Many factors could drive up health care costs

The combination of COVID-19 pandemic relief expiring, along with health care staff shortages, inflation and other general population health challenges, could continue to drive up health care costs over the next several years.

With emergency declarations and emergency use authorizations now phased out, the federal government is no longer covering all costs for COVID-19 vaccinations, tests and treatments. Also ending are some waivers for Medicaid and Medicare coverage, as well as for certain prescriptions that were previously available via telehealth.

In Massachusetts, the MassHealth insurance program has begun an extensive year-long audit to redetermine eligibility for about 2.3 million people. Because pandemic waivers have ended and eligibility requirements have tightened up again, an estimated 300,000 MassHealth members are expected to be found ineligible and be dislocated from the system. As this happens, municipalities (and other employers) could see an influx of new health care plan subscribers — including both employees and family members — which could impact employer costs.

Meanwhile, an increased use of contract staff by hospitals has driven up costs. According to an American Hospital Association report in April, 95% of health care facilities across the country reported hiring nursing staff on a contract basis during the pandemic. In January 2022, hospitals spent a median of 38.6% of their nursing staff budget on travel nurses — up from 4.7% in 2019 — and the hourly rates charged to hospitals by contract firms rose by more than 200% during the same time period. In Massachusetts, hospitals paid $1.5 billion to contract staff in fiscal 2022, up 154% from the previous year.

Supply chain issues and the cost of materials are making medical devices more expensive as well, which also increases health care costs. The U.S. Bureau of Labor Statistics reported last December that the price index for medical supplies manufacturing rose to 3.4% in 2022, more than twice the rate of the previous year.

The general health of the population is also playing a role in health care costs. A recent federal government report showed that average life expectancy in the U.S. has declined to the lowest it has been in two decades, driven by a variety of factors including lifestyle behaviors, social factors, the physical environment, and public policies. Having an unhealthier population costs an estimated $100 billion per year in health care costs in the U.S.

During the pandemic, many people put off routine health screenings such as mammograms, colonoscopies and regular check-ups. A Deloitte Insights analysis last fall pointed out that, because of these delays in preventive care, some patients turn to higher-cost health care settings like emergency rooms because their condition has worsened.

COVID itself has also affected many people, particularly those with chronic conditions, leading to further strain on the health care system. Demand for behavioral health services also increased dramatically over the last few years. For example, visits for anxiety disorders increased by 47.9% from 2019 to 2022.

Planning is key
For municipal governments, higher health care costs must be factored into planning. Just one addition to a town’s health insurance rolls could add more than $30,000 to its annual health care budget, according to Chris Bailey, director of the MIIA Health Benefits Trust.

“Municipal governments should be prepared to budget for higher health care costs and additional enrollees,” he said. “Because rates are set in advance, health cost increases can have a delayed effect, meaning we could see the impact of general inflation and other cost factors over the next several years.”

Considering cost pressures that will be added to already constrained municipal budgets, Bailey advises municipal leaders to be wary of individuals or entities pitching low-cost health plan solutions. While some of these solutions may look good on the surface, they may not be backed by appropriate underwriting, and the premium rates may not be guaranteed to cover the full cost of claims, leaving the municipality with a large deficit of claims due at the end of the year. Bailey said entities promoting these plans often do not provide written contracts that specify what the customer is purchasing.

“In these times of greater fiscal challenges,” he said, “it is more important than ever to exercise due diligence.”

Municipalities can also encourage employees to make sure they are back on track with routine care and preventive health screenings, and taking advantage of employee wellness programs, Bailey said. Employers and employees should be aware of all the resources available to them from their health plan provider, including disease management and mental health assistance, as these programs can lead to better health outcomes and, in turn, lower costs.

Written by Jennifer Ranz, a freelance writer