From food to fuel and education to entertainment, the factors that trigger inflation in America seep into almost every part of our lives in one way or another. With an aging U.S. population creating higher demand for health care services and more than 50 million people serving as unpaid caregivers, inflation can squeeze a strained budget even tighter. So, we turned to our Ask an Expert panel and asked the question on every caregiver’s mind: Will inflation affect the cost of health care?
Stephen J. Landersman, CFPR, President, Unifi Advisors LLC
Inflation has reared its ugly head once again. No matter who or what you blame – COVID, the great resignation or the war in Ukraine – it’s impacting us all. The most recent CPI inflation rate of 7% doesn’t tell the entire story. Inflation in health care has exceeded 14%. Increasing labor costs are one of the main drivers, especially in assisted living and nursing home arenas. Unlike the cost of food or gas that can get cheaper as supplies return to normal, health care cost increases tend to stick. As Boomers age, the cost of care will continue to get more expensive. We can expect health care inflation to continue the trend of doubling the CPI for the foreseeable future.
Unlike the cost of food or gas that can get cheaper as supplies return to normal, health care cost increases tend to stick.
Most economists expect increased inflation for at least the remainder of the year. We’ve had a long period of low inflation over the last two decades. When planning for retirement, people need to remember to consider these economic events that can shrink their purchasing power in unexpected ways. Like food and heat, rising health care costs such as higher premiums and larger deductibles are examples of expenses you can’t avoid. Your financial plan needs to account for the future, not just today’s expenses.
Your financial plan needs to account for the future, not just today’s expenses.
Deborah Adeyanju, Senior Advisor, GRID
With inflation running at multi-decade highs, it’s hard not to wonder what that means for health care costs. Here are a few reasons to expect the jump in prices elsewhere in the economy to be reflected in health care costs:
- Over the past few decades, and through different economic environments, health care costs have outpaced inflation.
- Health care is not insulated from the pandemic-driven price increases playing out in other areas of the economy. Data from the American Hospital Association (AHA) as well as other sources paint a clear picture.
Staffing shortages are driving up labor costs. Eventually those will be passed on to consumers. Medical supply costs have also jumped—hospitals and other health care providers are likely to pass those on to consumers, as they have done in the past.
Related Reading: Why more caregivers are turning to in-home physical therapy
Health care prices do not jump instantaneously the way gas prices do. There is likely to be a lag before consumers see significant changes in the prices they pay for health care. That’s thanks to the fact that most health care costs are negotiated/set through a contractual process (think Obamacare and employer-provided plans and the annual premium-setting process). But you should expect to see these higher costs feeding through soon.
Health care prices do not jump instantaneously the way gas prices do… But you should expect to see these higher costs feeding through soon.
Arvette M. Reid, Client Services Director, Lifecare Affordability Plan
Families should expect the cost of long-term health care to increase dramatically due to inflation, but for reasons they may not be thinking about. Prior to COVID, affluent seniors who wanted to age in place in their homes assumed they had the wealth to access and pay for care whenever the time came. However, post-COVID these same wealthy families who are now looking for caregivers to help in the home are having a very difficult time finding home care aides or home health providers to meet their needs.
Both COVID and inflation have influenced frontline caregivers to either stay home to take care of their families or leave the industry altogether and seek jobs, some in other sectors, paying higher wages. This translates into a reduction in the caregiver workforce, causing agencies to increase salaries in hopes of retaining their staff. As a result, agencies are increasing the fees families are paying for this service.
For example, in the last two years, health care agencies are charging higher hourly rates and requiring longer minimum blocks of time. This shortage of caregivers also affects senior housing communities. They are competing for the same reduced caregiver workforce as the agencies providing services in the home. We have seen move-in fees at assisted living communities jump from $5,000 to $10,000, or monthly rental fees increase by an unprecedented 10%.
Brandon Steele, CFP, ChFC, Financial Planner, CEO and Co-founder of Mainsail Financial Group
Inflation is that very subtle, hidden, silent killer regarding our finances. The best way to describe inflation is that too much money (demand) is chasing too few goods (supply). Although we have all felt the impacts of this silent assassin, inflation is felt across many areas.
We have felt these impacts weigh even more heavily in health care for a while now. Looking forward, I believe this trend in health care costs may continue. Given the growing population of aging adults and with more individuals needing some level of long-term care assistance, it seems likely that inflation will continue to impact the health care costs for all of us for many years to come. With that said, however, there may be ways to prepare for these rising costs. Investing in vehicles such as HSAs or Roth IRAs may allow tax-free access, which may be extremely important if health care costs continue to climb.
…it seems likely that inflation will continue to impact the health care costs for all of us for many years to come.
Jennifer Prescott, RN, MSN, CDP, COO and Founder of Blue Water Homecare and Hospice
All eyes are fixed on the increased demands of goods and services post-pandemic. We are already seeing costs rise for food, gas, transportation and housing. In addition, the cost to hire and maintain employees in all sectors is rising. Hospitals and health care companies are forced to pay top dollar for contractors and employees required to meet the care needs of our communities. Although reimbursement for health care services through Medicare will remain stable, more people are choosing to “work to live” vs. “live to work.” Americans may need to choose between health care and other essentials for living. This may result in less people with health insurance, which will increase the number of uninsured or underinsured seeking acute care.
The impact of inflation on the private health care sector could be severe. The gap will widen between private and public reimbursement leading to higher overall costs for health care services. Contracts with insurance companies and Medicare and Medicaid result in fixed reimbursements to home health and hospices. It is likely we will see private pay rates and health insurance premiums increase because of rising labor and operating costs.
It is likely we will see private pay rates and health insurance premiums increase because of rising labor and operating costs.
What does this mean for seniors in 2022 and beyond? According to a study by the Peter G. Peterson Foundation, the United States spends more than $3.8 trillion on health care in 2019 and more than $4.1 trillion in 2020. Inflation impacts the purchasing power of seniors on a fixed income. Although Social Security beneficiaries have received a cost-of-living adjustment to their monthly checks, this will not cover the increased costs of food, gas and services including health care and medications, which becomes more expensive as we age. It is important to recognize that families may have to adjust their spending to ensure they have the financial resources necessary to pay for essentials such as housing, food, clothing, utilities, gas and health care.