Health care costs were a main driver of inflation in September

Kimberly Adams Oct 27, 2023
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By the end of the decade, health care is expected to account for about a fifth of the U.S. economy. Joseph Prezioso/AFP via Getty Images

Health care costs were a main driver of inflation in September

Kimberly Adams Oct 27, 2023
Heard on:
By the end of the decade, health care is expected to account for about a fifth of the U.S. economy. Joseph Prezioso/AFP via Getty Images
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Friday’s PCE report was chock full of interesting details, including the drivers of inflation in September in both goods and services. Taking up space in both those categories: health care. On the services side, that was hospitals and nursing homes. On the goods side, prescription drugs.

When it comes to health care, the personal consumption expenditures price index doesn’t just track what you’re paying at the doctor’s office or the pharmacy.

“The PCE is actually showing the total that both consumers pay out of their wallet but also what their health plan is paying,” said Krutika Amin, a policy expert at the nonprofit health research organization KFF.

Amin said there is a time lag in this data, but it shows the significant role health care plays in the rising cost of living.

“This year, health care made up about 18% of the U.S. economy. By the end of the decade, health care is expected to make up about a fifth of the U.S. economy,” Amin said.

In large part, those rising costs are the result of changing demographics.

Katie Smith Sloan is president and CEO of LeadingAge, which represents nonprofits that provide aging services. She said that although we have better treatments for afflictions like Parkinson’s and dementia, “people are also living longer with those diseases, and therefore the kind of care that they need, it’s intensive, it’s very personal and it’s delivered over a long period of time.”

And it’s getting more expensive over time.

Despite that, in the past year or so health care costs have been rising more slowly than inflation in the rest of the economy, said Leighton Ku, who directs George Washington University’s Center for Health Policy Research.

“But we expect that to sort of revert back to normal patterns over the next couple of years,” Ku said. The normal pattern being health care costs rising faster than almost everything else.

In the future, he said, “we expect that health care prices overall will be rising a little more than 4% per year. And we hope that overall inflation or other goods goes back down below that level. But of course, you know, it’s an uncertain world.”

And in a time marked by war, volatile energy prices and climate change, that uncertainty isn’t limited to the economics of drugs and hospitals.

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