Category: Health Care Costs

Is Health Inflation Really Quite Tame?

increaseI sometimes feel the odd man out when addressing inflation in U.S. health care. I discuss the monthly Consumer Price Index and Producer Price Index releases, as well as other monthly and quarterly economic releases that include health spending. I have suggested health inflation is stirring, which is counter to respected scholars like Chris Conover of Duke University and those at the Altarum Institute, the “go to” source for analysis of health inflation.

However, I seem to be siding with ordinary Americans, who are struggling as much as they ever did to pay medical bills. I expect people still struggle because, although inflation in health goods and services is low by historical standards, it is high relative to general inflation faced by consumers.

GDP: Health Services Are 39 Percent of Growth

BEAToday’s advance release of Q4 GDP showed the production of goods actually shrank in the fourth quarter. As a result, the (annualized) $26.3 billion growth in health services spending accounted for 39 percent of GDP growth of $68.0 billion. It comprised 32 percent of services spending growth and 38 percent of growth in personal consumption expenditure (Table I). This means that health services spending continues to devour more of our budgets. The evidence continues to indicate Obamacare is not bending the cost curve.

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CPI: Prescription Prices Finally Drop Amid General Deflation

BLSMedical prices grew 0.1 percent, versus a decrease of 0.1 percent for all other items, in December’s Consumer Price Index. Prices for prescription drugs actually decreased 0.3 percent, even better than the small price increase in the Producer Price Index (PPI).

Prices for physicians’ services were flat, however, whereas they had jumped in the PPI. Because CPI measures prices as observed by consumers and PPI prices as observed by producers, this suggests that prices paid to physicians by non-consumers (i.e., third parties) have increased more than prices paid by consumers. This supports the principle that when consumers face prices directly, prices go up less than when intermediated by third parties.

Overall, medical care inflation was tame in December. Longer term, it still significantly outpaced the CPI other than medical care, by two percent over the year (Table I).

PPI: Physician Prices Jump Amidst Deflation

BLSThe stock market took a hit this morning, as the Producer Price Index turned back to deflation, dropping 0.2 percent in December and 0.1 percent in 2015 (Table I). Health prices are still growing faster than other prices. This is especially true for pharmaceuticals, for which prices increased 8.2 percent last year, versus a 3.7 percent decline in prices for final demand goods. Although political attacks on pharmaceutical prices are misguided, it is likely they will continue as long as this situation persists.

With respect to services, health price inflation is not as extreme. However, the jump of 1.3 percent for physician prices in December is remarkable.

Trouble Paying Medical Bills: 2015 Versus 2005

iStock_000007047153XSmallAfter having read my colleague Devon Herrick’s Health Alert discussing the New York Times’ survey (conducted with the Kaiser Family Foundation) of adults having trouble paying medical bills, I had a look back and compared the 2015 results to those a similar survey from 2005. The results are almost exactly the same!

Despite a large decrease in the proportion of working-age people categorized as “uninsured” (even though many have actually become dependent on Medicaid, a joint state-federal welfare program, instead of actual insurance) one quarter of us still have trouble paying medical bills.

  • In 2015, 15 percent spent “all or most” of their savings on medical bills. In 2005, it was 12 percent.
  • In 2015, 10 percent “borrowed money from friends or family” and nine percent “increased credit card debt.” In 2005, eight percent reported “borrowing money or taking out another mortgage.”
  • In 2015, 32 percent “put off/postponed getting health care you needed.” In 2005, 29 percent of adults report “they or someone in their household skipped medical treatment, cut pills, or did not fill a prescription in the past year because of the cost.”
  • In 2015, three percent declared personal bankruptcy because of medical bills, the same as 2005.

Health Jobs Pick Up in Booming Jobs Report

BLSToday’s Employment Situation Summary, which came in above strong expectations, also saw faster growth in health services jobs than other nonfarm civilian jobs. In December, health services jobs grew at 0.26 percent, versus only 0.20 percent for other jobs. Health services jobs comprised 13 percent of the 292,000 jobs added in December (Table I).

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Within health services, outpatient care jobs grew much faster than jobs at other facilities. Overall, jobs at ambulatory facilities grew faster than hospital jobs. This is a good development because hospitals are less efficient locations of care.

GDP: Health Services Growing Faster Than Personal Consumption Expenditures

BEAReleased on December 22, the third estimate of Gross Domestic Product for the third quarter indicates growth in health services spending is maintaining a disproportionate share of still slow GDP growth.

Spending on health services grew faster (4.8 percent, annualized, in current dollars) than spending on non-health services (3.9 percent) or non-health personal consumption expenditure (4.2 percent) from the second quarter (Table I). The growth in health services spending ($24.8 billion, annualized) accounted for 17 percent of all GDP growth ($146.5 billion), just under one fifth of personal consumption expenditure ($130.6 billion), and 29 percent of all services spending ($84.7 billion).

What is Driving Health Prices Up?

The recent arrest of Martin Shkreli, former CEO of Turing Pharmaceuticals, for securities fraud, reminds us that high prescription drug prices are today’s whipping boy for the costs of health care. Hillary Clinton and other politicians have promised to impose federal controls on pharmaceutical prices.

However, prescription drugs have not been the fastest growing item in health care since the economy started to enter the Great Recession in 2007. That distinction belongs to health insurance (specifically, medical and hospital insurance, not workers’ compensation, income replacement, or long-term care). Table I shows price indices for various components of personal consumption expenditures, indexed such that 2007 equals 100.

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Understanding Why Employer Benefit Costs Are Rising Slowly

Aon Hewitt, a leading actuarial consulting firm, has reported extremely good news about the cost of employee benefits:

2015 Records Lowest U.S. Health Care Cost Increases in Nearly 20 years

– Rate of increase was 3.2%

– Average health care cost per employee topped $11,000

– Employees’ share of health care costs have increased more than 134% since 2005

After plan design changes and vendor negotiations, a recent analysis by Aon (NYSE: AON) shows the average health care rate increase for mid-size and large companies was 3.2 percent in 2015, marking the lowest rate increase since Aon began tracking the data in 1996. Aon projects average premium increases will jump to 4.1 percent in 2016.

Aon Hewitt’s 3.2 percent rate of growth includes only premium. When employees’ out-of-pocket costs are included, the reason for the slow growth becomes apparent.

CPI: Hospitals Under Pressure As Physician Prices Rise

BLSNovember’s Consumer Price Index (CPI) indicates health prices are moderating, though still increasing higher than non-heath consumer goods. In the third piece of bad news for hospitals (from their perspective, at least, after the Quarterly Services Survey and the Producer Price Index), prices for hospital services actually dropped (See Table I).