Diving Into the Medical CPI: Are Your Medical Expenses Up Only 5% from Year Ago?

On November 1, I posted a couple of charts from Variant Perception that shows medical price inflation plus rent inflation is up nearly 9% from a year ago.

by Mish

Let’s review those charts, then take a look at a series of charts from the St. Louis Fed data repository on medical expenses alone.

Consumer Discretionary Equities vs. Medical + Rental CPI Inverted

The above charts from Variant Perception.

Here is a trio of charts that show medical expenses are up 5% from a year ago.

Commodities and services are the two major components medical care. Commodities includes prescriptions and devices, services include office visits and hospitalization.

Inquiring minds are investigating the CPI Weight basket to see why reported costs are up so little despite massive increases in Obamacare premiums.

CPI Weights

  • Medical care constitutes 6.513 percentage points of the overall CPI basket.
  • Physicians, dentists, eye care providers, and other medical professionals contribute 2.796.
  • Dental services alone contribute 0.715 percentage points to the CPI.
  • The BLS assigns a weight of just 0.487 to health care insurance.

In simple terms, the BLS tells us that dental services alone are nearly 50% more important than health care premiums.

Healthcare Insurance Explanation

Although medical insurance premiums are an important part of consumers’ medical spending, the direct pricing of health insurance policies is not included in the CPI. The BLS reassigns most of this spending to the other medical categories (such as Hospitals) that are paid for by insurance. The extreme difficulty distinguishing changes in insurance quality from changes in its price forces the CPI to use this indirect method.
Under this indirect method, the medical care index will not be affected by changes in policy characteristics, such as modifications to policy benefits and utilization changes. The approach implicitly assumes that the level of service from individual carriers is strictly a function of benefits paid.

Flawed Assumptions

Got that? The BLS assumes that regardless of what you pay, if the insurance company pays more to the hospital, you must have received more benefits!

I expect major revisions to this nonsense sometime down the road.

Tell me, are your medical expenses up only 5 percent from a year ago?

Reader Comments

GreenAcre: My company which employs 60K has raised premiums 35%, eliminated the individual for families (must reach family deductible for 80/20) and raised the out of pocket max to $12,000.

Anon: I have a grandfathered plan outside of Obamacare and my premiums tripled in the last 5.5 years and I have yet to get my 2017 rate. I am in Maryland I expect at least 30% more. I am a self employed CPA who prepares tax returns for small business. They buy the group policies outside of Obamacare. Their rates, deductibles, copays etc have massively increased since ACA started as well. They have switch to managed HMO plans with limited doctors and still have had massive rate increases.

If You Like Your Plan You Can Keep It

Actual Results

  • United Health Care dumped 29 of 34 states.
  • Millions of Americans have only a single choice.
  • Only 6 of 29 Obamacare co-ops remain.
  • Costs spiraling out of control.
  • Young, healthy citizens opt to pay penalty than overpay.

Death Bed Math

Obamacare is on the death bed. Costs have soared, huge premium hikes are in the works for 2017, and benefits have been slashed.

Meanwhile, the BLS posts preposterous statistics and the Fed seriously underestimates how much consumers are getting clobbered.

Rate hikes cannot possible be the cure for this mess.

The above comment is not an objection to hikes per se, it’s simply a statement of fact. I do not know where interest rates should be, and neither does the Fed.

Unfortunately, there is little price discovery in anything, certainly not in healthcare nor in interest rates.

Expect Retail Sales to Suffer

For further discussion of the Variant Perception charts, please consider Retail Sales Poised to Suffer on Higher Medical, Rental Inflation.

Mike “Mish” Shedlock

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