Recent government releases on price trends suggests that health care and health insurance prices are increasing at a relatively low rate. The Bureau of Labor Statistics, which produces the regular consumer price index reports, most recently said that in the 12 months ending in July, health care prices only increased 3.3% and health insurance prices actually declined four-tenths of a percent. It is this kind of unbelievable nonsense that lowers people’s trust in government statistics. Does anyone out there believe that their health insurance premiums have actually declined, or that health care prices are only increasing at that reported rate? Anyone who works in health care knows that hospitals, health systems and physicians are increasing prices rapidly, as they seek to cover their own much higher labor and other costs.
A more realistic appraisal comes from the Altarum Institute, a health care data and analytics firm which regularly tracks health care spending, prices and utilization. The Altarum report starts with the basic BLS number of 3.3%, but gives more detail under the cover that reveals the reality of higher prices. Medicaid prices for hospital services rose 6.9% and for physician services, 14.1% over the past year. Private insurance hospital costs rose 4.5%. Medicare price rises, which are dictated by government, were lower, but that is politically unsustainable. On an actual prices paid basis across all services for all payers, I suspect the truth is that prices are rising an average of 5% or more. The rise in health insurance premiums is itself evidence of this, as higher prices are a primary driver of increases in those premiums.
Consistent with projections from other similar firms, large health benefits consulting firm Aon is projecting that employers will experience a 9% increase in their health plan costs in 2025. The increase is said to be due to higher utilization and higher prices and to be particularly concentrated in drug costs. This is following a 6.4% increase in 2024. While most employers pick up the largest portion of premiums and increases in those premiums, some does get passed on to employees. Employers also tend to increase cost-sharing amounts, like deductibles and copayments. And all economists agree that higher health benefit costs suppress wage growth. Those higher health benefit costs also lead to higher prices for the employer’s products and services.
So as is often the case, official statistics are less than trustworthy. The reality appears to be substantial increases in both health care prices and health insurance premiums. Those increases have economy wide impacts, as health care is almost 20% of the economy.
Kevin Roche runs The Healthy Skeptic, a website about the health care system, and has many years of experience working in the health care industry. If you have health care-related questions, you can contact Kevin at xuebpur@urnygul-fxrcgvp.pbz and he may answer the question in a column. Read more from Kevin Roche at his website: healthy-skeptic.com
Kevin Roche
Kevin Roche runs The Healthy Skeptic, a website about the health care system, and has many years of experience working in the health care industry.
