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Posts tagged with: "HLTHSCPIBLEND"

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The high(er) price of health

Our purchases cost more and more over time, given inflation. Tracking the price index for personal consumption expenditures is one way to measure inflation. And the FRED graph above shows that, since 2000, personal consumption expenditures (purple line) have become 40% more expensive. This amounts to an annual rate of inflation of about 1.8%.

Price indexes can be computed for specific spending categories as well—such as food, energy, and health. The Health Expenditures Price index is also shown in this graph (blue line): It’s the way the Bureau of Economic Analysis tracks the price of heath expenditures for households.

The graph reveals how much faster the price of health expenditures is growing relative to the price of general consumption expenditures: It took 19 years for general consumption expenditures to become 40% more expensive, while it took only 7 years for health expenditures to do that. So, the inflation rate for health expenditures is much higher: 3.7% per year.

How this graph was created: On FRED’s main page, search for “Personal Consumption Expenditures”; find and select “Personal Consumption Expenditures: Chain-Type Price Index.” Use the “Edit Graph” menu’s “Add Line” option to search for “Blended” and select “Health Expenditures Price Index, Blended Account Basis.” Click on “Add data series.” In the Units box, choose “Index (Scale value to 100 for chosen date)” and choose the year 2000. Then click “Copy to all.” Return to the graph and restrict the view to 2000-01-01 to 2020-01-01.

Suggested by Guillaume Vandenbroucke.

View on FRED, series used in this post: HLTHSCPIBLEND, PCEPI

Healthy inflation?

Inflation in the healthcare industry vs. general CPI

Some components of the consumer price index have consistently, over several decades, risen faster than the rest. This blog recently discussed education as one such component. The components of the CPI devoted to medical care have also seen faster price increases than the rest of the basket. Going back as far as the series are available, since 1948, the price of medical care has grown at an average annual rate of 5.3% while the entire basket, headline CPI, has grown at an average annual rate of 3.5%. In the past 20 years, in the regime of stable inflation, headline CPI has grown at an average annual rate of 2.2%, whereas the price level of medical care has grown at an average annual rate of 3.6%—about 70% faster.

The graph above shows the two time series. Besides the difference in their levels, it’s also notable how much less cyclical medical care inflation is. Although overall CPI inflation dips during recessions, medical care inflation stays steady.

The implication of these two features is far reaching: It’s symptomatic of the increasing share of income the U.S. spends on medical care. Beyond macro trends, the features of these two series themselves have policy implications. Indeed, indexing government healthcare budgets to overall CPI rather than medical care prices has implications for spending in real terms. This gap could also widen during recessions, when government help may be most in demand.

The CPI is intended to measure the price of goods consumers purchase directly, and therefore the medical care subset is actually measuring only the prices of out-of-pocket expenses. For healthcare, however, there’s a great deal of other spending going on. And the inflation rate of that spending is something a policymaker might need to know. Luckily, the BEA puts together a more holistic price index for healthcare spending—the health expenditures price index—which we add in the graph below. Although the history of this series is shorter, this measure of healthcare prices is still rising considerably faster than headline CPI: In 2001-2013, this measure of healthcare inflation rose almost 4% per year, whereas headline CPI rose 2.3% in this period and the other healthcare CPI rose 3.9%.

How these graphs were created: For the first graph, search for “Consumer Price Index Medical.” In the “Edit Graph” tab, convert the units to “Percent Change from a Year Ago.” Then use the “Add Line” feature to search for “Consumer Price Index All Items.” Add this line and again check that its units are the same. (FRED does this automatically, but it doesn’t hurt to check.) These series are both also available as chained indices, but for a shorter period. For the second graph, add to the first another line by searching for “Health Expenditures Price Blended Account.” Then restrict the period to show the entirety of the new line.

Suggested by David Wiczer.

View on FRED, series used in this post: CPIAUCSL, CPIMEDSL, HLTHSCPIBLEND

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