Medical Inflation

At the 2023 WCRI Annual Conference, Dr. Olesya Formenko from WCRI talked about how medical inflation impacts workers’ compensation.

Growth in the Consumer Price Index from 2020 to 2022 was much higher than in previous years, averaging 6.4%. The average growth in the eight years prior to that was 1.6%. The price increases seen in housing, food, and energy were even higher.

On the medical side, the CPI for medical and healthcare services was lower than the overall inflation in the last three years. This is a reversal of the prior eight years, where medical inflation was higher than overall inflation. Hospital Inpatient and Outpatient care have been the highest component in medical inflation for many years. In addition, medical inflation in states without fee schedules is consistently higher than states with fee schedules. 31 of the 44 states with fee schedules are based on a multiplier of Medicare reimbursement rates.

Several states have a mechanism for updating fee schedules tied to inflation rates. Some states utilize a Medicare conversion rate, others use the CPI for medical, and some are linked to the general CPI. In 2022 there were several states where their fee schedule increases were higher than the CPI for medical care, with increases as high as 10%.

Looking specifically at hospital outpatient charges over the last 10 years, the cumulative growth across all study states for this was 20%. The rate was 43% in states where the provider received a percentage billed, higher than states with NO fee schedule, which saw 39% growth.

Going forward, there is expected to be increased inflationary pressure on workers’ compensation medical costs due to a labor shortage of healthcare professionals, leading to significantly higher wages. In addition, as pricing contracts expire, there are expected to be significant price increases. There tends to be a lag in healthcare inflation because of these existing pricing contracts.