Medical Care Costs Soaring Out of Control

-edited

The cost of medical care services dramatically outpaces stated CPI inflation measures.

Once again the BLS tells us inflation is under control. Once again, close inspection suggests something else.

Let's investigate, starting with the BLS Consumer Price Index Report for December 2019.

  • According to the BLS, the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2 percent in December on a seasonally adjusted basis after rising 0.3 percent in November.
  • The gasoline index increased 2.8 percent in December. The index for all items less food and energy rose 0.1 percent in December after increasing 0.2 percent in November.
  • The All Items index rose 2.3 percent over the last 12 months. So did the index for all items less food and energy, the same increase as the periods ending October and November. The food index rose 1.8 percent over the last 12 months, while the energy index increased 3.4 percent.

CPI Month-Over-Month and Year-Over-Year

Hooray! Inflation Tame

Hooray, inflation as measured by the BLS is only up 2.3% from a year ago.

The Bloomberg consensus estimate was 0.3% month-over-month so 0.2% looks tame. The core inflation measure (CPI excluding food and energy) rose only 0.1% vs the expected 0.2%.

But does your basket match this?

CPI Percentage Weights

It's when you dig into details you find disturbing trends, like the lead chart and this.

Medical Care Costs Month-Over-Month

Medical Care Cost Detail

On the rare occasions the month-over-month price drops, costs the following month tend to jump 0.6% to 0.8% or higher.

Medical Insurance Quotes

I posted these quotes last month, but it's worth another look after this gloomy report.

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

Synopsis

  • 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.

The BLS Relative Importance Table shows housing is 42.20% of the CPI.

Owners' Equivalent Rent is the largest component in the CPI, accounting for a whopping 24.05% 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!

Election Note

This issue alone could easily cost Trump the election in 2020.

Trump did not cause this setup, but he now owns the problem and did not fix it.

Anyone buying their own insurance might easily listen to charlatans promising "free" health care,

Mike "Mish" Shedlock

Comments (57)
No. 1-21
Tony Bennett
Tony Bennett

Of course, cpi understated ... even so ... BLS out with real earnings:

REAL EARNINGS – DECEMBER 2019

All employees

Real average hourly earnings for all employees decreased 0.1 percent from November to December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from an increase of 0.1 percent in average hourly earnings combined with an increase of 0.2 percent in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings decreased 0.1 percent over the month due to the change in real average hourly earnings combined with no change in the average workweek.

Real average hourly earnings increased 0.6 percent, seasonally adjusted, from December 2018 to December 2019. The change in real average hourly earnings combined with a 0.6-percent decrease in the average workweek resulted in essentially no change in real average weekly earnings over this period.

...

Of course this is bullish for the only thing that matters --- the stock market. Less wages = more profit for owners of capital. The masses can just take on more debt to make ends meet ...

Realist
Realist

Yep. Health care, currently 18% of US GDP, heading toward 25%.

Compared to “single payer” systems in much of the developed world which cost 8-11% of GDP, and cover everyone.

I know I keep repeating myself whenever Mish brings this up, but the US will eventually arrive at a single payer system at some point in the distant future. But not before they try everything else possible first. And not until the costs begin to approach 25% of GDP.

Sechel
Sechel

System is broken. Drug companies get created to buy drugs with competition and raise the price 10,000%. Low deductions on insurance remove any incentive for consumer to price shop for the best price. U.S. should really be using the swiss health care model . And even though Swiss health care costs are above the Swiss inflation rate in 2019 they only went up 3%

lol
lol

Everything (literally)outpaces the massively manipulated (cooked)bs CPI calculations,and not by a little,by a whole lot, just using health care as a metric inflation would be up 25% YOY.....at least,that means healthcare (most everything)is in((stealth)hyperinflation.

JonSellers
JonSellers

I, for one, am happy to pay any amount demanded by our health insurance companies. The sacrifices these people go through in order to negotiate prices with doctors and hospitals is almost beyond comprehension. Not to mention the hours our great actuaries spend determining prices to charge. And don't get me started on the efforts of the humble bill checkers who have to scan so many doctor's bills for possible errors.

And think of the shareholders! Imagine the Galt-like heroes, every day risking their capital on us unscrupulous, sick know-nothings. Thank God that they have been rewarded for their wild risk-taking. Why I know one fellow who inherited a measly $200 million from his Dad and had the guts to invest $20 million in Aetna! He could of lost a few million dollars! What would he have done? Just go without the second yacht? Like an animal?

We have the greatest health-care system in the world. Canadians have to wait decades just to buy an aspirin. When we can get one same day for just $300 at the emergency room! Some of you Commie, liberal, Socialists may want to pay less, but for me, give me my liberty to work until I'm 67 so I can pay our insurance companies all that they're worth! I'm with Mish!

WarpartySerf
WarpartySerf

Absolute criminal racketeering ...... And try using your Medicare with any of the criminal doctors .... they'll laugh at you ..... Land of the free

LB412
LB412

I manage benefits for a small business. Our healthcare cost has risen No LESS than 6% per year over the past 5 years. Our base plan, which is also the most popular, rose by a whopping 18% this year. Its total insanity.

TexasTim65
TexasTim65

The percentages in the pie chart don't add up to 100% (they add to roughly 80%).

What's the rest of the chart? Is that 'entertainment'?

CautiousObserver
CautiousObserver

A poor match between reality and BLS "CPI Percentage Weights" might explain why consumer price inflation manages to be consistently understated, and it will likely cause it to be understated by an even greater degree as inflation increases. To the extent consumers are pinched due to income not keeping up with inflation and tax increases, they must spend a larger percentage of their incomes on the costs they cannot avoid. Costs such as medical care, transportation, food at home, taxes, and possibly insurance are unavoidable. Why are taxes and insurance completely missing from that chart?

With the FRED medical costs increasing YOY at 5% and BLS medical expenses being only weighted 6.6%, it is a sure bet that today's official inflation numbers are already very much understated. To the extent medical insurance is "paid by the employer," the federal number crunchers have managed to remove medical expenses entirely from the consumer's ledger! What a hoax!

Meanwhile, the Federal Reserve rapidly expands the balance sheet and bemoans how they are struggling to achieve a higher inflation target. It is a giant racket of disinformation and theft and our government is complicit. People responsible for this should be going to prison for fraud and currency debasement.

MadDenker
MadDenker

@Mish So is the Fed trapped? If Q4 GDP comes in at ~1%, and CPI at 2.3%, we're pretty close to stagflation. Can they raise rates?

Stuki
Stuki

Cost of everything not exposed to true, non-rigged, real competition, will always soar out of control, when compared to services rendered.

Unless the one ultimately paying for the service, has the ability to call the overchargers' bluff, by without constraint looking for more efficient alternatives and then route around the overchargers, the level of overcharging will always and everywhere just keep rising and rising and rising.

With the side effect that an ever growing share of the labor force, becomes directly dependent on the overcharging machinations themselves, for their livelihood. In the process creating a political constituency for keeping the rackets alive and growing. Just look at housing prices, public unions and trial lawyers.

Zardoz
Zardoz

Silence, Peasants! You’ll take nothing and like it... and get your reward in heaven! Did Allah say 72 virgins? Shoot, I’ll give you 78 virgins, and a brand spanking new Hummer H3! AAAAAAND, every thousand years, you’ll get to sit between Joel Osteen and Donald Trump at dinner, right across from Jesus!

Now please give us all your money and die. God’s a little short this month.

hmk
hmk

Bernie if he wasn't such a communist and kept his focus on single payer system would probably win. There should be a national debate put on with factual points from both sides of the argument and then that issue alone placed on a ballot. Kind of like what Ross Perot did when he paid for 1/2 hour of tv time to educate us on the dangers of NAFTA when he was running for president.

Herkie
Herkie

Mish: "...medical care services dramatically outpaces stated CPI inflation measures."


Hey, the COST OF LIVING dramatically outpaces stated CPI inflation measures Mish.

I have "free" healthcare (free to me with no premiums, copays, share of cost, drug costs, etc.) from the VA as a disabled vet, but just out of curiosity back when they first started offering plans on the state health exchange in Oregon I went there and made as if to apply just to see how much my health insurance would be if I had to pay for it.

First of all I smoke tobacco so I had to take the brown plan (bronze level actually but I tend to think of it as the shit plan) the gold and silver plans were only for non tobacco users. And because my income was then about $48k I only qualified for about $14 per year in subsidy. The plan covered little but the most horrific part was the $6,500 deductible which I would have to pay out of pocket each year before the plan covered anything at all. The real killer was the $908 per month premium. So, annual premiums of $10,896 per year + 6,500 deductible before the very first thing was covered. $17,396 minimum each year and that individual coverage was mandatory unless like me you were exempt. Even then the level of coverage would bankrupt people at that income if there was any serious issue. And you always face possible denial of coverage for so many technical reasons.

How have people managed? That was many years ago now and I cannot do this again to see what the increase would be since they have rigged the site to only be able to populate the fields by actual applicants.

ksdude69
ksdude69

It's also holding back wages. My work has really good insurance but the pay is suffering. There also freaking on the costs we just a meeting telling us various ways to help out like looking to see if your meds are on walmarts cheap list. So basically insurance is even more so now considered part of your wage. LOL, 2200 month is basically half your income on 100k after taxes. Anyone and everyone that has the ability to charge YOU are going sky high, of course partly to greed but also reflecting real inflation. Everything except wages are going up. .03 gains are not increases compared to the rate of all this other crap. This will not end well.

Carl_R
Carl_R

Part of the reason healthcare is such a small portion of the CPI is that governmental employees, and employees of big businesses never see the true costs, nor do people on Medicare or Medicaid, or people who use the VA. As a result, only perhaps 10-20% of the people are seeing the excessive increases, while for everyone else, the CPI portion for medical expenses exceeds the increases they actually see.

compsult
compsult

I went to NerdWallet, didn't see any health insurance quotes (?)

AussiePete
AussiePete

I had a colonoscopy in a private hospital just this morning, literally five hours ago - total cost, $A480 (US$330). I have no insurance. Actually, I could have had it for free through the public system, but I was told there's a wait of up to twelve months. (Although, Australians pay 1% of gross income as the annual Medicare levy too, so there's that....)

It doesn't help to keep US medical costs down that despite your doctors being equally qualified as ours, they are paid three times as much. Good luck persuading them to take a pay cut to help enable universal health care! .

dbannist
dbannist

"Anyone buying their own insurance might easily listen to charlatans promising "free" health care"

Nope, not this guy. I pay 500 a month for 100% coverage and a 500.00 per event deductible.

I've never spent more than 7k a year for insurance and medical costs for my family of 5...ever.

That's far cheaper than the plans above, far better coverage, and it's completely separate from any government sponsored plan.

Capitalism and free markets work...if we allow them to.

I'm in favor of abolishing all government healthcare, virtually eliminating Medicare, and letting the free market sort it out. Where it's being allowed (in small health sharing coops) it's working 600% cheaper than anything the government runs, with better results.

Capn_Renault
Capn_Renault

@Mish Editor

last fall, you banned several commenters for writing exactly what you wrote here.

That doesn't mean you are wrong about healthcare costs, but perhaps you were wrong to ban them from commenting

awc13
awc13

"Anyone buying their own insurance might easily listen to charlatans promising "free" health care,"

they will. they believed the AFFORDABLE Care Act would be, well, affordable.