It usually takes a year or more for the supply chain bottlenecks and rising wages that drive up prices to factor into the contracts that dictate what consumers and insurance plans pay.
Rising health care costs are poised to become the next big battle in President Joe Biden’s war against inflation. It’s unlikely he’ll be able to declare victory in time for a 2024 reelection bid.
Economists, business leaders and health care industry experts are warning that the wage, revenue and supply chain pressures that hammered the margins of hospitals and clinics during the pandemic are about to send health coverage and out-of-pocket medical bills through the roof.
The Federal Reserve Bank of Dallas last month estimated that the rate of health care inflation will almost double between mid-2022 and mid-2023 as insurance starts to factor in surging labor costs for hospitals and health networks.
A dramatic spike in the cost of health insurance — which would be felt by consumers, businesses and government alike — would represent a major challenge to Biden’s post-midterm agenda as he navigates a fractured political environment and deep economic challenges that show no signs of abating. It could spell trouble for Democrats who’ve long been able to lean on their record of expanding health care access and reducing costs in brutal policy battles with Republicans.
While White House officials say the president and Democratic leaders have already taken meaningful steps to address the problem — the Inflation Reduction Act Biden signed in August included Obamacare subsidies and prescription drug pricing rules that could be a salve to sticker shock — health care advocates and budget hawks say that won’t be enough to remedy a significant deterioration in the affordability and quality of health coverage.
“This is going to be something where consumers feel a pinch — for real,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan deficit reduction think tank. “I don’t know anybody who is taking the lead on this issue.”
The consequences of a prolonged spike would be stark. Once inflation hits employer-sponsored insurance plans, workers whose wages struggled to keep pace with rising prices might be forced into decisions about how they access care. Government institutions whose budgets are already laden with expensive health benefit plans for public employees and retirees might be forced to cut costs or approve rate hikes that would enrage organized labor.
White House officials are bracing for health care-related inflation to get worse but are taking a view that the pain won’t last long. Jared Bernstein, a member of the president’s Council of Economic Advisers and a longtime Biden confidante, acknowledged in an interview that health care costs will climb in the near term but “we also see them ameliorating after a few quarters.”
The White House is banking on cost-cutting measures in the sweeping health care and climate law that Biden signed into law in August. More steps could also be taken through Medicare and Medicaid to bring down costs.
“If you look at what this president has done, and will continue to do to ease pressures on family budgets when it comes to health care costs — whether we’re talking about prescription drugs, insulin coverage through the exchanges, supporting Medicare and Medicaid — when our opponents want to put those on the chopping block every few years? I think there’s just no comparison,” Bernstein said.
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