Inflation is declining, but health premiums and medical costs are heading higher

WASHINGTON — During the pandemic, health care costs — usually a main driver of U.S. inflation — remained surprisingly stable, rising just about 2% annually even as prices for many goods and services soared more than three or four times that rate.

But signs are emerging that medical inflation is back as demand for non-COVID-19-related health services recovers and health care providers seek to make up for soaring labor costs and losses during the pandemic.

Prices for hospital services, the single biggest component of medical care, accelerated in December and even faster in January, to an annual rate of 5.5%, according to personal consumption expenditures data, the Federal Reserve’s preferred measure of inflation.

“Unfortunately, it’s going to be a problem that is pretty sticky in terms of consuming more and more of consumers’ pocketbook,” said Sunit Patel, chief actuary of health and benefits at Mercer, the consulting firm.

Consumer cost increases for nursing homes ran at a slightly higher rate of 5.7% over the past year; dental services rose even faster.

Hospitals are pressing for higher payments as their long-term contracts with medical insurers come up for renewal.

And greater market concentration caused by chains buying out smaller hospitals is helping to push medical inflation upward, as is the historically opaque nature of health care pricing.

“I’m very worried we’re looking at a big jump in [health insurance] premiums and out-of-pocket costs,” said Glenn Melnick, an expert in health economics and finance at USC.

Until recently, health care bills weren’t really a concern for Rex Thomas, a retired U.S. Postal Service maintenance mechanic who lives in Moreno Valley, Calif. They weren’t anything like his soaring gas and grocery bills, including the 40% more he’s paying to feed his two Siberian Huskies.

But even as inflation on many things has been declining, he’s noticed his health bills moving in the opposite direction.

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