U.S. health insurers prepared to weather rising costs, higher utilization

U.S. health insurers face mounting cost pressure driven by drug shortages, rising costs for pharmaceuticals and other inputs, and higher usage. However, a leading credit rating agency said they have the ability to respond.

“Insurers will be compelled to incorporate these rising pressures into their cost projections when establishing premium pricing in the coming years, although rates of increase will vary significantly by region due to local market conditions,” according to Fitch Ratings. “As consumers begin to face higher premium rate increases, the public discourse around affordability of health care coverage, although ever present, will likely be reinvigorated in the near term.”

Higher general inflation in medical supplies and pharmaceuticals, combined with staffing issues, have increased costs for providers. Additionally, pockets of recent higher utilization from pent-up demand for elective procedures and other medical care deferred during the pandemic, although a positive development for hospitals, surgery-center operators and medical device companies, are driving increased cost pressures for insurers. These issues will promote higher premium pricing and out-of-pocket costs for consumers and higher costs for government-funded business.

Drug prices have been an issue in health care cost increases for years, but retail prescription drugs still account for less than 10% of U.S. health expenditures, although this percentage is growing. Increasing drug shortages, combined with the growing list of very expensive specialty drugs, will continue to drive the share of all prescription drugs in total U.S. health care spending.

Supply-chain issues, including manufacturing setbacks and insufficient ingredients amid higher-than-expected demand, have exacerbated shortages for various antibiotics, chemotherapy drugs, and attention-deficit and hyperactivity disorder and other prescriptions. The U.S. Food and Drug Administration is allowing the temporary importation of some foreign-approved versions of the cancer drug cisplatin from registered factories to address the shortage. However, the lack of cancer (and other) drugs has led to skipped treatments and substitutions of less-effective drugs, which may result in higher costs associated with less-effective and extended treatment, along with a higher possibility of metastasis.

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Finally, growing shortages of antibiotics may drive higher severity (and therefore, higher costs) of conditions that traditionally have been easily treated, exacerbating the downside risk of adverse health outcomes.