Employers: Plan Now for Health Care Inflation to Affect Your 2023 Budget

August 1, 2022

It only takes a trip to the gas pump (or the grocery store) to remind us how inflation is affecting our daily lives. The latest consumer price numbers from the U.S. government show us that last month inflation rose 8.6 percent from a year ago, the highest increase since December 1981. It’s no surprise that surging food, gas and energy prices all contributed, with fuel oil up 106.7 percent over the past year.

That’s what we’re feeling today, but what about in the future, specifically health care costs? According to an article from McKinsey & Company, we can expect hospitals to seek significant increases because of high wages, supply chain pressures and general inflation.

Health care inflation historically has been about two to five times that of the Consumer Price Index over the last two decades. If history repeats itself, we could see a jump of 17 percent at the minimum, once higher prices go into effect.

McKinsey predicts this could play out in two steps: Health care providers will want higher reimbursement rates, and payers will pass along higher costs to employers and consumers. It could mean reduced health care benefits and higher out-of-pocket costs for consumers.

On top of that is the expected increase in nursing shortages. McKinsey references a 2021 survey of hospital executives, which showed nearly a third of nurses surveyed saying they may leave their current positions. Higher wages to keep personnel, plus high costs to train new staff, all factor into the inflationary snowball that continues to gain momentum.

The Kaiser Family Foundation recently surveyed decision makers at more than 300 large private employers on health insurance. In that survey, 49 percent “moderately,” 28 percent “considerably” and 6 percent “strongly” agreed that the cost of health benefits is excessive. And this was before inflation started to take a toll on costs across the board.

The solutions to high health care costs, according to those surveyed, ranged from capping hospital prices, limiting out-of-network charges and negotiating or limiting drug prices. Overall, respondents said a greater role for government to provide coverage and contain health care costs would be better for their business (83 percent) and better for employees (86 percent).

Fortune magazine article states employers must take the lead to control health costs through leveraging buying power, aggregated purchasing and leveraging costs of health care-adjacent services, such as pharmacies. Leveraging buying power works best with large companies, as the largest purchasers — typically those with 5,000 to 10,000 employees or more in a specific region — may have the scale and resources to contract directly with health care providers for better pricing, according to the article.

As for aggregated purchasing, some employers have attempted to recapture market power by joining forces with other businesses. Pooling the employees and family members they insure and negotiating contracts with local health care providers creates strength in numbers.

Finally, employers can leverage their buying power to get better prices for pharmacy benefit management (PBM), analysis of their health care trends and spending, or even flu vaccines.

Companies will need to be creative to lower health care costs. At a time when employee retention is so important, offering affordable health care solutions will be key to keeping your best employees on the job.

Our specialized divisions and services at Oswald meet the needs of employers and associations across diverse markets and industries. We can deliver on world-class services in data analytics, health management, compliance, education and engagement, population risk management, employer support and more to help your company fight the rising costs of health care.

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To learn more or discuss your employee benefits program, visit our Employee Benefits page or contact:

Brad Heter, CIC
Employee Benefits Advisor



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