You have seen–and likely felt–the effects of inflation begin to take root across the nation. From the gas pump to the grocery store, inflation is beginning to take a toll on nearly every part of your life; but it has not hit your insurance or medical costs–yet. We have sent up flares consistently and for good reason, most directly in our podcast episodes and in my blog post last month.
Inflation is now pushing toward 9% and registering levels not seen in the average American’s lifetime. While groceries and electric bills are both up about 12%, for example, healthcare has only increased by 4% over the year. In fact, healthcare costs have risen less over the past 12 months than any other entry on the Consumer Price Index.
None of this is a surprise, of course, given the hedges built into the contracting processes between healthcare providers and payers. What will be a very big surprise for some–and an unwelcome one at that–is the $100 billion in healthcare costs that will flood into the market once the contracting hedge expires and the dam that’s been holding back the inflationary surge breaks in the coming months.
As previously noted, the major question ahead is less about if or when the healthcare industry will be hit by this $100 billion inflationary adjustment, but rather about who will shoulder the burden of these backlogged expenses.
As it happens, the answer to that question has become a lot clearer in the last 30 days, which is why employers and employees are adjusting to bear the brunt of these additional expenses.
Rate filings have started to be filed for small groups with less than 100 lives in most states and for individuals; those increases are 2-3X larger than the rate increases absorbed last year. For example, Washington state reported an average requested rate increase of almost 7.2%, or approximately double the year prior.
Looking around the nation on rate filings for 2023 to date, it is astounding:
The rate of change for a small group is usually mirrored by large employers. Large, self-funded plans will not be immune from feeling these industry-wide effects. Large, self-funded employers “rent” a network from an insurance carrier. That carrier negotiates rates with years-long lifespans, and they too should be expecting to see a similar doubling in rate increases. If you saw an increase of 2%-4% last year, preparing for a 4%-8% increase this year is a safe bet.
Apply that average to the $1.3 trillion-plus in annual employer healthcare spending in the U.S., and you’ve got $100 billion-plus in increased healthcare expenses we have been forecasting.
Employers have time to act, but that window is closing little by little each day. Consider the game of chess. Chess can be broken down into three fairly distinct segments: the opening, the middle, and the endgame–each segment sets up the next.
We are nearing the end of the opening game. Rates are being aggregated and filed; positions are being laid out. In this chess match of determining from whose bank accounts this projected $100 billion in additional healthcare expenditures will be drawn, we are nearing the end of the opening segment.
Middle game sets up the end game. If you wait until Q4 to address these issues, you will be too late. A grandmaster with a vested interest might tell you at this point in the cycle, you need to have your pieces out on the board instead of hidden in the back row.
Put your queen into play, pressure the other side, and control the board. Act now.
This situation plays out over the next 90 to 120 days. Do not miss the game by standing on the sidelines. If you do, your fate is inevitable, and you will pick up an overwhelming share of the $100B+ increase that is coming.
It has been proven time and again that your insurance advisor has a much greater impact on the cost and quality of your plan design than your carrier. If you plan now, you save later. $100B in increased costs is coming, and the question of how much of that burden you will have to bear is being decided at this very moment.
If you have not already, it’s time to get in the game for 2023.
Looking for more exclusive content? Check out what’s trending on the Mployer Advisor blog, and be sure to catch the latest episode of This Week in Benefits.
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