Medical Inflation Outpaces CPI: What It Means for Workers’ Comp and Casualty Claims
By Pragatee Dhakal
Nearly every article addressing medical inflation and its effect on Property and Casualty (P&C) insurance claims begins with a reference to the broader trend of declining overall inflation. While the cooling effect of inflation has notably benefited the prices of goods and commodities, healthcare services remain significantly impacted. According to Peterson-KFF, in June 2024, the Consumer Price Index (CPI) for all urban consumers rose by 3.0% compared to the previous year, while medical care costs increased by 3.3%. When excluding healthcare services, the overall CPI growth was limited to 2.9%. This marked June 2024 as the first month since early 2021 where medical care prices had risen faster than the general inflation rate.
Additionally, over the span of the past two decades, the price of medical care and its subcomponents has escalated by 121.3%, compared to an 86.1% increase in the prices of all consumer goods and services. This disparity amounts to a 35.2% difference. Notably, healthcare expenditures accounted for 17.6% of U.S. GDP in 2023, underscoring the growing significance of healthcare costs within the broader economic landscape. As such, the acceleration of healthcare inflation presents significant implications for workers’ compensation and casualty bodily injury claims.
Here is a view of national health expenditures by year through 2023 as prepared by Peterson-KFF:
Factors Contributing to Medical Inflation
Several key factors contribute to the persistent rise in medical costs, including:
- Aging Healthcare Workforce: The Association of American Medical Colleges projects that within the next decade, 40% of the U.S. physician workforce will be aged 65 or older. Simultaneously, a shortage of up to 3.2 million healthcare workers is expected by 2026. The reduced availability of healthcare professionals drives up wages for medical staff, in accordance with the principles of supply and demand. These increased provider costs inevitably flow through to patients, including those involved in P&C claims.
- Increased Costs for Medical Equipment: The prices of medical equipment, parts, repairs and services are on the rise. Hospitals and medical facilities that rely on critical equipment face growing expenses. As with other cost increases, these higher expenses are ultimately passed down the line to payers, including insurance carriers.
- Hospital Care Price Fluctuations: According to a report published by the National Council on Compensation Insurance (NCCI) in April 2025, although medical prices softened meaningfully in the first quarter on the combination of several trends, with physician care inflation price changes smaller than in 2024, over time, higher supply costs for equipment and supplies may also lead to higher prices in physician services, facilities, and long-term care. Hospital outpatient care prices saw a moderate growth of about 4% in the last quarter of 2024, followed by an even more moderate 3% increase in the first quarter of 2025. Inpatient care prices rose by approximately 3% in 2024.
- Third-Party Bodily Injury Claims and Billing Irregularities: Third-party bodily injury claims are often reported late, with the demand package sometimes serving as the initial notice of a claim. These claims are frequently submitted using non-standardized forms, such as UB-04 or UB-92, which may lack necessary billing codes. This raises concerns about whether the charges submitted are inflated or exceed what is considered usual and customary for services rendered in a specific geographic area. In some cases, the answer to this question is affirmative.
- Increase in Medical Providers and Services per Visit: According to the Workers’ Compensation Research Institute, the number of workers’ compensation claims involving multiple healthcare providers has increased by 19% over the past five years. Additionally, the average number of services provided per medical visit has risen by 13% since 2017. The increased number of providers per claim, coupled with more services rendered per visit, results in higher costs per claim.
Implications for Workers’ Compensation and Casualty Claims
The rise in medical inflation presents significant challenges for P&C carriers. To manage these challenges effectively, insurance providers must leverage insights from claims data. By utilizing data-driven strategies, claims organizations can identify the most effective medical providers for each case, reduce medical costs, and improve claim outcomes for injured parties.
The adoption of advanced analytics tools will enable P&C carriers to navigate the complexities of rising healthcare costs. As healthcare inflation continues to outpace general inflation, carriers that utilize data-driven solutions will be better equipped to manage the financial pressures associated with rising medical expenses while ensuring that quality care is maintained for claimants.
By taking a proactive, data-informed approach, P&C insurance carriers can better position themselves to mitigate the financial impact of medical inflation, improve operational efficiency, and enhance overall claim outcomes.
As first seen in WorkCompWire
About Pragatee Dhakal
Pragatee Dhakal is the Director of Claims Solutions at CLARA Analytics, a leading provider of artificial intelligence (AI) technology for insurance claims optimization. Pragatee started her career as an insurance defense attorney. She then eventually transitioned into claims, working for several carriers, most recently serving as AVP of Complex Claims. Pragatee received her Juris Doctorate from Hofstra University School of Law and is licensed to practice in the State of New York.
