Medical Spending on the Rise

Inflation in health spending is measured in a truly goofy manner by the federal government, understating the reality facing those private firms and consumers who pay for health care.  The Altarum Institute issues a regular series of briefs tracking health spending, health prices and by inference, utilization rates.  The latest briefs cover the period through January 2023.  Total health spending grew 4.6% year-over-year, but that includes public health outlays, which soared during the epidemic and being pulled back now.  The more relevant personal health care spending, which relates to health care services and products received by consumers, grew at a faster 6.3%.  Dental care experienced a 10.6% increase in spending, while home health care rose 9.4%, hospital spending 6.2% and doctor and other clinician services by 3.5%.  As always, drug spending growth was high at 8% year-over-year.

From a price perspective, the overall increase again was 2.7%, but in the private sector it was 4.1%.  Government payers like Medicare and Medicaid set prices, and keep them low, but they are under intense political pressure to raise reimbursements, given the effect of inflation on provider costs.  I expect we will see much higher government plan reimbursement increases beginning this year.  And increase in doctor and other clinician prices has been under 1%.  That absolutely will not persist; many of these providers are struggling to maintain income.  In the private sector, hospital prices grew by 4.7% year-over-year and physician ones by 3.7%, again showing that government reimbursement levels are artificially reducing the true impact of medical price inflation on consumers.

Dental care and nursing home care had very large price growth, over 6.5% in each case.  Nursing homes have massive staffing shortages, leading to very large price increases to cover rapidly rising labor costs.  The combination of total spending compared to price growth allows us to infer utilization increases, which were strong at 3.8%.  High utilization growth occurred in prescription drugs and home health care.  As I said above, my big picture takeaway is that health care price and spending growth will be accelerating and consumers covered by private health plans are going to bear a lot of the pain.  (Altarum Briefs)