CPI: Medical Price Hikes Match Inflation

BLSBoth the Consumer Price Index and the price index for medical care rose just 0.1 percent in February. This is the sixth month in a row we have enjoyed medical price relief in the CPI. Even prices of prescription drugs dropped by 0.2 percent. Some components – medical equipment and supplies, outpatient hospital services, and health insurance jumped a bit, but not enough to drive overall medical prices higher. Medical price inflation contributed nine percent of CPI for all items.

Over the last 12 months, however, medical prices have increased much more than non-medical prices: 3.5 percent versus 2.7 percent. Price changes for medical care contributed 11 percent of the overall increase in CPI.

More than six years after the Affordable Care Act was passed, consumers have not seen relief from high medical prices, which have increased over twice as much as the CPI less medical care since Obamacare took effect.

See Figures I, II, and Table I Below the fold:

Many observers of medical prices decline to differentiate between nominal and real inflation. Because CPI is has been low until recently, even relatively moderate nominal price hikes for medical care are actually substantial real price hikes.

Figure I demonstrates medical prices have increased over twice as much as CPI less medical care since March 2010, when the law was signed.


Figure II demonstrates the same since December 2013, the last month before plans in force in Obamacare’s exchanges started coverage.



Technical Note: Professor Christopher Conover explains why some scholars de-emphasize 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.

Comments (1)

Trackback URL | Comments RSS Feed

  1. Paul Nelson says:

    It would be simplistic to attribute the advancing cost of healthcare as reflecting Parkinson’s Law: work expands to use the resources available. It would be important to look at the community by community utilization of resources to begin any systematic explanation. A somewhat similar study appeared in JAMA in June of 2016 that looked at the national relationship, census tract by census tract, between reduced longevity and a person’s income. It confirmed the general association for most communities, but not all. There some communities where there was no association of longevity and reduced income. The only correlation found with census tract characteristics was the increased prevalence of citizens with college education, presumably a measure of an enhanced level of SOCIAL CAPITAL. This example only suggests that global economic trends may reflect the interaction of many factors.