CPI vs Reality: Medical Care Costs Soar Out of Control
According to the BLS, the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.3 percent in November on a seasonally adjusted basis, after rising 0.4 percent in October. Over the last 12 months, the all items index increased 2.1 percent before seasonal adjustment.
Increases in the shelter and energy indexes were major factors in the seasonally adjusted monthly increase of the all items index. Increases in the indexes for medical care, for recreation, and for food also contributed to the overall increase. The gasoline index rose 1.1 percent in November and the other major energy component indexes also increased. The food index rose 0.1 percent, with the indexes for both food at home and food away from home increasing over the month.
Hooray! Inflation Tame
Hooray, inflation as measured by the BLS is only up 2.1% from a year ago.
But does your basket match this?
CPI Percentage Weights
Those buying their own health coverage will tell you that chart is absurd.
I went to NerdWallet for some quotes. My base case was a husband and wife making a combined $100,000, both aged 60, non-smokers, with no dependents.
Same Couple Making $60,000
- For a couple, aged 60, making $100,000 per year, "affordable" care costs $19,776 right off the top. Then there is a max out of pocket expense of $8,150 per person. Yes, per person.
- For a couple, aged 60, making $60,000 per year, "affordable" care costs $3,804 right off the top. Then there is a max out of pocket expense of $8,150 per person.
The BLS tells us, medical care is only 6.654% of the "average" household expense.
Average includes all those on medicaid and medicare. It also includes those on company plans.
It does not count corporate costs. Why? The BLS is only concerned with "consumer" prices. No other measures of inflation are important.
Averages take into consideration the average person does not go to the hospital.
Heaven help you if you actually need help.
What About Home Prices?
Good question, especially if you want to buy a house.
Owners' Equivalent Rent is the largest component in the CPI, accounting for a whopping 24.281% of the CPI.
The Owners’ Equivalent Rent (OER) Calculation method is absurd.
The expenditure weight in the CPI market basket for Owners’ equivalent rent of primary residence (OER) is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence: “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
Home Prices vs OER vs Earnings
Already have a home?
If not, don't expect to find an affordable one. Sorry. You simply do not fit the BLS mode where averages rule.
BLS Model vs Reality
If you are in school, looking to buy a home, buying your own health care, or even having insurance but getting sick, then your measure of the CPI will be dramatically different than what the BLS tells you.
If you are 65, on Medicare, and own your own home. Congratulations. You fit the BLS CPI mold perfectly!
Mike "Mish" Shedlock