What Will Happen With Health Costs in 2023

Higher drug costs are likely to accelerate health insurance premium increases.

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Health insurance premiums and drug costs will rise a bit more than usual in 2023. Ed Kaplan, senior vice president of The Segal Group, expects health insurance premiums to pick up 7% to 8% in 2023, slightly more than the 6% average yearly increase seen over the past several years. The main difference between 2023 and previous years will be higher prescription drug costs, which will jump 10%, the highest in the past ten years.

There are two main reasons: First, pharmaceutical companies are introducing better, but more expensive, drugs for a number of important conditions. For example, a new drug to treat HIV is more effective, but it is also twice the cost of the previous treatment. In most years, the total drug cost would be tempered by other brand-name drugs that were being replaced by generics, but in 2023 there are fewer of these than usual.

Second, pharma companies are raising the prices they charge to private health insurance plans. This is because they anticipate having to lower the prices they charge to Medicare. The Inflation Reduction Act which was passed in 2022, allows Medicare to negotiate drug prices for the first time. Currently, only 10 drugs are on the negotiation list, but these are widely used. The list will rise to 20 drugs in later years.

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There is a bit of good news in all the gloom: The “No Surprises” Act that went into effect in January of 2022 is already having its intended effect of lowering surprise out-of-network charges to hospital patients, according to early data.

David Payne
Staff Economist, The Kiplinger Letter
David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.