Sleeper Inflation Issue: Health Costs

BY GREG IP

Food and energy get the spotlight, but there’s another source of inflation on the minds of voters who headed to the polls on Tuesday: health insurance.

At first glance, there ought not to be much to see here. The government’s broadest measure of health inflation was 3% in the third quarter, right in line with its six-year trend.

Most of people’s healthcare costs are picked up by their employers or the federal government. What consumers see is what those payers pass on: premiums, deductibles, copays and uncovered services.

According to a survey of employers by KFF, a health research and news organization, average premiums rose 5% this year. This was actually less than employers’ own healthcare costs, which rose 6.4% in the third quarter from a year earlier, the fastest in at least a decade, according to the Labor Department.

Employers responded to higher costs first by having workers contribute more via deductibles or premiums, cost-sharing for specific services, prior authorization for some services, or changed plans or providers. Contribution increases averaged 16% for individuals and 9% for families, KFF found. (Individuals buying insurance through Obamacare exchanges are coping with steep increases because of a loss of subsidies.)

Second, raises became skimpier. Private wages rose just 3.1% in the third quarter from a year earlier, the slowest in five years, the Labor Department reported last week. This may solve a labor-market mystery. Given low unemployment and brisk inflation, why weren’t wages growing faster? Because the money is going to benefits instead.

If health prices don’t explain rising employee and employer costs, what does? KFF says it isn’t insurers’ profits or overhead. People may be consuming more healthcare, such as expensive weight-loss drugs. This, though, has yet to show up in faster growth in the volume of health services consumed.

Whatever the reason, expect this to land in the lap of whichever party emerges victorious.

This appeared in the WSJ Economics newsletter. To subscribe to the newsletter, go to wsj.com/newsletters.

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