In a Rare Twist, Healthcare Costs Lag Behind Inflation – But How Long Will it Last?

Professional beautiful medical doctor examining patient in her office.
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In a year when you need a Hubble Space Telescope to find any good news about consumer prices, you’re forced to take whatever scraps you can get. One of those scraps is healthcare costs, which have risen at a much slower rate in 2022 than overall inflation.

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While overall U.S. inflation in September rose 8.2% from the prior year, the medical care index climbed a comparatively tame 6.5%, according to the Bureau of Labor Statistics. Many of the major medical/healthcare categories had modest price increases, including physician services (up 1.8% annually), hospital services (3.8%), prescription drugs (2.7%) and non-prescription drugs (5.6%).

This marked the first time in more than three decades that overall inflation accelerated at a faster rate than medical costs, USA Today reported. That’s good news for Americans who spend a larger-than-average chunk of their budgets on medical and healthcare costs, but it might be short-lived. Healthcare prices tend to take longer than other items to increase, and many experts believe those prices will accelerate over the next year or so.

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“There’s a lag effect,” Cynthia Cox, vice president and director for the program on the Affordable Care Act for Kaiser Family Foundation, told USA Today. “The cost of gasoline can change from one day to the next. That’s not really how healthcare prices work.”

In fact, on a monthly basis, healthcare prices have already begun to rise at a faster pace than overall inflation. The medical care index rose 0.8% month-over-month in September after rising 0.7% in August. In contrast, overall inflation increased 0.4% in September after climbing 0.1% in August.

A survey of more than 1,700 large employers conducted in the spring by health benefits consultant Mercer’s found that respondents expected average health benefits costs to increase 4.4% this year, or just more than half the overall rate of inflation.

However, prices have begun to tick higher for medical supplies and prescription drugs at the same time that healthcare workers are getting higher salaries in the tight labor market. Another Mercer survey released last week found that 43% of large employers think the cost of health care in 2023 will exceed the amount companies budgeted. 

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Some industry experts believe healthcare costs will rise at a faster rate beginning next year, especially in terms of medical care and insurance premiums. That’s mainly because this year’s soaring inflation rate will lead insurers to negotiate higher prices with hospitals and doctors, which will in turn pass those costs to employers and consumers. 

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“We’ll start to see the impact of inflation on health care costs in the next one to two years,” Eileen Flick, senior vice president and director of health technical services at Segal, told USA Today.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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