Health care is 18% of the economy. Increasing health care prices have a significant impact on inflation. The official federal government statistics treat health care inflation somewhat bizarrely, but big health plan companies and others track carefully the actual prices being paid for health services and products. Most of health care is paid for by third-parties–government programs and private health plans. The cost of health insurance is itself obviously subject to price increases, which generally track the increase in health care prices and changes in the amount of services utilized. PriceWaterhouseCooper has issued a report on what it expects the increase in health spending to be in 2025. (PWC Report)
The firm thinks that the cost trend for group health insurance plans will be 8% in 2025, the highest in over ten years. It also said that 2023 and 2024 medical trend was higher than it had previously forecast. That insurance cost increase gets embedded in the price of the services and products offered by the employers providing the health coverage, and employees pick up some of the insurance cost increase in the form of higher premium contributions. PWC identifies the major causes of the spending increase as prescription drugs, mental health usage and general inflation pressures. Hospitals and other health care providers have experienced labor shortages and strong wage increase demands. Other components of their costs have risen as well. Drug manufacturers are always happy to get raising the price of their products without any reason, which they can do given patent protection for their most expensive products.
Because Medicare and Medicaid essentially dictate prices paid to providers for people covered by those programs, commercial health plans tend to get higher price demands from providers to make for the alleged shortfalls from the government programs. Almost all of the projected 8% spending growth is due to price increases, with some minor contribution from increased general utilization. No matter how it is categorized, the reality is that these price increases directly affect most households and in one way or another eventually will be reflected in the general inflation numbers.
