Inflation Could Add $370B to National Health Expenditures by 2027

Analysts' report offers dire predictions for healthcare cost growth.

Higher-than-projected inflation is fueling healthcare cost growth and could add another $370 billion to national healthcare expenditures within five years, according to a report from McKinsey & Company.

That additional spending could balloon to $600 billion by 2027 when factoring in a possible recession and the lingering disruptions caused by the COVID-19 pandemic.

Before COVID-19 shuttered the global economy, Centers for Medicare & Medicaid Services' Office of the Actuary projected that national healthcare expenditures would grow at a rate of 5.5% through 2027.

However, the McKinsey analysis shows that the additional costs associated with the pandemic would push up the rate of NHE growth to 6.8%, about 2.5 percentage points above forecasted GDP growth.

"These are not in the Office of the Actuary's projections yet, but if you take their baseline, what they would have said is $370 billion more of cost," says Shubham Singhal, a senior partner at McKinsey.

In turn, that additional cost would be foisted on employers, who Singhal says will pass the cost to employees.

"We did a survey recently asking employers if they were to see price acceleration, what would they do?" Singhal says. "Anything that is 4% or higher, almost all of them said they're going to pass it on to their employees."

Singhal says a separate McKinsey poll of healthcare executives predicted 9% cost growth.

"That's a pretty big differential," he says. "If we get all the cost growths we've talked about employers are not going to be willing to just absorb those."

The report also predicts that:

• COVID-19 healthcare labor shortages will continue to rise post pandemic, with shortages of 200,000 to 450,000 registered nurses and 50,000 to 80,000 physicians by 2027;
   
• Through 2027 an estimated 100 million COVID-19 cases per year will add $222 billion in national healthcare expenditures.

The report says the healthcare sector can address the cost growth through care delivery transformation, improved productivity, technology enablement, and organizational growth and transformation.