Why your healthcare is about to get a lot more expensive

• Some of the forces making groceries more expensive will also make your health-insurance bill go up.
• Supply-chain and labor shortages, along with pent-up demand, are increasing costs for healthcare.
• Health-insurance premiums are expected to rise by around 10% in some states.

Americans are probably tired of everything getting more expensive. But they might be in for more bad news as healthcare costs rise.

The cost of medical care has risen by 6% in the last year, and the scars of the pandemic are likely to make it even more expensive. Healthcare premiums are on a similar upward trajectory, with Aon projecting that employer insurance-coverage costs will rise by 6.5% in 2023. Premiums could rise even more in 2024 as higher healthcare costs settle in and get passed down to consumers.

The big, swift changes the healthcare space made during the early days of the COVID-19 pandemic are now coming home to roost. We're now in a situation characterized by shortages, overwhelming demand, and rising labor costs. That means you're going to pay more for healthcare — whether it's routine procedures getting more expensive as your doctor tries to buy more equipment and staff up, or as your health-insurance premiums rise.

"I don't see the shortages being fixed in the short term," Carri Chan, a professor at Columbia Business School and the faculty director for the healthcare and pharmaceutical-management program, told Insider. "It's going to take some time before we even get back to where we were pre-pandemic, and even then there were shortages."

Price hikes might not take effect immediately, but they're on their way. You can thank people flocking back to the doctor, more expensive equipment, and surging labor costs for your higher future bill. We unpack each of those forces in-depth below.

There's significant pent-up demand for healthcare

When the pandemic hit, Americans took shelter and hospital beds filled with COVID patients, so prospective patients put lots of non-emergency care on hold.

Nearly half of American patients said they were postponing or skipping medical care at the onset of the pandemic, according to a KFF Health Tracking Poll. Now, patients are ready to resume care and catch up on all of the procedures they pushed off. According to a McKinsey survey of hospital leaders, patient volume was ticking back up toward 2019 levels as of February.

"Elective surgery is something that brings in a lot of revenue for hospitals," Chan said. "But that was one of the first things to get paused or postponed in the early part of the pandemic. Volume has increased, but it's still lagging and hasn't made up for that shortfall."

Equipment costs are climbing

Healthcare isn't immune to the rising cost of goods or the ailing supply chain.

A McKinsey analysis estimated that non-labor costs, which include supplies and personal-protective equipment, could rise by up to $110 billion in 2027 — and that cost hike will "likely become permanent."

The cost of medical-care commodities — which, according to the Bureau of Labor Statistics, includes "prescription drugs, nonprescription over-the-counter-drugs, and other medical equipment and supplies" — has risen by 5.5% over the past year.

"Healthcare requires a lot of different resources and supplies to provide the care, whether it's medication, devices, even just things like masks and gloves and sheets for beds," Chan said. "Because of, generally, the strain on supply chains, there have been more delays in terms of getting supplies. It's more costly to get supplies, and it is even more costly to get those supplies in a timely manner."

For patients, soaring supply costs are already showing up at the pharmacy: 1,216 different prescription drugs saw their prices rise faster than inflation from July 2021 to July 2022, according to a study from the Department of Health and Human Services. And some drugs were up to $20,000 more expensive — a 500% increase.

Labor costs are rising across the board

Job openings in healthcare are still elevated, and well above pre-pandemic levels, according to Fitch. At the same time, 2.3% of the healthcare and social assistance workforce quit in August 2022. Put simply, the industry is struggling to stay staffed and fill open jobs, raising costs.

"Labor costs are also going up substantially, and labor costs actually comprise about 50% of expenses for hospitals, so that's a very substantial impact on overall expenses," Chan said.

Becky Schachter, a nurse with University of Wisconsin Health, has been in the field for 25 years. She said that experienced nurses just keep leaving and that she's never seen this many vacancies.

"It's put a huge strain on the rest of us that are there," Schachter said.

One nurse she spoke to had been offered a job 20 minutes outside of Madison. She was getting a dollar more an hour to be on staff there with comparable benefits.

"Because so many providers have been leaving the profession or leaving patient-facing roles, there's a lot of shortages, and to make up for those shortages there's been incentive pay put into place," Chan said.

That's led to high temporary labor costs for healthcare providers.

And the workers who keep hospitals and healthcare centers running, like receptionists and janitors, might be able to find higher pay and better benefits at places like Amazon warehouses, meaning that healthcare firms have to scramble to hire them and pay them more.

Consequently, hospital employees have seen their wages grow by 21.1% since February 2020, according to Fitch Ratings. Everyone else has gotten an average raise of 13.6% in the same period of time.

All told, according to McKinsey, labor shortages in healthcare might cost $170 billion in 2027 — most of which will be powered by wages getting higher.

"Is that cost going to eventually get transferred over to the patients?" Chan said. "It's hard to say right now, but it seems believable that it would."