Health care inflation outpaces CPI, pressuring consumers
The latest Consumer Price Index data for May also underscores a persistent rise in hospital and related services, signaling escalating cost pressures for health care consumers. The index for hospital services surged by 3.9% over the past year, significantly outpacing the general inflation rate of 2.4% over the last 12 months, indicating that health care costs are rising faster than general prices.
The current inflation rate does not account for the increasing costs from vendors due to tariffs impacting supplies and equipment. Long-term contract arrangements have temporarily shielded the health care sector, with vendors absorbing those costs. However, these escalating costs will eventually be factored in when contracts are up for renewal and likely passed on to providers.
For consumers, this potentially translates into higher out-of-pocket expenses, even for those with insurance, as deductibles, co-pays and premiums are influenced by these underlying cost escalations. This trend underscores enduring pressures within the health care sector, driven by factors such as labor costs and supply chain disruptions, ultimately affecting health care affordability for the average consumer.
The anticipated rise in health care costs is exacerbated by a historic trend of an increasing medical debt. A Gallup poll revealed that 12% of U.S. adults borrowed an estimated $74 billion in the past year to cover health care costs for themselves or a household member. According to the U.S. Census Bureau, the average medical debt per household rose to $18,600 in 2021, up from $12,430 in 2017. With increasing inflationary costs and rising medical debt, this may leave many to delay or skip necessary preventative care.
The takeaway
The persistent upward trend in CPI, potentially exacerbated by future tariffs, and increasing medical debt, signals affordability challenges and will increasingly affect health care organizations’ ability to provide care, as well as consumers’ ability to participate in care. This underscores the need for innovative payment solutions, such as flexible payment plans with 0% interest, installment payments and alternative models like bundled payments and reference-based contracting, to address affordability challenges.
Learn more about what’s happening in health care in our industry outlook.
