Here’s how health insurance helps cool inflation

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In an environment of high inflation, health insurance costs are doing just the opposite: They have begun to decline and are poised to continue falling each month through the fall of 2023, economists predict.

Health insurance prices fell 4 percent in October and 4.3 percent in November, according to the consumer price index, a key gauge of inflation.

By comparison, the average price of all US goods and services rose 0.4% and 0.1% in October and November, respectively.

Health data reflects factors such as consumer insurance premiums and benefits paid by insurers.

Health insurance costs are rising steadily, in a range of roughly 1.5% to 3% per month through October 2021, according to CPI data.

Spending is now poised to decline by about 4 percent per month through September, said Jonathan Church, an economist at the Bureau of Labor Statistics, which issues the CPI data.

However, this deflationary dynamic may not match consumers’ actual financial experience with health care premiums. That drop in paper prices is due to the unique way the BLS calculates health insurance inflation, economists said.

“It’s not a very good reflection of the prices that consumers are going to see,” said Andrew Hunter, senior U.S. economist at Capital Economics.

Why health insurance prices are hard to quantify

Pandemic health trends have reversed inflation readings

At the start of the Covid-19 pandemic, consumers used less health care because they would not see doctors or visit hospitals for routine procedures. This led to higher profits as insurers were still collecting premiums.

Now the economy has reopened and consumers are using their insurance more often. Aggregate earnings contracted in 2021 from 2020 as insurers paid out more insurance claims — and therefore monthly inflation readings turned negative.

“When we were in the middle of the pandemic and no one was having elective surgery, [insurers] they were making a lot of money,” said Mark Zandi, chief economist at Moody’s Analytics. “But now they’re on the flip side of that, and people are using medical services again.”

The BLS updates its earnings-related calculations once a year, in October.

As a result, the health insurance CPI will remain negative until September 2023. There may be slight monthly fluctuations based on other inputs, such as spending on hospital services, prescription drugs, medical equipment and supplies, home health care, and nursing homes , Church said.

The momentum is helping to temporarily contain monthly inflation readings, economists said.

“It doesn’t change the underlying story that inflation is slowing,” Zandi said. “It just softens that story to some degree.”

Consumers may see “bigger increases” in premiums for 2023

Given that the CPI measure of health insurance inflation is not a direct measure of the financial impact on consumers, here’s what they can expect in 2023.

“As inflation continues to rise at relatively high levels, we could potentially see a larger increase in average premiums for 2023 than we have seen in recent years,” the Kaiser Family Foundation said of employer-sponsored health insurance in October report.

U.S. employers expect their average health insurance costs per employee to rise 5.4% in 2023, after a 3.2% jump in 2022, according to Mercer.

Consumers who get health insurance at work paid $1,327 in health premiums for single coverage in 2022 and $6,106 for family coverage, KFF said. The level is similar to the amounts in 2021.

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Premiums for Affordable Care Act plans are expected to jump an average of 4% in 2023, according to the Department of Health and Human Services.

It will be the first time in many years that ACA premiums have risen nationwide, with insurers citing rising prices and utilization reimbursements for most of the increase, KFF said. Most consumers, however, receive a subsidy for ACA premiums and are “largely shielded” from the increase, KFF said.

The standard monthly premium for Medicare Part B is approximately $165 in 2023, down from about $170 in 2022, according to the Centers for Medicare and Medicaid Services. But the average monthly Medicare Part D premium for prescription drugs is estimated to be $43 next year, a 10 percent increase from 2022, KFF said.

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