How are health insurance costs reflected in inflation calculations?
How are health insurance costs reflected in inflation calculations?
Tuesday we’ll get new inflation data with the release of the October consumer price index. It tracks price changes in a representative sample of day-to-day living expenses — everything from housing to food and health insurance. Starting with that report, the Bureau of Labor Statistics, which crunches these numbers, has changed how it calculates that last expense — health care — in ways that could recalibrate the CPI just a tad.
For a lot of people, health insurance costs equal premiums, according to Stephen Juneau, senior economist at Bank of America Securities. BofA is a Marketplace underwriter.
“Everyone’s looking at their pay stubs, and you’re getting kind of updated premiums from your employer,” he said.
Those went up this year — by about 7% — according to the Kaiser Family Foundation. Yet the health insurance index as measured by the CPI went down this year.
That’s because it doesn’t track health coverage premiums, said Steve Reed, an economist for the CPI program at the BLS. “It’s a little more complicated than one might expect or hope,” he said.
More complicated because one person’s insurance premium doesn’t necessarily buy the same thing as the next person’s. Health plans have different benefits and consumers use them to varying degrees.
So the CPI just measures how much of those premiums health insurers retain after paying for services.
Recently, that’s been kind of wacky, said Matthew Fiedler with the Brookings Institution.
“One of the big things that happened during the pandemic was people put off a lot of elective care because they didn’t want to be going into the hospital,” he said. “And so insurance did pretty well that year.”
That sent the health insurance index up dramatically, then dragged it down again when people went back to the doctor in subsequent years.
“It’s kind of noise that is not reflective of health insurance pricing,” said Laura Rosner-Warburton, a founding partner at MacroPolicy Perspectives, who helped shape the new BLS methodology.
The calculation will now reflect a two-year average of the data, which will be updated more frequently.
“It should be a lot less disruptive,” she said. “It’s going to be smoother.”
The change will likely bump the CPI up a hair for October, Rosner-Warburton said, but make the stats more meaningful in the long run.
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