Inflation could lead to $370 billion increase in NHE by 2027, report says
“Although profit pools are at risk, health care leaders who adjust their business models accordingly can expect bright prospects for their organizations in the years ahead.”
By 2027, inflation could have a major impact on national health expenditures (NHE). According to a new report from McKinsey & Company, NHE could rise by as much as $370 billion over baseline levels by 2027 due to inflation, and COVID could further add as much as $222 billion in NHE. Over time, this could cause a crisis of affordability for consumers and limit profitability for providers, according to the report.
Previously, national health expenditures were expected to grow 5.5% through 2027. Now, that number has risen to an estimated 6.8%, which is 2.5% over estimated GDP growth. Among the causes for the increase include higher labor costs, the biggest contributor to increasing prices.
But COVID and a persistent shortage of qualified medical professionals will challenge the industry, too, per the report. By 2025, the United States may be short as many as 450,000 registered nurses and 80,000 physicians, according to McKinsey’s data.
The costs of higher national health expenditures could fall on employers, most of whom already say they’re seeing health care costs rise above the rate of inflation. But the burden of price hikes may also be borne by consumers, as the vast majority of companies have indicated that increases in premiums over 4% will be passed on to employees. The government, too, could be affected, as national spending on health care continues to steadily increase, reaching 20% of the total federal budget.
Related: Out-of-pocket health expenditures have declined during the pandemic: EBRI
To get ahead of the impending expenditure increases, the report suggests that companies take action and invest in a variety of infrastructure improvements. Among these include:
- Care delivery transformation, like shifting hospital-based volume to alternative sites
- Increasing clinical productivity, like boosting physician fill rates
- Technology enablement, like using advanced AI
- Reducing administrative spending
These sorts of investments could result in a collective opportunity of $1 to $1.5 trillion by 2027, according to the report.
Overall, the report says, “Although profit pools are at risk, health care leaders who adjust their business models accordingly can expect bright prospects for their organizations in the years ahead.”