Health premiums and costs about to get higher
WASHINGTON — During the pandemic, health care costs — usually a main driver of U.S. inflation — remained surprisingly stable, rising just about 2 percent annually even as prices for many goods and services soared more than three or four times that rate.
But signs are emerging that medical inflation is back as demand for non-COVID-19-related health services recovers and health care providers seek to make up for soaring labor costs and losses during the pandemic.
Prices for hospital services, the single biggest component of medical care, accelerated in December and even faster in January, to an annual rate of 5.5 percent, according to personal consumption expenditures data, the Federal Reserve's preferred measure of inflation.
“Unfortunately, it's going to be a problem that is pretty sticky in terms of consuming more and more of consumers' pocketbook,” said Sunit Patel, chief actuary of health and benefits at Mercer, the consulting firm.
Consumer cost increases for nursing homes ran at a slightly higher rate of 5.7 percent over the past year; dental services rose even faster.
Hospitals are pressing for higher payments as their long-term contracts with medical insurers come up for renewal.
And greater market concentration caused by chains buying out smaller hospitals is helping to push medical inflation upward, as is the historically opaque nature of health care pricing.
“I'm very worried we're looking at a big jump in (health insurance) premiums and out-of-pocket costs,” said Glenn Melnick, an expert in health economics and finance at USC.
About half of the nation's population is covered by employer-sponsored health insurance. In a tight labor market, many employers will be reluctant to pass on the rising costs directly to their employees, who typically pay a part of the premium.
American households already are straining from loss of purchasing power because wage gains haven't kept up with inflation. And many consumers are struggling with medical bills, which are the single biggest debt-collection item and factor in personal bankruptcies.
The recent surge in overall inflation came after decades of near-stagnant prices for most goods and services. Inflation jumped to a 40year high of 9.1 percent last June, based on the consumer price index, and it's since moderated to 6 percent in February. By the Fed's preferred measure, which covers a broader range of spending, the latest inflation reading was 5.4 percent — still well above the central bank's 2 percent target.
Even as policymakers have jacked up interest rates to cool spending and investment in order to dampen price increases, the nation's inflation problem now has shifted from goods to services.
What makes the expected jump in medical inflation particularly worrisome is that health care makes up a big chunk of people's spending. And rising prices for services tend to decline more slowly than for goods, which means that could prolong the current cycle of hot inflation.