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In an environment of high inflation, health insurance costs are doing the opposite: they have started falling and will continue to fall every month through the fall of 2023, economists predict.
Health insurance prices fell 4% in October and 4.3% in November, according to the CPI, a key gauge of inflation.
In comparison, the average price for all US goods and services rose 0.4% and 0.1% in October and November, respectively.
Health data reflects factors such as consumers’ insurance premiums and the benefits paid by insurers.
According to CPI data, health insurance costs have increased steadily since October 2021, within a range of about 1.5% to 3% per month.
Now, costs are likely to fall about 4% monthly through September, said Jonathan Church, an economist with the Bureau of Labor Statistics, which publishes the CPI data.
However, these deflationary dynamics may not align with consumers’ actual financial experience of health premiums. This drop in prices on paper is due to the unique way in which the BLS calculates health insurance inflation, economists said.
“That doesn’t reflect very well the prices that consumers will see,” said Andrew Hunter, chief US economist at Capital Economics.
Why health insurance prices are difficult to quantify
Pandemic health trends reversed inflation readings
At the start of the Covid-19 pandemic, consumers used less healthcare because they would not visit doctors or go to hospitals for elective procedures. This resulted in higher profits as insurers were still collecting premiums.
Now the economy has opened up again and consumers are using their insurance more often. Overall profits shrank in 2021 compared to 2020 as insurers paid out more insurance claims – hence turning monthly inflation readings negative.
“When we were in the middle of the pandemic and no one was getting elective surgeries, [insurers] made a lot of money,” said Mark Zandi, chief economist at Moody’s Analytics. “But now they’re on the other side and people are turning to healthcare services again.”
The BLS updates its success-related calculations once a year in October.
As a result, the health insurance CPI will remain negative through September 2023. There may be slight monthly fluctuations based on other inputs, such as the cost of hospital services, prescription drugs, medical equipment and supplies, home health care and nursing homes, Church said.
The momentum is helping to keep monthly inflation readings temporarily low, economists said.
“It doesn’t change the topline story that inflation is easing,” Zandi said. “It just moderates that story to a certain extent.”
Consumers could see a “higher increase” in premiums for 2023
Given that the CPI’s measure of health insurance inflation isn’t a direct measure of consumers’ financial impact, here’s what they can expect in 2023.
“As inflation continues to grow at relatively high levels, we could potentially see a higher increase in average premiums in 2023 than in recent years,” the Kaiser Family Foundation said in an October report on employer-sponsored health insurance.
U.S. employers expect their average health insurance cost per worker to rise 5.4% in 2023, after a 3.2% increase in 2022, according to Mercer.
Consumers who purchase health insurance through the workplace paid $1,327 in health premiums for individual insurance and $6,106 for family insurance in 2022, KFF said. The level is similar to 2021.
According to the Department of Health and Human Services, premiums for Affordable Care Act plans are expected to increase by an average of 4% in 2023.
It would be the first time ACA premiums have risen nationwide in many years, with insurers citing rising rates and recovering occupancy for most of the rise, KFF said. However, most consumers receive a subsidy on ACA premiums and are “largely shielded” from the increase, KFF said.
The standard monthly premium for Medicare Part B is about $165 in 2023, down from about $170 in 2022, according to the Centers for Medicare and Medicaid Services. But the median monthly Medicare Part D premium for prescription drugs is projected to be $43 next year, a 10% increase from 2022, KFF said.