8 reasons why healthcare cost inflation is likely to rise

Health care costs in the United States have fallen for the first time in our lifetimes due to the decrease in elective, preventive and chronic disease care caused by the pandemic. In 2021, however, health care costs have caught up to pre-pandemic projections. Eight factors, outlined below, point to a return to health care cost increases well above inflation, posing enormous challenges for employers and health plan sponsors.

1. Provider costs have really increased.

Hospitals and suppliers are not immune to general inflationary trends. Providers face increased costs for fuel and medical supplies and will seek to pass on these costs. The “Great Resignation” did not spare health care. Hospitals are also facing staffing shortages, and agency and “travel” costs for nurses have skyrocketed. These increases increase the cost base of medical care and will increase health care inflation for years to come.

2. Vendors will have more leverage at the contract table due to vendor consolidation and public sympathy.

Weaker hospital systems and providers were more likely to fail during the pandemic, and their volume was likely absorbed by stronger systems that enjoy greater bargaining power and higher reimbursement rates.

Many health plan contracts with health systems last three years or more, so these increases could extend to 2025 or beyond.

Providers saved countless lives during the pandemic, and doctors, nurses and others operated at great personal risk in excruciating conditions with crippling shortages of personal protective equipment. Health plans will have a harder time in the court of public opinion in contract disputes, making them more likely to accede to providers’ financial demands.

3. Drug costs will continue to rise.

Nor has there been a slowdown in rising drug prices during the pandemic, and the federal government has passed no meaningful legislation to control drug prices.

There is broad public support for regulations aimed at addressing high drug costs in the United States relative to other developed countries, but little agreement among lawmakers on what action to take.

The pandemic has led to a slowdown in research and approvals for new drugs not intended for the coronavirus. As the pandemic recedes, there will be an increase in the number of new and expensive personalized medicines.

4. Preventative care, chronic disease management and elective surgeries have been delayed or abandoned during the pandemic.

Mammography and colonoscopy screenings dropped dramatically in the spring of 2020, and cancer screening rates have yet to recover. Decreased cancer screening has reduced medical costs during the pandemic, but could increase future costs as more patients are diagnosed with late-stage, high-cost cancers in later years. For example, UC Davis once reported a four-fold increase in stage IV breast cancer diagnoses.

Vaccinating children saves lives and costs by preventing outbreaks like measles, but pediatric vaccinations are down 42% in spring 2020. While tween vaccinations have rebounded, adolescent vaccinations continue to fall behind without compensatory bump to make up for missed vaccinations in the first year of the pandemic. Childhood vaccines save thousands of lives and billions of dollars; fewer fully immunized children will increase health care costs and lead to preventable illness and death.

Some patients have delayed or avoided medical care for chronic conditions such as heart disease or diabetes, and we may face higher costs from complications including end-stage renal disease and congestive heart failure due to more advanced disease in subsequent years. Some patients will never get elective procedures they missed during the pandemic, but many surgeries and other delayed procedures will be scheduled in the future. Some of them, including operations for cancer and orthopedic diseases, might be more complicated than initially expected.

5. The costs of long-term complications from COVID-19 could be significant.

Up to one in six people who have recovered from COVID-19 continue to have symptoms six months later.

The researchers also found that the incidence of heart attacks, strokes and congestive heart failure skyrocketed after recovering from COVID-19. Even mild cases of COVID-19 can cause lasting damage to the small airways. Researchers have also identified cognitive decline and changes in brain anatomy associated with COVID-19.

Ten drugs are currently being studied to treat long COVID; these could improve quality of life and reduce disability, but are likely to be expensive.

6. The pandemic has worsened mental health.

Three times as many Americans are reporting severe symptoms of anxiety and depression compared to before the pandemic, and drug overdose deaths are at their highest level in history.

Access to mental health care was already poor before the pandemic, and many continue to be unable to get needed mental health care despite the dramatic increase in virtual care. Untreated mental illness is associated with substantial preventable medical costs, and the emotional trauma of an event resulting in widespread death can last for years.

7. Government programs that funded vaccinations and treatments for COVID-19 will expire this year.

The federal government has purchased all COVID-19 vaccines, monoclonal antibodies, and oral drug doses for COVID-19 since the pandemic began. But the funds to pay for those products are running out fast, and the billions in funds for vaccines and treatments the Biden administration is seeking face an uncertain future in Congress.

We often don’t know what price the government pays for these products, but the unit cost paid by private insurance plans is likely to be higher, and employer-sponsored health plans now only pay the fees. of administration for COVID-19 vaccines and medicines. .

8. The end of the pandemic emergency will reduce Medicaid enrollments and enhanced grants for exchange plans are set to end.

State Medicaid agencies have been prohibited from de-enrolling Medicaid beneficiaries during the pandemic, but millions of people could lose their Medicaid benefits once the pandemic emergency ends.

Federal subsidies for those who buy individual insurance on exchanges will also decrease at the end of 2022, unless new legislation is passed.

Some employees or family members who remained on Medicaid or who switched plans and opted out of employer-sponsored health insurance during the pandemic may seek coverage from employers. We will likely see an increase in the number of uninsured people, which will put additional pressure to shift costs to commercial health plans.

All of this points to a return to extreme annual health care inflation that will pose challenges for employers and other plan sponsors. The government will also feel the pressure of rising health care costs, as it provides health insurance to government employees, the elderly, the poor and the disabled, and subsidizes insurance for many people in the individual market. . At a time of rising wages, healthcare inflation further increases total labor costs, increasing the likelihood that companies will pursue automation or offshoring.

Employers have responded to health care cost increases in the past by shifting costs to members, which lowers costs for plan sponsors but exacerbates health care affordability issues at a time when many families have already struggling to pay for health care. Employees are increasingly willing to consider leaving their current employer, making the pursuit of cost shifting an undesirable approach.

In response, employers will use formularies to manage drug costs and direct members to lower-cost providers to manage medical costs. In addition, they will seek to better coordinate the care of the 5% of members with a critical illness who account for approximately half of total health care costs. Employers will likely continue to increase access to and engagement with mental health services. Alternative payment models such as bulk payment and capitation can reduce total cost by reducing usage. Service site restrictions can reduce total costs by directing patients to lower-cost facilities. Other options include value-based contracts and value-based insurance design that can increase utilization of high-value care and decrease utilization of low-value care.

Overall, employers and other health plan sponsors will need to return to constant vigilance and proactive strategies and programs that will allow them to prepare for the substantial health care cost increases to come over the course of of the next few years.

Jeff Levin-Scherz, MD, MBA. is Assistant Professor at the Harvard TH Chan School of Public Health and Managing Director and Population Health Leader of the North American Health and Benefits Practice at Willis Towers Watson. Follow him on Twitter @jlevinscherz

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