I 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.
Looking at the Altarum Institute’s latest Price Brief, it reports 12-month CPI ending in four different periods: November 2013, November 2014, October 2015, and November 2015. The average of all four measurements is 0.8 percent. The average of the medical CPI is 2.65 percent.
Yes, that is low by historical standards. However, it is still 1.85 percentage points higher than CPI. If we look back over the very long term, CPI averages about three percent and medical CPI about five percent. That is, medical prices faced by consumers increase about two percent faster than overall CPI. So, the new normal is not much of an improvement.
Looked at another way, 1.85 percent is almost two and a half times more than 0.8 percent. So, if a consumer experiences health inflation relative to general inflation, he will think it’s even worse than he used to (because two percent is less than one half more than five percent).
[Professor Conover’s article explains why some scholars dismiss CPI and medical CPI as appropriate measures of inflation for health care, preferring another dataset, Personal Consumption Expenditures (PCE). There are very good reasons for such a conclusion. However, CPI comes out monthly. The PCE price index is updated only quarterly, and that is only for services. Prices for goods, such as drugs and medical devices, are updated only annually. Plus, consumers only really care about price increases they experience directly, not price increases borne by other economic actors.]