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Health Care Price Inflation is Just Beginning

By December 7, 2022Commentary

I have explained before the dynamics of provider price changes, which influence insurance premiums.  The government sets Medicare and Medicaid prices on a calendar year basis, and can limit those by fiat.  But there is increasing political pressure to increase those rates to compensate for rises in provider input costs, like labor.  On the private health plan side, rates are negotiated, typically on an annual basis.  2023 will be the year that demands for providers from higher prices show up and impact health insurance rates.  Multiple stories suggest that providers are insisting on very large price growth.  In addition, drugs account for a rising and substantial portion of health spending and, as usual, prices there are going up rapidly as well.

A new report from the Peterson Family Foundation/KFF Health System Tracker discusses the impending status of health care inflation, noting that medical care inflation has been below that of general inflation in recent months.  Focussing on health care plan premium increase, the PFF report explains the oddities of how health care is treated in the price indexes and the lagged nature of the data.  It notes that this lagging may diminish the contribution of health insurance to inflation in coming reports, while the current reality is that provider prices and health plan premiums are increasing at a good clip.    (PFF Report)

As I have stated before, I believe that we are on the cusp of another multi-year burst of higher provider prices and health plan premiums.  That will keep pressure on general inflation.

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