Inflation and Health Insurance: Healthcare Costs are Rising

It’s not news to anyone that prices have gone up across the board over the last few years. Your business is probably paying more for everything from healthcare benefits to office supplies than you could have anticipated. If you’re concerned about inflation, you’re not alone—and your concerns are legitimate. 

Inflation rose by 7 percent in 2021, according to the December 2021 Consumer Price Index. In other words, we paid an average of 7 percent more for goods and services in December 2021 than we paid in December 2020. That 7 percent increase is the fastest inflation has risen in one year since 1982. (For comparison, the CPI found that consumer prices rose just 2.3 percent from 2018 to 2019.)

The forces that drive inflation are complex, but the sharp rise in consumer prices during 2021 was largely related to supply chain issues, higher energy costs and the ongoing economic effects of the pandemic.  The good news is, the Federal Reserve has projected that inflation will slow down in 2022 with a growth rate in the range of 2.0 to 3.2 percent. But two years into the pandemic, we’re all painfully aware how quickly things can change—so we’re going to just have to wait and see what the future brings.

How Inflation Affects Healthcare Costs

With inflation soaring and an unpredictable future ahead, making business decisions about healthcare spending and health insurance is more difficult than ever. For self-insured employers that pay directly for employees’ medical claims, rising inflation means your health care fund won’t stretch as far as it used to. 

As inflation rises, prices generally rise across nearly all sectors. Our grocery and utility bills go up, even if our consumption stays the same. Housing prices and gas prices skyrocket. (Anyone who regularly drove and refueled a car in 2021 won’t be surprised to learn that gasoline prices rose nearly 50 percent from December 2020 to December 2021.)

And, of course, inflation can raise medical costs. Health care facilities have to pay more for supplies, utilities and employee costs, so patients and insurers are charged more for services. It’s reasonable to expect health insurance premiums and prescription drug costs to rise with inflation, too.

How does that track with what we’ve been seeing over the last year or so? Well, unsurprisingly, healthcare costs were up in 2021. According to the CPI, the average cost of physicians’ services rose 4.3 percent during the year, and the cost of hospital services rose 3.3 percent. As for prescription drug costs, the CPI found that they were unchanged between 2020 and 2021—but, of course, these costs were already extremely high in 2020.

As for health insurance premiums, Peterson-KFF Health System Tracker’s 23rd annual Employer Health Benefits Survey found that single and family premiums for employer-sponsored health insurance were up 4 percent in 2021. But that can’t be blamed on inflation, since health insurance costs have been steadily trending up since long before our current inflationary period began. The KFF survey found that the average family premium has risen 22 percent over the last five years and a staggering 47 percent over the past 10 years.

The burden of higher health insurance costs is shared by employers and employees. In 2021, covered workers contributed an average of 17 percent of the premium for single health coverage and 28 percent of the premium for family coverage. This means employers covered 83 percent of single premiums and 72 percent of family premiums last year. For self-insured employers already feeling the budgetary strain caused by inflation, those high healthcare costs are difficult to absorb. Employees may also be struggling to cover their share of their healthcare costs if their wages haven’t kept pace with inflation.

(Unrelated to inflation but interesting to note: The KFF survey found that 64 percent of covered workers are now enrolled in self-funded plans, and 42 percent of small firms reported using level-funded plans that combine self-funding with stop-loss insurance. Both of these numbers have risen from previous years’ surveys, indicating that self-funding and stop-loss insurance are steadily gaining popularity.)

Controlling Rising Healthcare Costs 

While we don’t know how the inflation rate will change over the next few years, we can assume that healthcare costs and health insurance premiums will continue to steadily climb. What can your business do to control healthcare spending without sacrificing the quality of your employee benefits? 

Because inflation is completely outside your control, mitigating its effects is really the only option for self-insured employers. Now is the time to be talking to your healthcare advisors and evaluating cost control methods. Incorporating things like reference based pricing and workplace wellness programs may help some employers better manage healthcare spending. We want to make sure your business is taking advantage of every possible strategy to help you afford the kind of benefits that appeal to employees.

Stop Loss Insurance, Inc. is your source for all things related to self-funding and stop loss. No matter how inflation ebbs and flows, I’m always here to help self-insured clients secure the most competitive rates and minimize healthcare costs. Contact me today!

Denise Doyle

 

 

 

Stop Loss Insurance Brokers, Inc. is your source for information about all things related to self funding. We are here to answer questions you have about stop-loss provisions, switching from fully-funded to self-funded insurance, or whatever else you may be wondering about around health insurance plans. Contact us today!

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    In 2011, the top 5 most expensive medical conditions treated in US hospitals were: Septicemia, Osteoarthritis, Complication of device, implant or graft, Liveborn, and Acute myocardial infarction

    From 2010 to 2013, the number of claims that were individually $1 million or above rose by 1,000%

    In 2017 approximately 18% of the American public will purchase insurance through exchanges, radically transforming the health insurance landscape.

    In 2014, 98% of large firms (= 200 Workers) offer 1+ wellness programs to their employees.

    The most costly 1% of patients account for 20% of national health expenditures – accruing average annual expenses of nearly $90,000 per person.

    6% of firms offering fully-insured plans report they intend to self-insure because of Obamacare.

    In 2014, PPO plans remained the most common plan type, enrolling 58% of covered workers.

    In 2012, 93% of businesses with 5,000+ employees and 80% of companies with 1,000-4,999 employees were self-funded

    Massachusetts has the third-highest prevalence of self-funded insurance in the small-group market (Fewer than 50 employees).

    In 2013, the average deductible was $2,906 for individuals selecting plans from marketplaces. This compares with average deductibles of $1,135 for an individual with employer coverage.

    In 2013, the average annual premiums for employer-sponsored health insurance are $5,884 for single coverage and $16,351 for family coverage, up 5% and 4% respectively from 2012.

    From 2010 – 2013, cancer followed by chronic/end stage renal disease and leukemia accounted for the top 3 costliest illnesses.