For Biden, health care inflation is coming

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The next major front in President Joe Biden’s fight against inflation will be rising health care prices. He probably won’t be able to announce his triumph in time to run for office again in 2024.

The same labour, revenue, and supply chain pressures that pounded hospital and clinic margins during the pandemic are about to drive up health coverage and out-of-pocket medical costs, according to economists, business executives, and industry specialists in the health care sector.

The Federal Reserve Bank of Dallas predicted last month that as insurance begins to take rising labour costs for hospitals and health networks into account, the pace of healthcare inflation will virtually double between mid-2022 and mid-2023.

Consumers, businesses, and the government would all be affected by a sharp increase in health insurance costs, which would provide a significant obstacle to Biden’s post-midterm agenda as he navigates a polarised political landscape and severe economic problems that don’t seem to be getting any easier. It might be problematic for Democrats, who have historically been able to rely on their track record of lowering costs and increasing access to healthcare in bitter policy conflicts with Republicans.

The Inflation Reduction Act, which Biden signed in August, included Obamacare subsidies and prescription drug pricing rules that could be a sop to sticker shock, according to White House officials, but health care advocates and budget watchdogs say that won’t be enough to reverse a significant deterioration in the affordability and quality of health coverage.

Consumers will actually feel the pinch as a result of this, according to Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan think group on deficit reduction. “I am not aware of anyone taking the initiative on this problem.”

The results of a persistent rise would be severe. Workers whose incomes struggled to keep up with rising prices may be compelled to make decisions about how they obtain care if inflation affects employer-sponsored health plans. Government agencies may be required to make cost-cutting decisions or authorise rate increases that would anger organised labour because their budgets are already overloaded with pricey health benefit plans for current employees and retirees.

White House officials anticipate a rise in healthcare-related inflation, but they believe the pain will pass quickly. Longtime Biden ally and member of the president’s Council of Economic Advisers Jared Bernstein stated in an interview that although health care prices are expected to rise in the near future, “we also see them ameliorating in a few quarters.”

The expansive heath care and climate package that Biden signed into law in August relies on cost-cutting provisions, according to the White House. Additional cost-cutting measures could be implemented through Medicare and Medicaid.

If you consider what this president has done and will do to ease the strain on family budgets when it comes to health care costs — whether we’re talking about prescription drugs, insulin coverage through the exchanges, or supporting Medicare and Medicaid — when our opponents want to take those away every few years? There’s just no resemblance, in my opinion,” Bernstein added.

Outside of the White House, economists contest Bernstein’s predictions.

Stephen Stanley, chief economist at the bond trading company Amherst Pierpont, compared it to squeezing the air out of a balloon with a knot. “If the government tries to pressure providers, they’ll try to pass it on to insurance companies who are obligated to react,” said the speaker.

It’s unclear whether this will lead to decreased medical costs for the economy as a whole, he continued.

Inflation in the health care industry was formerly quite low when compared to other economic sectors like consumer goods and rental housing. But only because it typically takes a year or more for supply chain snags and wage increases to affect contracts that determine what consumers and insurance companies spend for health care.

The epidemic exacerbated long-standing labour shortages in the healthcare industry, pushing hospitals and nursing homes to increase their pay for physicians and support staff as their facilities dealt with an unending influx of Covid-19 patients. As suppliers handled global shutdown orders and were forced to deal with completely destroyed shipping networks, the price of common drugs and basic medical supplies, such as masks and personal protective equipment, also increased.

When Covid was at its height, many Americans put off necessary care and pricey elective operations, which weakened provider income at a time when their essential expenditures were surging. When health care providers renew their contracts with private insurance companies and organisations supported by the government, the combined effect is increasing the pressure on them to agree to higher prices.

According to Kris Haltmeyer, vice president of legislative and regulatory policy for the Blue Cross Blue Shield Association, “we’re definitely hearing about rising supply costs and we’re also seeing reports about a tight labour market for health professionals, especially nurses, and the general impact of inflation on wages” in those contract negotiations. “These agreements definitely will have an influence on insurance premiums over the course of a number of years,”

By 2024, when Biden has indicated he would run for reelection, the Dallas Fed predicts that insurance companies and customers will be paying more for healthcare. This might present another challenge for Federal Reserve Chair Jerome Powell in his ongoing fight to control inflation.

The head of Bain & Company’s health care practise in the Americas, Joshua Weisbrod, stated that structural shortages will take a lot longer to fix regardless of how the government and the Federal Reserve combat inflation in the larger economy. “That could lead to some future inflation that is pretty sticky.”

The Fed will need to pay close attention to that.

The primary inflation indicator of the central bank, the Personal Consumption Expenditures Price Index from the Commerce Department, is significantly impacted by health care costs.

In the upcoming months, the Consumer Price Index, another carefully monitored indicator, is expected to indicate decreases in health care spending. The methodologies used by CPI, however, do not completely account for what employers or government programmes spend on healthcare. Officials from the White House claim that they are closely monitoring both internal forecasts and what is most likely to be reflected in PCE.

Health care advocacy groups and organised labour groups are beginning to raise concerns about how rising costs may influence health benefits and consumer out-of-pocket expenses.

There is a danger that certain employer-sponsored plans may become prohibitively expensive for employees as premiums grow to cover rising provider costs, Commonwealth Fund Senior Scholar and Vice President Sara Collins warned reporters at a briefing last month. As an alternative, some companies may begin implementing higher deductibles and cost-sharing policies.

Government plans are also experiencing the effects. Following approval of a plan to raise public employee rates by 20% by the state’s health benefits committee, which cited inflation and increased use of healthcare services, Democratic leaders in New Jersey are now dealing with the fallout of a serious political problem.

The largest federal employee union, the American Federation of Government Employees, criticised the 8.7% premium hike that members and retirees will have to pay for coverage in the upcoming year in September.

Physician and senior adviser at the Peterson Center on Healthcare Jay Want stated that “prices ratchet higher but nearly never ratchet down.” “It moves the topic of affordable health care to the top of the discussion. If the economy does see a slump through the end of 2022, into 2023, and into 2024, affordability will become a major problem.

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