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: Healthcare inflation may be the latest price hike hitting consumers grappling with rising costs

In the last year, healthcare is a relative bright spot in a bleak inflation picturebut given that could be changing, recent research shows.

While overall healthcare inflation remains well below the rate of economy-wide price growth, a look beneath the hood shows prices rising sharply for a few major types of health services and payer types, with further increases expected in the year ahead. The acceleration in healthcare inflation may be the latest price hike going to the American consumer and may further complicate the Federal Reserves battle to create rising prices in order.

Wearing down July data by payer type, for instance, nonprofit research and consulting group Altarum discovered that charges for care paid by private insurance jumped a complete percentage point from the prior month and climbed 5.4% from January 2021 levels, even while Medicare charges for similar services fell over those periods. Private insurance charges for hospital services jumped 7.2% from early 2021 through July. Altarum expects another significant jump in private prices next year, as healthcare companies signal that 2023 price negotiations come in many cases favoring providers.

Early rate filings for 2023 Affordable Care Act marketplace plans, meanwhile, show that insurers would like steeper premium hikes than lately, with a median proposed increase of 10%, in accordance with a Kaiser Family Foundation analysis of filings in 13 states and D.C. Insurers cited the combined impact of inflation and enrollees increased usage of services because the biggest factor affecting their rates, KFF found. Lots of people searching for marketplace coverage get federal subsidies that reduce their costsbut the filings have broader significance, providing clues to whats ahead for employer-sponsored plans aswell, experts say.

With regards to inflation, the filings are most likely pretty indicative of what insurers are experiencing in the employer market, Cynthia Cox, vice president at KFF, said throughout a panel discussion Wednesday.

Overall healthcare inflation will probably use above the tight 2% to 3% range seen in the last year or two, said Corey Rhyan, senior analyst at Altaruma shift that could impact consumers on multiple fronts. Because the cost of care rises, insurance firms will have to raise premiums, consumers spending money on care directly could see higher out-of-pocket costs, and workers in employer-sponsored plans could see lower wage increases as time passes as employers shoulder higher health costs, Rhyan said.

Signs of inflationary pressure in the healthcare sector

The acceleration of price growth in a few key healthcare segments comes because the passing of the Inflation Reduction Act raises new questions concerning the direction of healthcare costs. The brand new laws requirement that pharmaceutical companies pay rebates to Medicare when drug prices rise faster than inflation, for instance, could also help rein in drug prices in the industry market, policy experts say.

Historically, healthcare inflation has typically outpaced economy-wide price growthbut that hasnt been the case lately. Since broader inflation measures started surging this past year, healthcare inflation has remained subdued, partly due to the extended time necessary for new contracts and reimbursement rates to activate and policy changes which have pushed down some costs, analysts say. Some Medicare payment reductions set in place by way of a 2011 law but suspended through the pandemic, for instance, were reinstated this season, hitting the brakes on Medicare price growth.

Now, however, there are several signs of inflationary pressures trickling through the healthcare sector. Samuel Hazen, CEO of HCA Healthcare HCA, -4.02%, among the countrys largest health systems, told investors on a late July earnings call, we expect the payers to understand the entire inflationary environment that the providers come in, and that recently renegotiated contracts have reflected more increase in pricing than what we’d observed in our past trends. Addressing inflation and pricing on a mid July earnings call, Brian Thompson, CEO of insurer UnitedHealthcare, a unit of UnitedHealth Group UNH, -2.27%, said, you will have more impact in 2023 than 2022, in the same way a function of time and how exactly we renew these contracts.

Employers already are seeing sharply higher health costs, largely because of workers catching through to care that has been delayed through the pandemic, in accordance with a survey released this week by Business Group on Health, a nonprofit representing large employers. The survey of 135 large employers discovered that their health costs jumped a median 8.2% in 2021, after costs were flat in 2020. Longer hospital stays and much more severe conditions also contributed to the increase, the group said. Thirteen percent of employers surveyed said that they had seen more late-stage cancers, and another 44% anticipate this increase in the near future, the survey found, likely because of pandemic-related delays in care.

Healthcare labor costs are growing faster than overall labor costs, Altarums Rhyan saidpotentially putting more pressure on prices. Average hourly healthcare earnings grew 7.4% on the 12 months ending in June, in accordance with Altarum, weighed against 5.2% for several private-sector jobs.

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