STOCK MARKET WATCH -- Thursday, 30 October 2014

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17. Here's Why You Don't See Skyrocketing Out-Of-Pocket Medical Costs In The CPI Numbers

http://www.businessinsider.com/inflation-numbers-dont-capture-skyrocketing-medical-costs-2014-10

Medical costs rose at an official rate of 1.7% year on year this past September, but the average increase in medical expenses individuals actually paid could easily be far larger. Most importantly, the CPI, as a pure price index, may not reflect the increased cost of living for families who lose employer paid health care coverage. That’s an all too common predicament, given the substantial fraction of part-time jobs created during the current economic recovery.

Nor does the CPI make it easy to see how reduced healthcare benefits raise the cost of living for those who still enjoy employer sponsored plans. As Aflac reports, 56% of employers offering health plans hiked the employees’ share of premiums or copays in 2013, and 59% expected to do so in 2014. Furthermore, the Affordable Care Act (ACA, or Obamacare) encourages this sort of cost shifting from employer to employee through its 40% excise taxon “Cadillac” plans.

The BLS does not measure insurance costs directly when compiling CPI-MED, the CPI’s health care component (h/t Doug Short). Instead BLS assumes that insurance costs rise commensurately with the prices of medical goods and services, plus or minus a margin for profit and administrative costs. Since CPI-MED measures changes in medical prices faced by consumers, it calculates changes in net prices charged to consumers after insurers, if any, have paid their share. As individuals and families pay an increased percentage of their healthcare costs, the BLS will account for that by increasing the weight of CPI-MED within the overall CPI; currently CPI-MED accounts for 5.825% of the overall CPI. Increases in the share of medical expense paid by individuals (as opposed to their insurers), will not affect CPI levels.

Therefore, when the BLS re-benchmarks the CPI this coming February, we can probably expect CPI-MED to carry a larger weight than in the past. An increase in the weight would then tell us how much BLS estimates that the average consumer’s medical care expenses increased as a percent of his or her total expenses.



Read more: http://soberlook.com/2014/10/how-well-does-cpi-measure-individuals.html#ixzz3HcmmNu5d

Read more: http://soberlook.com/2014/10/how-well-does-cpi-measure-individuals.html#ixzz3Hcmdo5pM