Healthcare prices have increased over the past year, and typically care prices and overall health spending outpace growth in the rest of the economy. But according to a Health System Tracker analysis of Bureau of Labor Statistics data, healthcare price increases during the past year are far below the rate of inflation, which is at a four-decade high.
That means the healthcare sector has been protected from some of the worst effects of inflation. The analysis used BLS data, including the consumer price index (CPI) and producer price index (PPI), to analyze prices for medical care, compared to other common goods and services.
In July 2022, overall prices grew by 8.5% from the previous year, while prices for medical care increased by only 4.8%. While that’s a reversal from the typical trend, the relatively high rate of inflation seen in the rest of the economy may eventually translate to higher prices for medical care, the analysis found. This may lead to steeper premium increases in the coming years.
WHAT’S THE IMPACT?
Since 2000, the price of medical care, including that of services provided, insurance, drugs and medical equipment, has risen faster than prices in the overall economy. Medical prices have grown 110.3% since 2000, while prices for all consumer goods and services rose by 71% in the same period.
Yet while medical care costs have grown faster, they have also grown more consistently year-over-year than prices in the overall economy, which can be more volatile, particularly for food and energy. Between 2001 and 2020, prices for medical care increased between 1% and 5% each year. Overall prices saw more volatility, though generally increased at a slower rate than prices for medical care until recently.
In July 2022, however, prices rose by 8.5% across the economy from the previous year, compared to 4.8% growth in prices for medical care.
Overall price growth was at 8.5%, and core inflation (excluding food and energy) was at 5.9%. Many essential goods and services saw larger increases. Food prices grew by 10.9% and electricity costs grew by 15.2%. Many other household expenses, such as rent and clothing, have also seen larger price increases in the past year than medical care. By far the fastest-growing essential household expense has been gasoline – whose price has increased by 44% since July 2021.
Prices for hospital services, both inpatient (3.9%) and outpatient (3.5%), as well as for nursing homes (4.5%), rose faster, while drugs and physicians’ services had lower price increases (2.8% and 0.8%, respectively). Rising average employee wages and continued staff shortages in the wake of the pandemic may put upward pressure on operating costs.
Medical care CPI also includes price indices for medical equipment (6.6% in July over the prior year) and health insurance administrative costs and profits (20.6%). The health insurance CPI is almost one-year lagged and does not represent current health insurance cost changes. Healthcare use declined in 2020 due to COVID-19, which subsequently led to an increase in insurers’ margins.
PRODUCER PRICE INDEX
Another measure of inflation, the producer price index (PPI), represents inflation from the producers’ perspective in both the public and private sectors. The PPI for health services includes medical services that are paid for by third parties, such as employers or the federal government.
The PPI considers changes in industry output costs with a focus on the actual transaction prices. The CPI, by contrast, assumes consumers buy a similar bundle of goods and services and does not account for trade-offs consumers may be making in response to price changes.
Since June 2009, the CPI-U for medical care services has risen 51%, while the PPI for healthcare services has increased 32%.
Generally, prices paid by private insurance are higher and rise more quickly than prices paid by public payers. Private insurance health services PPI has risen by 21.4% since June 2014, compared to 12.2% for Medicare and 12.8% for Medicaid in the same period. Overall health services PPI increased by 17.8% since June 2014.
Year-over-year health services PPI picked up in recent months for private insurance, with 4.1% in July 2022 over the same month in 2021, compared to a 0.6% decrease for Medicare and a 3.4% increase for Medicaid.
During the public health emergency, Medicare provider reimbursement for COVID-19 treatment rose 20%, which is at least part of the reason for the increase in the Medicare PPI in 2020.
THE LARGER TREND
Inflation is one factor expected to impact premiums in 2023, along with the lingering effects of COVID-19 and the end of enhanced subsidies for plans on the exchange, according to a July report from the American Academy of Actuaries.
A subsequent eHealth survey of about 2,500 beneficiaries found that a full 95% of Medicare beneficiaries are worried about the impact of inflation on healthcare costs, and nearly half say their healthcare costs have already increased due to inflation.
Those on fixed incomes are especially vulnerable to the impact of inflation on costs, the analysis found, with the consequences felt almost immediately.