The pandemic and the inflationary impact on the healthcare system

The pandemic has exposed vulnerabilities in our healthcare system and the economy as a whole, and the impacts are driving up healthcare spending and the cost of care.

The outbreak of COVID-19 has caused an increase in demand for clinical health services. At the same time, the extenuating circumstances of the pandemic have limited physical access to care. At the same time, the government’s response to the pandemic included massive increases in public spending on medical services and products.

As a result, health care revenues from employer-sponsored plans fell sharply following a decline in health service utilization as providers canceled elective care and patients practiced social distancing. avoiding health facilities.

In retrospect, the pandemic has revealed vulnerabilities in our health care system and economy at large, and the impacts are driving up health spending and the cost of care.

A Temporary Sugar High – The Inflationary Impact of Stimulus Checks

The American Rescue Plan Act of 2021 (American Rescue Plan), signed into law in early March 2021, provided tens of millions of Americans with checks under the COVID-19 relief bill. How effective have these stimulus checks been? Some argue that money may have fueled inflation and led many to a false sense of financial relief and empowerment. Researchers at the Federal Reserve Bank of San Francisco found that the stimulus may have raised US inflation by about three percentage points by the end of 2021.

Now, years later, a near-confirmed national recession coupled with an ever-increasing rate of inflation has doctors and patients concerned about the “next stage” in terms of healthcare inflation and what will add to their financial stress. All have good reason to worry. Year-on-year inflation, as estimated by the consumer price index, remains at 8.2% in September 2022.

The reality of the recession – The US economy is slowing down

Changes in gross domestic product (GDP) are the most frequently cited indicator of economic activity. In the United States, 2022 GDP declined at an annual rate of 1.6% in the first quarter of 2022 and 0.6% in the second quarter. The Bureau of Economic Analysis released its advance estimate of Q3 GDP at an annualized rate of 2.6%, potentially leaving economic growth on track to be marginally positive for 2022.

Either way, how will the slowdown in economic activity be different this time around? While rising in nominal dollars, Americans continue to pay only a small percentage of medical costs as out-of-pocket expenses. In other words, on average, and averages can be misleading, Americans pay out of pocket only about 10% of the cost of all medical services received. Thus, while cost sharing remains virtually unchanged in percentage terms, because the cost of medical services continues to rise, workers must allocate an increasing share of their take-home pay to cover their contributions to the cost of coverage, as well as their expenses. pocket charges.

Increase in health insurance premiums and renewals

During the open enrollment period, employers and employees are increasingly concerned about the potential for significant increases in renewal premiums and increases in point-of-sale cost sharing. Some public exchange increases will exceed 10%, premiums for federal employees will increase by 8.7%, and employer-sponsored coverage is expected to increase by 6.5%. A large portion of American workers are financially fragile. Nearly three-quarters of workers surveyed confirmed that they live paycheck to paycheck and would have difficulty or significant difficulty meeting their financial obligations if their next paycheck is delayed by a week (not missed, but delayed and delayed a week only)! Many are unprepared for regular household expenses, let alone unexpected medical bills.

A review of insurance rate hikes

Most of the plan premium changes insurers are asking for for 2023 are between 5% and 14%. Health reform requires a review of public exchange rate increases of more than 10% to 15% to ensure they are based on reasonable cost assumptions and sound evidence. No such review applies to employer-sponsored plans.

HHS expects the cost of health coverage in the public exchange to decrease for policyholders, although the total cost of coverage will increase, as most public exchange coverage costs are paid by policyholders. taxpayers. This is one reason why few Americans sign up for market exchange hedging unless they qualify for taxpayer financial support. As part of the Reducing Inflation Act, the Senate passed a three-year extension of enhanced subsidies for people buying their own health coverage through the Affordable Care Act markets. These temporary grants were originally intended to last two years (2021 and 2022) and were passed as part of the US bailout. And, because the Inflation Reduction Act extends the enhanced grants for three years rather than permanently, future Marketplace enrollees may see their premiums increase significantly each time the enhanced grants expire.

At the start of the pandemic, Congress enacted the Families First Coronavirus Response Act (FFCRA). This legislation included a requirement that Medicaid programs keep individuals permanently enrolled until the end of the month in which the COVID-19 public health emergency (PHE) ends. On October 13, 2022, U.S. Department of Health and Human Services Secretary Xavier Becerra extended the COVID public health emergency an additional 90 days through January 11, 2023. The Biden administration has indicated that it would provide 60 days notice before terminating the PHE. Most expect the emergency to end in early 2023. When it does, between 5 million and 14 million of the current 89 million Medicaid recipients will lose medical coverage. As millions may have returned to work, employer-sponsored coverage will be discontinued due to large mid-year enrollments.

We expect medical providers, hospitals, physicians, drug manufacturers and others to increase prices in 2023 to minimize the impact that inflation and enrollment disruptions will have on their medical practice. To counter these and other inflationary trends, we recommend that plan sponsors:

  • Amend their health coverage to add protections for participants against excessive provider charges, and
  • Provide health savings account-compatible coverage so those who don’t overinsure can take advantage of the tax benefits available to build savings.

Making such protections and coverage options available to workers is increasingly part of a “health and wealth” strategy that optimizes both savings and financial preparedness.

Christine Cooper is CEO of aequum LLC and co-manager of Koehler Fitzgerald LLC, a law firm with a national practice. Christine leads the firm’s healthcare practice and is dedicated to assisting and advocating for plans and patients.

Jack Towarnicky is a member of aequum LLC. As an ERISA/Employee Benefits planning and compliance attorney, Jack has over forty years of experience in human resources and plan sponsor leadership roles.


Add Comment