Predictions for 2024: The economy will cool down, healthcare costs will increase

2023 was a year of surprises, Mercer’s consulting panel said in a recent webinar. But what will 2024 bring to the economy and healthcare?

This was certainly a surprise year for the economy, said Julius Bendikas, head of economics and dynamic asset allocation at Mercers. People said the US recession was likely to be big, but they were proven wrong by a large margin.

Bendikas presented three reasons why the US economy grew rapidly in the third quarter.

  1. Consumers were still able to take advantage of the extra savings they accumulated during the COVID-19 pandemic.
  2. Inflation is slowing and fuel prices are lower than at this time last year.
  3. Fiscal policy has had a stimulating effect.

It was certainly a year of positive surprise for growth, he said. And it was a disappointment to many people who expected a recession.

After an economic cycle that Bendikas described as overheating, it’s natural for a cooling period to occur, he said.

We believe that it is only natural that the economy loses for a while after overheating, he said. We see the economic cycle slowing down.

Bendikas discussed several factors that he believes will lead to a slowdown in the economy in 2024.

  • Consumer savings. Consumers have largely used the extra savings they accumulated during the pandemic. Additional savings are concentrated on high-income consumers. The average consumer can no longer take advantage of the extra savings, he said.
  • He said inflation has fallen as oil and natural gas prices and used car prices have fallen compared to this time last year. But they are not going to fall by the same amount again, he said. I do not expect inflation to fall further.
  • Financial policy. I expect fiscal policy to be less supportive and turn into a headwind, he said. The US economy will lose its support and face conditions. Banks are less willing to grant loans.

Inflation is still on the minds of both employers and employees, Bendikas said.

Falling inflation has been encouraging, he said. We are not very far from inflation returning to the 2 percent annual rate. Commodity prices are falling and we don’t see supply chains being disrupted like before.

However, according to him, one factor that still worries about inflation is the continued strength of the US labor market, which supports wage growth.

Benikas said he sees signs of a cooling labor market in 2024.

After a few years of abnormal inflation and growth, I see a transition to normalization next year, he said.

Health Care Costs: The Good News and the Bad News

Looking at health care costs in 2024, there is good news and bad news, said Tracy Watts, Mercer’s national director of U.S. health policy.

First the bad news. Mercer doesn’t expect to see much relief in general medical expenses. Employers with 50 or more employees saw their health plan costs increase by 5.4 percent in 2023 and 2024, and costs are expected to be even higher in 2025.

Two drivers of these cost increases are high prescription drug costs and the concentration of health care providers, Watts said.

The good news, he said, is that employers and plans still have plenty of strategies to manage costs.

He cited strategies such as programs to manage certain health conditions and refer workers to treatment in a high-performance network.

Susan Rupe is the managing editor of InsuranceNewsNet. He previously served as communications director at the Association of Insurance Agents and was an award-winning newspaper editor and journalist. Contact him at [email protected]. Follow him on Twitter @INNsusan.

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