Inflation is the biggest US healthcare worry – but labor is a close second

Neil Raden Profile picture for user Neil Raden March 24, 2023
Hospitals are facing off against inflation and labor shortages. A review of the latest US healthcare data shows the extent of the problem. The Vaccine Economy brings a new set of healthcare finance questions, including the No Surprises Act.

Health practitioner hold laptop on drawn chalkboard
(via Adobe Stock)

Healthcare usually has its own problems, and the whole rest of the country is worried about it - but not for reasons you might think. Right now, the top story in the country is the story that will be the top story in healthcare. The thing most hospitals are worried about is inflation.

Indeed, overall inflation is at its highest in 40 years (1981 - 10.3%, 2022 - 8%), and health care is beginning to feel the pinch. The latest Bureau of Labor Statistics report reveals medical services prices in September rose 6.5 percent compared to a year ago. And a Kaiser Family Foundation July analysis of marketplace insurers' early rate filings in 13 states and the District of Columbia found that they are seeking as much as a 10 percent premium increase due to rising prices paid to hospitals, doctors, and drug companies as well as increased use of services by enrollees. Some are seeking rate hikes of 20 percent.

The relatively high rate of inflation seen in the rest of the economy may eventually translate to higher prices for medical care, potentially leading to higher health spending and steeper premium increases in the coming years. A Journal of the American Medical Association (JAMA) study found five factors that affect the cost of healthcare: a growing population, aging seniors, disease prevalence or incidence, medical service utilization, and service price and intensity.

The number one problem facing hospitals is a labor shortage, said Kleinke, which means organizations will pay higher wages to attract healthcare workers, especially nurses. And for health insurers, a third of all their costs come from hospitals. The inflation rate in the United States is currently at 8.2 percent, which is difficult because normal growth is typically four percent. But in the 70s, inflation used to be far worse. Home mortgage rates hit 18 percent, and somehow we did live through that as a country.

Other factors that have an economic impact on the healthcare sector: Healthcare wages have been depressed, and employers have been diverting wage income into benefits, the national minimum wage hasn't changed in years, and prices are growing for the cost of everything—housing, food, gas, and oil. This is on top of people who delayed preventive care screenings like colonoscopies and mammograms for the last two years during COVID. They are now returning for care and, in some case, finding they have a severe medical condition and need more expensive treatment.

Some healthcare facts to consider, according to Investopedia:

  • Healthcare costs in the United States have been rising for decades and are expected to keep increasing.
  • The United States spent more than $3.8 trillion on healthcare in 2019 and exceeded $4.1 trillion in 2020, according to a Peterson and Kaiser organizations study.
  • A Journal of the American Medical Association (JAMA) study found five factors that affect the cost of healthcare: a growing population, aging seniors, disease prevalence or incidence, medical service utilization, and service price and intensity.
  • In the long term, the financial impact of COVID-19-related healthcare spending is not expected to significantly affect healthcare spending in general.
  • The No Surprises Act—and other legislation included in the Consolidated Appropriations Act, 2021—offer some help regarding unexpected healthcare billing and costs.

Understanding the No Surprises Act

The No Surprises Act, part of the Consolidated Appropriations Act of 2021, forbids patients from receiving surprise medical bills when seeking emergency services or services from out-of-network providers at in-network facilities.

  • Holds patients liable for their regular in-network cost-sharing amount only.
  • Allows providers and insurance companies to negotiate reimbursement separately through an independent dispute resolution process.
  • Requires providers and health plans to help patients access accurate healthcare cost information.

The Journal of the American Medical Association (JAMA) reports that one in five insured adults received a surprise medical bill in the past two years, and 18% of emergency room visits resulted in at least one surprise bill.

From an article in the Harvard Business Review, "When Inflation Rises, Health Outcomes Fall,"

'In February 2021, the National Bureau of Economic Research examined how a $10 price increase on prescription drugs would impact health outcomes. They discovered drug price increases are truly a matter of life and death. The $10 increase resulted in a sharp 33% increase in deaths as patients cut back on costly medications for heart disease, hypertension, asthma, and diabetes."

Inflation may have a significant influence on mortality rates.

My take

The economy will not collapse, but will take a while to subside. Fortunately, the job market is booming—there are not enough people to do the work. When everybody's hiring, that tends to fix the problem because it means that everybody who wants to work can work and get money. While negotiating higher prices or wages adds to price pressure and inflation, on the other hand, it means there are many people out there with cash. Right now, some people have more money than they did a year ago, and that's good news for the economy.

But healthcare is a different story. It's a Byzantine mess, a Gordian Knot of incentives, patronage, fraud and downright corruption.

But the problems are not all financial. In a Discover magazine article, Will AI Make Medicine More Human? we can read the results of a 2019 study in the Journal of General Internal Medicine. Doctors only ask patients about their concerns around a third of the time. When they do ask, they interrupt within 11 seconds, two-thirds of the time. "Outcomes" are a favorite metric for hospitals, but what's needed are a'pre-outcomes" measures - measuring the actual care patients receive.

Image credit - A medical healthcare doctor wearing a mask, stethoscope and typing on a computer laptop - by @pichetw at Adobe Stock.

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