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More on Health Care’s Contribution to Inflation

By November 14, 2022Commentary

The Bureau of Labor Statistics does some weird stuff in its consumer price index calculations.  Figuring out the supposed change in housing costs is one, but so is how they do the medical care component.  They basically make up some stuff about changes in health insurance profits.  This is particularly odd because there is all kinds of data available on what is happening with actual prices paid for health care.  I regularly report on one of those, done by the Altarum Institute and based on other government data.  But the current way the Bureau calculates it is showing a drop in medical care inflation, which was a significant factor in the supposed slowing of inflation in October, although it wasn’t much of a slowdown.  This is because insurers had big profits during 2020 and much of 2021, when the use of medical care dropped, but lower profits in the second half of 2021 and early 2022 as people returned to previous care patterns.

In September year-over-year health care prices rose 2.8%, but by payer, private health plan prices rose 3.5%, Medicaid prices by 3.9%, but Medicare prices actually declined by .8%.  Medicare is trying to get away with paying providers less, but that cannot last politically.  Hospitals also reveal a split in price trends, as private prices rose 5.5% while Medicare ones declined by .4%.  Physician service prices have been increasing at less than 1% for over a year.  Drugs, as usual, lead the way with a 5.6% price increase year-over-year.  Meanwhile total health spending rose by 4.9% year-over-year in August.  Utilization has increased by 2.2%, which is another component of total spending.  Health care employment is also growing rapidly, as are wages paid, by an average of 6.8%, higher than in the rest of the economy.  Those employment and pay increases are going to be a big factor in provider price increases.

Consumers feel health care inflation in two ways.  If they are paying out of pocket, either in total or as a deductible, co-payment or coinsurance, and if they have private health insurance, in their premium contributions.  I am telling you that right now as we speak and for at least the next year, we are going to see sharp increases in both health care prices, especially in the private sector, and health insurance premiums.  Consumers can see that.  And sooner or later it will show up in the official numbers.  In the meantime here are the current Altarum briefs.  (Alt. Briefs)


Join the discussion 2 Comments

  • George H Avery, PhD says:

    What is interesting and a bit unusual is that the rate of healthcare inflation is currently LOWER than the overall rate of inflation.

    • Kevin Roche says:

      due to goofy BLS methods which use health plan profits as a proxy, makes no sense. Provider prices are rising rapidly as are insurance premiums.

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