Understanding the Impact of High Inflation: Insights for Universal Health Services Employees and Retirees

Healthcare Provider Update: Healthcare Provider for Universal Health Services: Universal Health Services, Inc. (UHS) operates as one of the largest healthcare providers in the United States, managing a vast network of over 400 acute care hospitals and behavioral health facilities. It offers various services across both sectors, catering to a diverse range of medical needs. Potential Healthcare Cost Increases in 2026: In 2026, Universal Health Services employees may face significant increases in healthcare costs, as various external factors continue to exert pressure on the insurance market. With anticipated record premium hikes in the Affordable Care Act (ACA) marketplace-some states reporting increases over 60%-if existing enhanced federal subsidies expire, over 22 million enrollees could see their out-of-pocket premiums surge by as much as 75%. Concurrently, rising medical costs driven by surges in hospital and pharmaceutical expenses will likely compel employers, including UHS, to adjust their benefit structures, potentially shifting more financial responsibility onto employees. This convergence of forces makes 2026 a pivotal year for healthcare affordability. Click here to learn more

In March 2022, the Consumer Price Index for All Urban Consumers (CPI-U), the most common measure of inflation, rose at an annual rate of 8.5%, the highest level since December 1981. ¹  It's not surprising that a Gallup poll at the end of March found that one out of six Americans considers inflation to be the most important problem facing the United States. ² 

When inflation began rising in the spring of 2021, many economists, including policymakers at the Federal Reserve, believed the increase would be transitory and subside over a period of months. One year later, inflation has proven to be more stubborn than expected. It may be helpful for Universal Health Services employees and retirees to look at some of the forces behind rising prices, the Fed's plan to combat them, and early signs that inflation may be easing.

Hot Economy Meets Russia and China
The fundamental cause of rising inflation continues to be the growing pains of a rapidly opening economy — a combination of pent-up consumer demand, supply-chain slowdowns, and not enough workers to fill open jobs. Loose Federal Reserve monetary policies and billions of dollars in government stimulus helped prevent a deeper recession but added fuel to the fire when the economy reopened.

More recently, the Russian invasion of Ukraine has placed upward pressure on already high global fuel and food prices. ³  At the same time, a COVID resurgence in China led to strict lockdowns that have closed factories and tightened already struggling supply chains for Chinese goods. The volume of cargo handled by the port of Shanghai, the world's busiest port, dropped by an estimated 40% in early April. ⁴

Behind the Headlines
Although the 8.5% year-over-year 'headline' inflation in March is a daunting number for our Universal Health Services clients to consider, monthly numbers provide a clearer picture of the current trend. The month-over-month increase of 1.2% was extremely high, but more than half of it was due to gasoline prices, which rose 18.3% in March alone. ⁵  Despite the Russia-Ukraine conflict and increased seasonal demand, U.S. gas prices dropped in April, but the trend was moving upward by the end of the month. ⁶  The federal government's decision to release one million barrels of oil per day from the Strategic Petroleum Reserve for the next six months and allow summer sales of higher-ethanol gasoline may help moderate prices. ⁷

Core inflation, which strips out volatile food and energy prices, rose 6.5% year-over-year in March, the highest rate since 1982. However, it's important that our Universal Health Services clients consider that the month-over-month increase from February to March was just 0.3%, the slowest pace in six months. Another positive sign was the price of used cars and trucks, which rose more than 35% over the last 12 months (a prime driver of general inflation) but dropped 3.8% in March. ⁸

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Wages and Consumer Demand
In March, average hourly earnings increased by 5.6% — but not enough to keep up with inflation and blunt the effects that impacted a variety of businesses, as well as many Universal Health Services employees and retirees around the country. Lower-paid service workers received higher increases, with wages jumping by almost 15% for non-management employees in the leisure and hospitality industry. Although inflation has cut deeply into wage gains over the last year, wages have increased at about the same rate as inflation over the two-year period of the pandemic. ⁹

One of the big questions going forward is whether rising wages will enable consumers to continue to pay higher prices, which can lead to an inflationary spiral of ever-increasing wages and prices. Recent signals are mixed. The official measure of consumer spending increased 1.1% in March, but an early April poll found that two out of three Americans had cut back on spending due to inflation. ^10-11

Soft or Hard Landing?
The current inflationary situation has raised many questions among our Universal Health Services clients in regard to what the solution is. The Federal Open Market Committee (FOMC) of the Federal Reserve has laid out a plan to fight inflation by raising interest rates and tightening the money supply. After dropping the benchmark federal funds rate to near zero in order to stimulate the economy at the onset of the pandemic, the FOMC raised the rate by 0.25% at its March 2022 meeting and projected the equivalent of six more quarter-percent increases by the end of the year and three or four more in 2024. ¹²  This would bring the rate to around 2.75%, just above what the FOMC considers a 'neutral rate' that will neither stimulate nor restrain the economy. ¹³

These moves were projected to bring the Fed's preferred measure of inflation, the Personal Consumption Expenditures (PCE) Price Index, down to 4.3% by the end of 2022, 2.7% by the end of 2023, and 2.3% by the end of 2024. ¹⁴  PCE inflation — which was 6.6% in March — tends to run below CPI, so even if the Fed achieves these goals, CPI inflation will likely remain somewhat higher. ¹⁵

Fed policymakers have signaled a willingness to be more aggressive, if necessary, and the FOMC raised the fund's rate by 0.5% at its May meeting, as opposed to the more common 0.25% increase. This was the first half-percent increase since May 2000, and there may be more to come. The FOMC also began reducing the Fed's bond holdings to tighten the money supply. New projections to be released in June will provide an updated picture of the Fed's intentions for the federal funds rate. ¹⁶