There was one topic prominently missing from last night’s debate – Obamacare and soaring US healthcare costs- and with good reason: with most middle-class Americans suffering as a result of surging premiums, and even the Obama administration admitting, if only behind the scenes, that Obamacare needs a major overhaul, why tempt the presidential candidates with a topic that would sour the public’s mood about the defender of the status quo on the first debate.
After all, anyone who points out all that is wrong with Obama’s recovery is “peddling fiction.”
Unfortunately, its omission from the debate does not mean it is going away. On the contrary, as the following analysis from SocGen shows, what may now be the most important topic for not only the well-being but also the wallet of America’s middle class – as well as the presidential debates – is only going to get worse.
As SocGen writes, the jump in medical care services this year has been driven “in large part by soaring health insurance premiums, but more recently, both physician and hospital services prices have accelerated. In August, hospital services prices in particular soared, notching their largest increase since October 2015. In short, rising out-of-pocket payments and perhaps higher insurance reimbursements could continue to drive the medical care services index higher this year.”
The details:
In August, the core CPI climbed by 0.25%, with about 41% of that increase coming from a 1.0% surge in the cost of medical care, which was driven largely by a 0.9% rise in the medical care services gauge. Health insurance costs continued to accelerate, rising by 1.1% (the data are only on a not seasonally adjusted basis) in the month and by 9.1% yoy, the fastest rate of growth since December 2012. While in recent months rising health costs were mostly the result of health insurance, more recently, and especially in August, other components of the medical care services index have begun to accelerate.
Most of the 0.9% jump in medical care services in August was due to a 1.7% increase in the cost of hospital services. Hospital services accounted for about 46% of the increase in total medical care services, and they accounted for around 19% of the total rise in the core CPI. That is a hefty contribution from a component that makes up about 2.8% of the core index.
So what is driving these hospital services costs higher?
Like other components of medical care services, the hospital services index measures the cost of providing certain services to patients. That cost includes not only out-of-pocket payments by consumers but reimbursements to hospitals for services provided. Those reimbursements are set by contracts with health insurers.
Frankly, it is not clear exactly why the hospital services index surged as much as it did in August, but it may be the case that reimbursements to hospitals accelerated when new contracts were established this year. In fact, those contracts typically go into effect in January or July, so higher reimbursement rates set in July may have filtered into the CPI in August. On a yoy basis, the hospital services index increased 6.2% in August, the fastest rate of growth since May 2014.
In addition to higher reimbursements, consumers are paying more out of their own pockets. A shift to high-deductible health insurance plans in recent years means that consumers are contributing more to the cost of health care. According to a recent report by the Kaiser Family Foundation, approximately 29% of workers are in high-deductible plans, up from 20% two years ago. Moreover, worker contributions for health insurance for a single individual rose by 5.4% this year compared to a 0.9% drop in 2015. Thus, higher out-ofpocket payments by consumers could also be contributing to the acceleration in medical care services.
SocGen also notes that while it may be tempting to dismiss the August increase in hospital services as a temporary blip, data from the PPI also back up the recent jump. In August, the PPI index measuring hospital inpatient costs for privately insured individuals climbed by 1.0%, in line with the CPI’s inpatient index, which registered a 1.1% NSA advance. Meanwhile, the PPI index measuring hospital outpatient prices for those with private insurance jumped by 2.0% in August, somewhat higher than the CPI’s 1.4% NSA advance. Both the PPI and the CPI show noticeable increases in hospital services prices in August.
Worse, the geographic distribution of the pricing surge shows that some regions were impacted far more than others. In August, medical care services prices in the South surged by 1.2% NSA, the biggest increase in any August since at least 1990. Medical care services in the South region make up about a third of the national medical care services index, but the 1.2% jump in August made up 54% of the rise in the national medical care services measure. Again, the cause is not certain, but here again the Kaiser Foundation data provide a clue. Worker contributions to health insurance for a single person increased by 9.3% in 2016 compared to a 10.0% decline last year, so it seems that higher out-of-pocket payments may be in part to blame for the acceleration in the cost of hospital services.
In summary: given the rise in out-of-pocket payments by consumers, increases in medical care services will continue to push the medical care index higher in the coming months.
When? Recall that as we reported in May, many consumers won’t see actual insurance rates until the insurance marketplaces open Nov. 1 — a week before they go to the polls. Could the sticker shock from the Obamacare price increase be the real catalyst that forces millions of “undecided” Americans to vote for the candidate who promises to eliminate Obamacare?
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