By: Michael Stocker, Employee Benefits Strategist Where are the effects of inflation on Healthcare costs?
If you have purchased (assuming you were able to find what you wanted) anything recently, you have noticed things, in general, are costing a tad more these days. Whether it is at the grocery store, the car dealership, or even the Dollar Tree (which is now $1.25), the new dirty word of 2022 is inflation . Having been a strategic consultant in the health insurance industry for nearly twenty years, inflation is something that I have unfortunately seen firsthand for most of them. So why, at a time when the overall economy is experiencing the highest rates of inflation in over 40 years, is inflation in the healthcare sector seeing a much slower rate? First off, we need to describe the two. Webster’s dictionary defines inflation as “a general increase in prices and fall in the purchasing value of money.” When it comes to healthcare, we typically consider not just the unit price increases for services, but also utilization rates as well. A combination of our population aging and scientific advancements in treatments led to many years where healthcare was seeing a significant increase in both the cost of services and the number of services being used. While both of those factors still exist, for better or worse, restrictions put in place during the COVID-19 pandemic created a situation where utilization rates fell dramatically. While hospital systems were being overwhelmed with patients, their outpatient facilities, doctor’s offices, rehab, surgical centers, etc., all sat idle. This created a huge strain on hospital systems and private practices, but insurance companies were seeing fewer claims overall, resulting in record profits. UnitedHealthcare’s stock is up 152% from March of 2020, Anthem BCBS is up 153%, CIGNA 104%, and CVS (parent company of Aetna) is up 96%. Another factor is that most insurance companies enter into multi-year agreements with providers, so their costs are set and not able to be renegotiated until the end of the term. Meaning, that even while provider costs may be increasing just like the rest of the country, their reimbursement rates from carriers are not going up now. So, are the times of seeing medical inflation outpacing general inflation gone? Well, I hope so, but sadly this is likely a case of medical inflation just needing time to catch up to the rest of the world. Hospital systems are seeing their employee costs go up due to labor shortages just like everyone else. They are experiencing increased energy costs, and their suppliers are raising their costs for equipment and supplies as well. People are starting to go back to get those elective surgeries they postponed during the pandemic. On top of that, the state and federal governments have been subsidizing providers over the last two years to keep them afloat. This money will (eventually) dry up, and they will need to make that up, which all leads to negotiating higher reimbursement rates with carriers, and higher costs for consumers. What are some things you can do to help insulate your company’s exposure to these higher costs when they eventually arrive? First off, you can provide your employees with the tools and resources to get the appropriate level of care at providers that have the best outcomes, and actively promote those resources. This could be through tools such as a healthcare bluebook, or through offering plans with built-in high-performance networks. If you do not mind doing a little extra work (or having your consultant, do it), you can also bypass the insurance companies and directly contract with the hospital systems. While you may think large insurance carriers have more leverage than you, think about who would be hurt more if a carrier like UnitedHealthcare would lose LVHN. If that were to happen, most companies would just change carriers to one that has LVHN in their network, rather than tell employees they can no longer go there. The hospitals know this, and so do the carriers. In the end, when medical inflation once again rears its ugly head, there will be tools you can use to help mitigate it. The key will be to understand what those tools are and the best ways to implement them.
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