The Trump administration has enacted a series of tariffs on imported goods to the United States. The U.S. imposed these measures on many trading partners to boost domestic manufacturing, eliminate trade deficits, and strengthen the U.S. economy.
Specific tariff announcements include:
- An announcement of global tariffs effective April 2, imposing a baseline 10% tariff on all imports.
- The administration also announced higher tariffs – ranging from 11% to 50% – for select countries.
- A week after the initial announcement, the administration paused the higher tariffs but maintained the 10% tariff on imports from most countries.
- The tariff rate for Chinese products was increased to 145%.
These tariffs are collected on goods when they enter the U.S.
There has been uncertainty surrounding what tariffs would remain in place and when, leading many companies to defer business decisions. The extent to which businesses will pass these tariffs to the consumer remains uncertain.
Impact on Health Plans
Though health plans may be somewhat isolated from the first-order effects, tariffs may impact health insurers in myriad ways. Let’s take a look at ten potential impacts of tariffs on health plans:
Increased Healthcare Costs
Tariffs on imported goods used in medical care, such as medical devices and supplies, could increase medical inflation. While pharmaceutical products were initially exempt, this status could change based on recent comments from the administration. Even if drugs are exempt, active pharmaceutical ingredients (APIs) and materials, many sourced from countries like China and India, are not.
Experts expect increases in medical device, supply, and pharmaceutical costs, with insurance companies expected to shift these additional costs to patients through higher premiums, co-pays, deductibles, and maximum out-of-pocket expenses. The price of pharmaceuticals is estimated to rise by nearly 5% due to tariffs. Experts expect healthcare costs to increase as well.
Impacts on Pharmaceutical Costs
While brand-name drug costs may not increase significantly from tariffs (as ingredient costs are a small part of total sales price), tariffs could impact generic medications. Generic drugs often have low margins, making it difficult for importers to absorb tariff costs or increase prices due to existing agreements. This financial strain could force generic drug manufacturers to withdraw from the market. This shift would exacerbate existing drug shortages and lead to clinicians prescribing more expensive alternatives, increasing costs for health plans and patients.
Cost Pressure and Negotiation with Providers
Providers will likely bear the brunt of inflation on healthcare costs. While long-term contracts may insulate health plans initially, tariff-related price increases will drive up costs at renewals. When providers negotiate reimbursement contracts with health plans, these rising costs are likely to be a key factor, potentially leading to increased premiums for commercial plan contracts coming to an end. The full impact may occur over a few years due to multi-year contracting cycles.
Uncertainty in Pricing and Actuarial Analysis
The uncertainty surrounding tariffs introduces a variable into the actuarial analyses health plans use to price their products. As a result, plans could overestimate or underestimate the effects. If plans overestimate costs, they rebate excess earnings; however, if they underestimate costs, losses typically cannot be recovered. Health insurers will likely focus on ensuring premium rate adequacy in this environment.
Indirect Economic Impacts
Tariffs can create headwinds to economic growth and trigger inflation. Should a significant economic downturn or recession follow the tariffs, it could cause many people to enroll in government plans. Higher overall inflation also increases labor and other medical costs, indirectly impacting health plan expenses.
Investment Impacts
Tariffs hold implications for insurers’ investments, as changes in interest rates impact market valuations, and bond defaults may become more likely.
Employer-Sponsored Plan Considerations
Tariffs are increasing costs for medical devices and medications, directly affecting employer-sponsored insurance. Increasing health insurance costs could drive employers (the sponsors of these plans) to shift either premium or out-of-pocket costs to employees. It could also lead some employers to consider decreasing the uptake of employer-sponsored health insurance or even stopping offering it altogether in favor of options like Individual Coverage Health Reimbursement Accounts (ICHRAs).
Potential Decrease in Utilization
In some cases, supply disruptions or cost increases could paradoxically lower medical claims costs for plans if they reduce demand (e.g., people not filling prescriptions or deferring care due to higher prices). However, this could negatively impact overall health.
Supply Chain Vulnerability
Tariffs test the healthcare supply chain, threatening to disrupt patient care. This supply chain sources many imported goods and essential ingredients for pharmaceuticals overseas. Medical devices also face high exposure, with many manufactured exclusively outside the U.S. While there haven’t been widespread shortages or price spikes yet, experts warn this could change as stockpiled supplies run low or contracts expire. Supply disruptions can force the use of more expensive alternatives, increasing plan costs.
Impacts on Specific Health Plan Lines of Business
Tariffs, coupled with other administration actions, may impact specific lines of business. For example, failing to renew federal exchange subsidies will likely lower enrollment for organizations that heavily participate in state and federal ACA exchanges. Increased tariffs may also have the converse effect, causing employers to shift from employer-sponsored plans to ICHRAs, pushing more enrollees into exchanges to shop for a health plan. Tariffs and their second-order effects – like increased inflation and potential recessionary effects – may transition more individuals from higher-margin commercial plans to lower-margin Medicaid plans. As a result, some health plans may be winners and others losers based on their product mix.
More Resources:
- Trump’s pharmaceutical tariffs put employer health plans at risk
- Tariffs and The Ripple Effect: How trade policies could reshape employer-sponsored health insurance
- Navigating the complexities of tariff impacts on the health care system
- Tariffs send healthcare industry into ‘unchartered waters’
- The impact of tariffs on healthcare costs
- Trump’s New Tariffs Could Drive Up Health Care Costs, Experts Warn
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