Providers, insurers and employers will all face health care inflation costs

Employers, patients or taxpayers could be on the hook for hundreds of billions of dollars in additional health spending if providers and insurers successfully shift those inflation-driven costs, according to a recent McKinsey analysis.

Why it matters: The health care sector’s profits are severely at risk, per the analysis. But key players could yet dodge the bullet coming their way.

By the numbers: The analysis predicts a $370 billion increase in U.S. health expenses by 2027, thanks to rising labor and supply costs.

• McKinsey also surveyed health care leaders, who reported an expected drop in margins between 25 and 75%. This “could necessitate drastic responses,” per the analysis.

Between the lines: These rising costs will initially be borne by providers. It will likely take years for them to shift costs to commercial insurers or the government through contract negotiations or changes to federal reimbursement.

• Insurers will attempt to pass along their increased costs to employers, who will then have to decide whether to pass along the costs to workers.

Yes, but: “Rate increases are unlikely to offer a way out,” the authors warn.

• “While they may seem like the easiest path, payers recognize that price increases beyond historical levels are unsustainable; therefore, other actions will be needed. The actual financers of healthcare — employers, government, and consumers — can’t afford more than historical levels of increase, if that.”