Here’s how health insurance is helping to cool inflation

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

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

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

The health data reflects factors such as consumers’ insurance premiums and benefits paid by insurers.

According to CPI data, health insurance costs had been rising steadily, within a range of about 1.5% to 3% per month since October 2021.

Now, costs are poised to fall by about 4 percent a month through September, said Jonathan Church, an economist at the Bureau of Labor Statistics, which publishes the CPI data.

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

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

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At the beginning of the Covid-19 pandemic, consumers used less health care as they did not go to see doctors or visit hospitals for elective procedures. This translated into higher profits as insurers were still collecting premiums.

Now, the economy has reopened and consumers are using their insurance more often. Aggregate benefits were down in 2021 relative to 2020 as insurers paid more insurance benefits and thus monthly inflation readings were negative.

“When we were in the middle of the pandemic and no one was having elective operations, [insurers] they were making a lot of money,” said Mark Zandi, chief economist at Moody’s Analytics. “But now they’re the other way around, and people are using health care services again.”

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

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

According to economists, the momentum is helping to temporarily hold down monthly inflation readings.

“It doesn’t change the story that inflation is moderating,” Zandi said. “It just moderates this story to a point.”

Consumers may see a “higher increase” in 2023 premiums

Since the CPI measure of health insurance inflation isn’t a direct measure of the financial impact on consumers, here’s what they can expect in 2023.

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

US employers expect average health insurance costs per employee to rise 5.4% in 2023, after a 3.2% increase in 2022, according to Mercer.

Consumers who get health insurance through the workplace 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 2021 amounts.

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According to the Department of Health and Human Services, premiums for Affordable Care Act plans are projected to increase by 4%, on average, by 2023.

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

The standard monthly premium for Medicare Part B is about $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 projected to be $43 next year, a 10 percent increase from 2022, KFF said.

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