CPI

You are currently browsing articles tagged CPI.

Slowing medical CPI may not last

November 13, 2008 in Supply of Medical Services | No comments

The Bureau of Labor Statistics reports that Medical CPI is only 3.2%.  This is less than the 4.1% average inflation rate over the past ten years and the 6.0% average medical inflation rate over the past 30 years.  In most markets, a slowing economy reduces demand and reduces prices (see the recent decline in oil prices).  With the economic slowdown, will medical care get cheaper soon?

Joe Paduda predicts not.  Why?

  1. Insurance.  Less people will have insurance for two reason.  First, as people lose their job, they will also lose their health insurance.  Secondly, as firms profits decline, it is likely that some firms will drop their health insurance benefits. When less people have insurance, this  will lead to more charity care by doctors and less on-time payment by patients.  Doctors will have to raise prices in order to compensate for the increased number of patients who don’t pay their bills.  However, for elective procedures where patients bear most of the cost, physicians may actual decrease costs (see “Red Light Special…“).  
  2. Utilization.  How will the worsening economy affect medical care utilization.  Mr. Paduda claims that as the economy worsens, individuals that still have insurance will ”…get all their elective procedures done, prescriptions filled, and preventive care taken care of while still on their employer’s policy.”  However, the causation could go the other way as well.  If you have a health plan with significant deductibles or coinsurance, you may want to forego medical care in order to save more money (since you just lost your shirt in the stock market).
  3. Retroactive Adverse Selection.  With the economy in a downturn, firms are most likely to layoff younger workers with less seniority.  This means that the insurance pool at the firm will be older and more expensive to serve.  Thus premiums increase which could lead to firms dropping health benefits (see point 1).

Tags: , , ,

Medical CPI

May 13, 2008 in Economics - General, HC Statistics | Permalink

For many years price increases in the medical sector has outpaced overall inflation by a significant amount. According to the Bureau of Labor Statistics, here is the increase in consumer prices over the last few years.

Year Medical CPI CPI Δ
2001 4.7 1.6 3.1
2002 5.0 2.4 2.6
2003 3.7 1.9 1.8
2004 4.2 3.3 0.9
2005 4.3 3.4 0.9
2006 3.6 2.5 1.1
2007 5.2 4.1 1.1
2008 (est.) 3.2 3.1 0.1
Average 4.2 2.8 1.5

Medical inflation is outpacing general inflation by an average of 1.5% per year. But is this measure of medical inflation accurately measured? Not according to paper by Joseph Newhouse (1992). Here are 4 reasons why not.

  1. Medical CPI measures input, not final goods. The CPI for medical services focuses on inputs such as physician visits or hospital days. However, the service the patient consumers is treatment for a specific disease. An increase or decrease in the requisite number of doctors visits is a change in the input towards treatment. A true measure of medical CPI would measure how the price to treat a disease changes over time.
  2. Actual Prices not observed. Generally, statisticians use the list price as the price of medical services. However, very few people pay this list price. Most individuals have insurance and these insurance companies negotiate bulk discounts. Thus, the list price is not the relevant price for most individuals.
  3. Quality changes. Even if one uses the same amount of inputs in treating a disease, the quality of medical care has likely increased over time. Of course, observing quality changes in medical care is extremely difficult.
  4. Medical CPI weight out-of-pocket expenses. Medical CPI weighs the cost to consumers of medical spending. However, since most people have health insurance, items which are paid more frequently out of pocket receive a higher weight. For instance, dental care is more frequently paid out of pocket and thus receives a higher weight in the CPI. [I am not sure if this weighting has changed in more recent versions of the medical CPI].

Tags: , ,