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Get Ready for Health Care Inflation

By August 21, 2022Commentary

I am in the United Kingdom for a couple of weeks, so posts may be more intermittent and at odd hours due to the time change.  As far as I can tell in London, people generally aren’t paying any attention to the epidemic.  Streets and shops are crowded, very few people with masks.  This is a global city, packed with tourists from everywhere, particularly the Mideast and Asia.

I mentioned in a post on our meth-addled economy a couple of weeks ago that inflation would not get substantially lower and in some areas would likely get worse.  One of those areas is health care, where cost increases take time to work through the system of government rate-setting and provider contracting with private health plans.  Providers, who ultimately drive the cost of health care, have no intention of eating these costs, even though most have high incomes or in the case of hospital systems, immense profits.  And if health plans have to pay providers more, premiums are going up as well, because the health plans also aren’t going to accept lower profits.  A couple of reports validate this thesis.

One report comes from the Peterson-Kaiser health system tracker.  It shows  that we have had a fairly moderate per capita health spending growth for several years, followed by an epidemic blip up due to government spending, and a projected return to somewhat higher, but still moderate increases.  But as the report notes, this assumes that health care price inflation is also limited, which is not what is happening.  While the report projects 4% to 5% growth over the next ten years, providers are asking for much bigger price increases.  And as the report also notes, we are beginning to see the cost effects of all the missed care during the epidemic due to the terror campaign which caused people to avoid health care, resulting in late diagnoses and other issues.  Even at 4% growth in spending, health care would be a substantial contributor to ongoing general inflation, but I think the reality is that health care spending will be rising at around 6% or higher for the next decade.  And out-of-pocket spending is likely to rise faster, bringing more paid to consumers.  (KFF Report)

The majority of Americans still get health coverage from an employer.  The next report discusses expectations for the cost of health care for these plans.  It comes from Aon, a large benefit consulting firm and finds that for 2023 the average cost per employee will rise 6.5% to $13,800 per employee.  Those cost increases get passed along to you, the consumer, in the form of increases in the prices of goods and services produced by these businesses.  And once more, the individual will likely bear more of the total premium for these health plans.  As the report notes, provider contracting lags general inflation trends but will catch up and there are substantial price pressures in regard to drugs and other health services.  I would anticipate that employment-based health plans are set for a return to the trends of over a decade ago, when there were many years of high cost growth.  (Aon Report)

So believe Joe Biden’s demented bullshit if you want, but health care is 20% of the economy and it will cause ongoing inflation as long as the government keeps printing and spending money at absurd rates.

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