Mercer's panel of consultants said in a recent webinar that 2023 was a year of surprises. But what will 2024 bring for the economy and healthcare?
“This year has certainly been an eye-opener when it comes to the economy,” said Julius Bendikas, Head of European Economics and Dynamic Asset Allocation at Mercer. “People were saying the U.S. was likely going into a recession, and they were proven wrong by a wide margin.”
Bendikas cited three reasons why the U.S. economy expanded rapidly in the third quarter.
- Consumers were able to continue to tap into the additional savings they had accumulated during the COVID-19 pandemic.
- Inflation is slowing and fuel prices are lower than they were this time last year.
- Fiscal policy had a stimulatory effect on the economy.
“This year has certainly been a positive surprise year for growth,” he said. “And it disappointed a lot of people who were expecting a recession.”
He said it's natural for a period of cooling to occur after a business cycle that Bendikas described as “overheating.”
“I think it's natural for the economy to lose momentum for a while after an overheating cycle,” he said. “We see the business cycle slowing.”
Mr. Bendikas discussed several factors that could lead to an economic slowdown in 2024.
- Consumer savings. Consumers have nearly exhausted the excess savings they accumulated during the pandemic. Excess savings are concentrated among high-income consumers. “The average consumer no longer has access to excess savings,” he said.
- He said oil and natural gas prices and used car prices are lower than they were this time last year, and inflation is falling. “But it's not going to go down by the same amount again,” he said. “We do not expect inflation to fall further.”
- Fiscal policy. “We expect fiscal policy to be less stimulative and to be a headwind,” he said. “The US economy will lose support and have to face the situation head on. Banks will not be willing to lend.”
Bendikas said inflation remains a top concern for employers and workers alike.
He said the decline in inflation was “encouraging”. “It won't be long before inflation returns to where it should be, at 2% a year. Commodity prices are falling and supply chains are not disrupted as they were before.”
But he said one issue that remains a concern regarding inflation is “the continued strength of the U.S. labor market to support wage growth.”
Benikas said there are signs that the labor market will cool in 2024.
“As far as inflation and growth are concerned, the last few years have been abnormal, but I think things will normalize next year,” he said.
Medical costs: good news and bad news
Tracy Watts, Mercer's national leader for U.S. health policy, said there is good news and bad news when looking at health care costs in 2024.
First, the bad news. Mercer doesn't expect overall health care spending trends to ease significantly. For employers with 50 or more employees, health insurance costs are expected to increase by 5.4% in 2023 and 2024, with costs expected to be even higher in 2025.
Watts said these rising costs are due to two factors: high prescription drug costs and provider consolidation.
The good news is that “there are still many strategies that employers and plan sponsors can use to control costs,” she says.
He cited strategies such as programs to manage specific health conditions and direct employees to receive care in high-performance networks.
Susan Rupe is the editor-in-chief of InsuranceNewsNet. She previously served as communications director for the Insurance Agents Association and was an award-winning newspaper reporter and editor. To contact her, [email protected]. Follow her on Twitter @INNsusan.
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