Why healthcare and childcare likely aren't going to get cheaper anytime soon

• Medical care costs, as well as day care and preschool prices, have climbed a lot since 2000.
• Healthcare and childcare will likely continue to be pricey, affecting people's savings and income.
• Limited options for automation in these care-related areas could be one reason.

Any American who's taking care of young kids or older parents knows that childcare and healthcare are too expensive. And even while inflation more broadly cools, it's unlikely that the care industry is going to get more affordable anytime soon.

Bryan Jamele, Care.com's head of government affairs and public policy, told Business Insider that US childcare costs "have been skyrocketing, and they're depleting the household incomes of families."

A report from Care.com said 35% of respondents in a 2023 survey of US adults said they dipped into their savings for care. Jamele pointed out how childcare prices have surged more than inflation over the last several decades.

Healthcare is also expensive and has seen prices climb faster than overall inflation.

"We know that our members make trade-off decisions if healthcare costs are too high," Pat Geraghty, CEO of insurance company GuideWell, told BI. "So, some of the very basic needs in their life may get traded out because healthcare expenses are too high, which is why the focus needs to be on how to make healthcare affordable."

It's hard to picture healthcare and childcare costs dramatically coming down anytime soon because so much of care work is labor-intensive. People are needed to care for children at day care centers, aging family members at assisted living and similar places, or patients at hospitals, and it's unlikely those tasks will be automated and handed over to robots or AI anytime soon.

The high care costs affect the people shelling out their money for these services and the workers who hope for higher pay. "We cannot raise wages because we cannot charge families more," Allyx Schiavone, the executive director of the Friends Center for Children, previously told BI.

Why childcare and healthcare costs have surged and could continue to be pricey

Childcare and healthcare costs have soared since the turn of the century, while televisions and wireless phone services have plunged.

"Since 2000, the cost of TVs, the cost of toys, the cost of cellphone service, the cost of software — those have all fallen a lot either because of automation, in the case of manufacturing TVs and toys, or because of scalability because of these natural monopolies and these very high fixed costs but tiny marginal costs," Julia Pollak, chief economist at ZipRecruiter, told BI. "So, you have a lot of technologies like software and cellphone service that scale and allow companies to charge less and less over time."

Meanwhile, Pollak said, "the cost of services that cannot be automated" and scaled have been labor intensive and have seen prices skyrocket. That would include some costs related to healthcare and childcare. Pollak said, "Hospital services, medical care, childcare — the cost of all those have grown dramatically."

Pollak said artificial intelligence will probably lessen the costs for tech and other services but likely won't be the case for healthcare and childcare. Still, there are ways AI can help lessen care costs. Geraghty pointed out, for instance, AI tools in radiology detecting disease earlier.

Childcare and healthcare have also seen labor shortages, and while AI and automation could be helpful in these sectors, there likely still will be demand for new workers. For instance, childcare providers are typically required to have a minimum ratio of caregiving staff to children under their supervision. Some healthcare jobs could be at risk from AI, but as the population ages, healthcare will need people in care and other jobs.

It's not just about whether things can be done with the help of automation that's affecting costs.

"We see things happening in the healthcare sector like private equity coming in and buying physician offices," Geraghty said. "When they do that, they want a return, and their desire to get a return pushes the cost of healthcare up."

Additionally, Pollak said the widening of remote work outside healthcare and childcare could mean the costs for these two types of care increase. "In order to compete, those on-site employers in day care services and hospitals need to pay workers more to veer them away from jobs that are more flexible," Pollak said.

The problem is how to do exactly that while also being able to pay operating costs. Jamele said it's expensive to run childcare centers, including to have a certain number of people working and trying to offer competitive pay. "I've heard anecdotally as well that a lot of these childcare workers are leaving," he said. "Other jobs in retail are paying more in some cases in some states."

Wages and prices

"Inflationary pressure on wages over the past two (2) years has driven the cost of healthcare and childcare higher," Scott Hamilton, Gallagher's global chairman of human resources and compensation consulting, said in a written statement. "These increased costs are both being passed on through increases in health insurance premiums to employers as well as higher prices of daycare and after-school care for employees."

Even in just a year, childcare costs have increased on average. Care.com's 2024 Cost of Care Report shows that average day care costs have surged for an infant — from $284 a week in 2022 to $321 in 2023.

Workers in the childcare services sector are seeing higher earnings than the same month a year prior, just like workers in healthcare. These two sectors have seen wage growth outpace inflation. While the consumer price index rose 3.0% year over year in June, average hourly earnings rose 5.2% for the childcare services sector and 3.6% for the healthcare sector.

Despite that robust wage growth in childcare, average hourly earnings for this sector are low compared to the overall figure for private employees — $20.87 an hour for childcare services in June compared to $34.99 for total private employees. The healthcare sector's average in June was $37.57.

Jamele said the US childcare system should be reimagined, including modernizing and enhancing tax programs for families so that the programs "meet the economic realities of families in 2024."

"We also need to take a hard look at supporting the caregiving workforce as well and addressing some of those issues on that end of the spectrum, if you will, because they really are the foundational crack in the childcare delivery system," Jamele said. "If you don't have the workers or enough of the workers and they're not professionalized in such a way to meet that demand, then you can change childcare policy all you want, but you're going to still have a major deficit if you don't have the workers to employ that."