For Better or Worse, Inflation Isn’t New to Health Insurers

For the first time in decades, inflation was in the headlines, and its impact was being felt throughout the US economy and household budgets. Affordability has been a challenge in health care for decades, and now the issue is magnified with across-the-board prices increasing inside and outside the industry.

According to PwC’s Health Research Institute, health care inflation hit 6.5% in 2022. In January 2023, the US Bureau of Labor Statistics released its Consumer Price Index 2022 review, showing percentage increase from December 2021 to December 2022. Prices for medical care and hospital and related services all rose more than 4%, and health insurance rose nearly 8%.

However, overall inflation eased a bit in December, although that is just a single month. What 2023 will look like—a soft landing or a broader, steeper fall into an economic slowdown—is still being scrutinized.

The truth is, the government can’t wave a legislative wand to curb all the effects of inflation; and there isn’t a whole lot of policy makers can do to halt rapidly rising prices. In health care, payers, providers and patients must work together to bring costs down.

For better or worse, the health care industry has been dealing with inflationary pressures for many years, with the rising costs for specialty prescription drugs, new technologies for diagnosis and treatment, and ever-increasing demand, particularly among an aging population.

We have to work together to curb inflation on two important fronts: moving past the traditional fee-for-service payment model and expanding the health care workforce to meet the growing demand for care.

We need a system that rewards health care providers for keeping patients healthy instead of simply treating them when they’re sick. Unlike fee-for-service, a “value-based” model focuses on prevention and wellness care, addressing health issues before they become chronic and costly; it offers patients a more coordinated health care experience, integrating mental health care into primary care; and it rewards providers for meeting cost efficiency and quality metrics.

Here in my state, Blue Cross and Blue Shield of North Carolina (Blue Cross NC) launched Blue Premier in 2019, a payment model that now includes 11 of the state’s largest health systems. The first 3 years of Blue Premier generated nearly $500 million in savings, with corresponding increases in health outcome measures like increased colorectal screenings and blood pressure stability.

We’re pleased with our progress in moving away from fee-for-service to a more sustainable system. In the long run, savings derived from value-based care and other cost-containment measures likely won’t be sustainable without industry-wide investment in building the capacity of the health care workforce.

North Carolina was already facing a nursing shortage well before the more recent nurse exodus of the COVID period. And a study by the University of North Carolina’s Cecil G. Sheps Center for Health Services Research notes that the problem in our state is only getting worse. Over the next decade, North Carolina will face an estimated shortage of more than 12,000 registered nurses. The shortage of licensed practical nurses will be even more pronounced.

The health care industry must invest in its workforce – a short-term cost that will bring long-term results in the form of lower overall health care spending. Expanding the capacity of providers to meet the demand for health care will mean more patients are able to get the prevention and wellness care that can prevent chronic, costly health problems.

We need to slow down the increase in demand for care and we need more practitioners to meet the demand for care. Embracing a value-based payment system and investing in expanding the health care workforce are two important ways to blunt the impact of inflation. And we can’t afford to wait any longer.

Mitch Perry is senior vice president and chief financial officer (CFO) of Blue Cross and Blue Shield of North Carolina and is responsible for financial services, treasury, investment management, tax, financial and business planning, cost management, workplace resources, and strategic sourcing . He has been CFO since April 2016. Perry joined Blue Cross and Blue Shield of North Carolina in 2012.

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