes that most often, commercial insurance rates are substantially higher than Medicare’s rates for hospital and physician services, in some cases double the price.

Wang lists three factors contributing to higher rates of hospital and physician services for private insurance.

1. Hospitals have stronger market power through mergers and acquisitions.
2. Patients, consumers, and employers lack the bargaining power to negotiate lower prices due to a smaller market share and less transparent pricing information.
3. Growing administrative costs on the provider and insurance end are also contributing to to higher costs for private insurance recipients.

Despite Medicare and Medicaid combining for more health spending, private insurance prices have risen 24.9% from June 2014 to June 2023. During that same period, Medicaid and Medicare prices have grown 17.2% and 13.8% respectively. Due to these price increases for care for private insurance recipients, many have decided to forego care.

The Commonwealth Fund Health Care Affordability Survey results released in October show many adults or their family members delayed or ditched health care due to high costs. Numbers show that 29% of individuals with employer coverage put off or skipped care. Individuals with marketplace plans under the Affordable Care Act, along with Medicare and Medicaid plans, also reported high rates of delaying or skipping medical care due to high prices.

Since February 2023, wage growth has outpaced inflation. Time will tell if Americans are willing to spend more on medical care with more money in their pocket despite prices likely to increase in 2024.