Surging health care costs are emerging as a major threat to President Biden’s re-election hopes, with the rate of inflation on prices expected to nearly double by the middle of next year.
According to the Federal Reserve Bank of Dallas, the rate of health care inflation will jump to 3.9% in the second quarter of next year — up from 2.1% in this year’s second quarter — as insurance companies price in soaring labor costs.
Researchers project that health care inflation will remain above 3.5% through 2024 as the US presidential election gets into full swing.
“Health care inflation has been around 2% since 2022, close to its pre-pandemic level,” the Dallas Fed said in the report released last month. “This is likely to change, however, given the recent pace of rising wages for health care workers.”
Americans who are already shouldering the burden of record-high levels of inflation that has made everyday staples such as food, gas and housing significantly more expensive are likely to blame the incumbent president and his party for soaring medical bills, experts said.
They doubt the White House’s belief that the recent health care and climate law that was signed by the president, the Inflation Reduction Act, will bring down health care costs. The law authorizes the Biden administration to negotiate Medicare drug prices while also requiring pharmaceutical companies to pay inflationary rebates when raising the price of drugs at a rate that surpasses inflation.
“It’s like squeezing the air in a balloon with a knot in it,” Stephen Stanley, chief economist at bond trading firm Amherst Pierpont, told Politico. “If the government tries to squeeze providers, they’ll try to pass that on to insurance companies, who are forced to respond.”
“It’s not clear that the economy as a whole gets lower medical prices as a result,” he said.
Health care providers saw revenues dip and costs soar during the COVID-19 pandemic, when patients put off expensive elective procedures. Those providers will now look to make up for those losses by passing the costs on to the consumer.
The effects of a tight labor market are also bound to drive up wages for health care professionals.
“We’re definitely hearing about rising supply costs and we’re also seeing reports about a tight labor market for health professionals, especially nurses, and the general impact of inflation on wages,” Kris Haltmeyer, vice president of legislative and regulatory policy for the Blue Cross Blue Shield Association, told Politico.
“The impact of these negotiations on insurance premiums really will be something that is phased in over a couple of years.”
Wholesale prices rose higher than forecast last month, according to a report released Wednesday by the Bureau of Labor Statistics.
The producer price index, which gauges the average change in the selling prices that domestic businesses receive for their output, rose by 0.4% in September and 5.6% from a year ago.
Prices for US consumers jumped 8.3% in August from a year earlier. That followed annual increases of 8.5% in July and 9.1% in June. Economists predict the Consumer Price Index rose 8.1% in the 12 months ended in September.
The Labor Department will announce the CPI change for September on Thursday.
Since Biden entered the White House, headline inflation has soared by more than 13%.
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