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Set to regain the inflation spotlight – medical care

Much of today's economic news concerns the path of inflation and the actions to bring it back to the Federal Reserve's target. While energy, food and other costs have received much attention, a usual star contributor to inflation has been less prominent – medical care. Over the last two decades, the cost of medical care services has increased 78% faster than the general rate of inflation, according to Consumer Price Index data from the Bureau of Labor Statistics. But more recently, the relationship reversed. Over the 12-month period ended June 2023, general inflation was 3.0% versus -0.8% for medical care services.

Nevertheless, employers should not grow complacent about preparing for the impact of higher medical costs in their employee health plans. Contracts with medical care providers typically last three years, which means many providers have been unable to pass on recent significant increases in their underlying costs. For instance, labor costs for hospitals increased by more than one-third from March 2019 to March 2022, according to Kaufman Hall. Drug expenses increased by 37% on a per-patient annual basis from 2019 – 2021, and the cost of medical supplies jumped 21% over that same period, according to an American Health Association report.