Inflation, Ozempic predicted to jack up health care costs

Surging prices for hospital services, mental health treatment and prescription drugs will raise medical insurance costs, according to a top accounting firm, which says rates are ballooning at the fastest pace since the dawn of Obamacare.

PricewaterhouseCoopers International Ltd. estimates that the cost of health insurance provided by private employers will jump 8% next year.

That’s the sharpest increase since 2012, when PwC found costs for the employer-sponsored health care market rose 8.5% two years after the Affordable Care Act became law and began lowering prices.

Company officials said they tracked annual price increases of 9% to 12% from 2007 to 2010, a steep pace that helped push the ACA through Congress. Annual increases then slowed gradually to 5.5% in 2017.

PwC’s Health Research Institute blames the latest spike on runaway inflation in hospital expenses, an explosion of mental illness and sharp demand for pricey diabetes and weight loss medications.

“It’s almost the perfect storm, with the highest cost increase we’ve seen in 13 years,” said Philip Sclafani, a New York-based partner in PwC’s pharmaceutical and life sciences practice. “Everything is going up at the same time.”

PwC contacted actuaries at more than 20 health care plans representing 100 million privately insured workers to inform its estimates.

More modest cost increases are expected for Medicaid and Medicare, according to the Centers for Medicare & Medicaid Services.

CMS said a recent Medicare change that caps out-of-pocket spending on prescription drugs at $2,000 annually per person should ease the pain for enrollees starting next year.

Industry analysts told The Washington Times that prices usually rise faster in the commercial market than on the government side, but everyone — Medicare recipients and Americans on private insurance plans — can expect higher out-of-pocket co-pays, deductibles and monthly premiums.

KFF, an independent health care policy think tank formerly known as the Kaiser Family Foundation, reported this month that insurers participating in the Obamacare program will raise premiums by an average of 7% next year.

The report blames rising hospital expenses and the skyrocketing popularity of Ozempic and similar diabetes and weight loss drugs.

Gerard Anderson, a health care policy and management professor at Johns Hopkins University, said hip replacements that cost $25,000 to $35,000 before 2020 will likely cost up to $45,000 in some large cities next year.

With out-of-pocket costs running 2% to 5%, a new hip for a privately insured patient could soon top $2,250.

Mr. Anderson predicted similar increases for medical services in San Francisco, Pittsburgh, Philadelphia and other metro areas where one or two hospital systems with near monopolies on the local market have raised prices beyond what inflation requires.

“Many hospitals are doing well financially, accumulating large reserves and building up their endowments on top of paying the bills and raising salaries,” Mr. Anderson said. “For a defibrillator or hip replacement, you don’t see the price, so you won’t see the cost increase until you get the bill after you’re discharged from the hospital.”

Mr. Sclafani of PwC said hospital operating expenses have risen across the board. Increased living costs are pushing medical providers to raise prices. In some cases, medical workers at short-staffed facilities are striking to compel higher wages.

“It’s the rising cost of inflation, labor and everything in the hospital setting,” he said. “As that’s happening, we’re also seeing a continuous rise in mental health services with the wider availability of telehealth.”

‘Healthflation’

Diabetes drugs such as Mounjaro and Ozempic are poised to fuel premium increases. Many think Congress will pass legislation allowing Medicare to cover overweight and obese patients using spinoffs of these drugs to suppress appetites.

Economist Markus Bjoerkheim, a research fellow at George Mason University’s free market Mercatus Center, pointed to estimates that show 3.6 million people could be eligible for the class of drugs known as GLP-1s under Medicare next year.

“If an insurance company expects to be spending more on GLP-1 medications for their members next year, then the additional cost will need to be reflected in higher premiums for all members, regardless of whether they use Ozempic or not,” Mr. Bjoerkheim said. “You might refer to this as ‘healthflation,’ with GLP-1 medications driving the increase in prescription drug spending.”

The Food and Drug Administration approved Ozempic as an insulin-boosting treatment for Type 2 diabetes in 2017. In 2021, the agency added Wegovy, a version approved for weight loss treatment, without obliging insurance companies to cover it.

Both are made by Novo Nordisk, a Danish company. The drugmaker has exclusive rights to sell Ozempic in the U.S. through 2031 and has spent millions of dollars on advertising and lobbying to expand its market.

Patients pay a monthly premium of $300 to $1,300 out of pocket for the drug, which costs about $35 to manufacture.

Mr. Bjoerkheim calculated that if even 360,000 people next year use Medicare to cover Wegovy, which costs about $1,350 per month, it will result in an annual premium increase of $81.65 per person for all 50 million Medicare beneficiaries.

A Novo Nordisk spokeswoman touted Wegovy as “the only weight management medicine that is also approved to reduce the risk of major adverse cardiovascular events” in heavy patients with heart problems.

“Novo Nordisk believes the most effective way for the millions of Americans who need obesity care to be able to access and afford them is to ensure these medicines are covered by government and commercial insurance plans,” said Jamie Bennett, the company’s media relations director.

The FDA approved a rival GLP-1 drug, Mounjaro, for Type 2 diabetes treatments in 2022. Its maker, Eli Lilly & Co., reported an explosion in sales, and the FDA approved another drug from Eli Lilly, called Zepbound, for weight loss in November.

A study published last month in JAMA Internal Medicine noted that patients using Ozempic lost at least 5% of their body weight within a year. Patients receiving Mounjaro were more likely to lose 10% to 15%.

Yet the study found a “high rate of discontinuation,” with 55.9% of Mounjaro patients and 52.5% of Ozempic patients quitting the drugs within a year.

Critics say the much-hyped medications are difficult to tolerate, do nothing for the heart problems of patients who do not exercise and require lifelong use to maintain an ideal weight, which increases the risk of severe side effects such as stomach paralysis.

Calley Means, co-founder of TrueMed, an Austin, Texas-based company that prescribes diet and exercise plans for weight loss, said the pharmaceutical industry knows the drugs do little beyond increasing their profits. He pointed to a J.P. Morgan estimate that U.S. obesity rates will increase even as more people use the drugs.

“It would be against the pharmaceutical industry’s economic interests to push a drug that lowers rates of chronic disease or health care costs,” said Mr. Means, a former lobbyist for the food and pharmacy industries. “The industry makes more money when more Americans get chronic diseases that can be managed for life.”

Inflationary pressures

Shortages and labor strikes among health care workers are also driving up costs.

Thousands of front-line workers walked off their jobs, citing burnout, and demanded higher wages after COVID-19 overwhelmed hospitals in 2020.

Hospitals account for the bulk of rising medical prices, and roughly 70% of all hospital spending goes to employee salaries.

PwC’s report said hospital services “saw a significant uptick in the most recent two quarters, hitting 6.3% growth in the fourth quarter of 2023 relative to the fourth quarter of 2022.”

Additionally, more Americans of all ages have sought mental health treatment for an uptick in anxiety and depression since the end of COVID-19 lockdowns.

Psychologists say the growing availability of telehealth over the past four years has helped overcome a shortage of behavioral health providers in many areas of the country.

“People seeking services who did not do so in the past means more expense for the insurance carriers,” said Thomas Plante, a clinical psychologist and member of the American Psychological Association.

Mr. Plante, a professor at private Santa Clara University in Northern California, said an hour of psychotherapy with an outpatient therapist now costs more than $350 in Silicon Valley. He blames insurance companies rather than therapists for dictating prices.

“Frankly, I don’t believe the inflation excuse,” he said. “I think it is more due to corporate greed. The health insurance industry is very profitable, and health care providers all feel more and more squeezed to do more for less.”

Seeking solutions

President Biden, who is not seeking reelection, has focused on lowering health care costs, particularly what consumers pay out of pocket for insulin and prescription drugs. Vice President Kamala Harris, the Democratic presidential candidate, and former President Donald Trump, her Republican rival, have pledged to do the same heading into November’s election.

The White House estimated Thursday that taxpayers will save $6 billion in the first year of its Medicare drug price negotiation program. The program will knock down the costs of at least 10 drugs starting in 2026 before expanding to 15 drugs in 2027 and, incrementally, more drugs in successive years.

“It’s a relief for the millions of seniors that take these drugs to treat everything from heart failure, blood clots, diabetes, arthritis, Crohn’s disease, and more — and it’s a relief for American taxpayers,” the president said.

Yet anyone expecting health care costs to decline, generally, will likely be disappointed. For one thing, many Americans aren’t practicing healthy behaviors, leading to the overuse of medical services.

“People are spending more money than ever on their health care, often with expensive insurance plans that don’t pay for everything,” said Katy Talento, a former Trump policy adviser and executive director of the faith-based Alliance of Health Care Sharing Ministries, which shares medical costs as an alternative to insurance.

In April, KFF reported that national health care spending totaled $4.5 trillion in 2022, or 17% of the U.S. gross domestic product.

The San Francisco-based nonprofit noted that spending “is projected to grow faster than GDP through 2031, contributing to higher costs for families, employers, states, and the federal government.”

Political pressure to compel solutions is lacking, given the breadth of problems confronting voters.

Mr. Sclafani, at PwC, said rising health care costs are usually a key election-year issue but have fallen to “somewhere in the middle of voters’ concerns” because of larger worries about the economy and general inflation.

“We’re not hearing as much about ‘Medicare for all’ like we did in the last election cycle,” Mr. Sclafani said. “We’re hearing more about reducing prescription drug costs. But the dominant issue this cycle doesn’t seem to be health care.”

Experts say prices are unlikely to decline, given current insurance practices and available policy solutions. At best, they say, costs will rise more slowly after the current bump passes.

“In 40 years of working in this field, I’ve never seen health prices go down because there’s no incentive for hospitals to lower their prices,” said Mr. Anderson, the Johns Hopkins professor. “They can fill their beds and sell their drugs without anyone in the marketplace telling them anything.”

• Tom Howell Jr. contributed to this report.