Let’s compare what the BLS says to an annual survey from KFF, a healthcare research nonprofit organization. 
A family’s health insurance costs nearly $24,000 this year after the biggest increase in more than a decade.
The Wall Street Journal reports Health Inflation’s Big Hike This Year, in Charts
The cost of employer health insurance rose this year at the fastest clip since 2011, according to an annual survey from KFF, a healthcare research nonprofit. The 7% jump in the cost of a family plan brought the average tab to nearly $24,000—more than the price for some small cars.
Workers’ average payment of $6,575 for those plans was nearly $500 more than last year.
Inflation Has Hit Health-Insurance Costs
Inflation in the economy spiked in 2022. It hit health coverage this year because hospitals tend to renegotiate fees with insurers only every few years, so the increases they sought to cover their own costs are now in turn affecting premiums.
Employers and workers may see similar boosts in 2024, according to benefits consultants.
The KFF Employer Health Benefits Survey was conducted between January and July 2023. It included 2,133 employers that responded to the full survey.
Average Annual Change
I looked at those charts and said Whoa!
I track the CPI every month and medical care services is one of the things I follow.
A BLS Fact Sheet explains Measuring Price Change in the CPI: Medical Care, emphasis by the BLS.
The medical care index is one of eight major groups in the Consumer Price Index (CPI) and is divided into two main components: medical care services and medical care commodities, each containing several item categories. Medical care services, the larger component in terms of weight in the CPI, is organized into three categories: professional services, hospital and related services, and health insurance. Medical care commodities, the other major component, includes medicinal drugs and medical equipment and supplies.
CPI Year-Over-Year Percent Change Medical Care
I have been watching that chart in disbelief ever since medical care services went negative in May of 2023.
I did not comment because I had no hard data.
Seeing that KFF chart, I immediately knew what’s going on. The explanation is below. See if you can figure it out while I go over the numbers.
Medical Care Services Year-Over Year
- May: -0.1%
- June: -0.8%
- July: -1.5%
- August: -2.1%
- September -2.6%
Medical care services consists of Professional Services, Hospital Services, and Insurance.
CPI Weights for 2022
- Medical Care Commodities: 18% of Medical Care
- Medical Care Services: 82% of Medical Care
- Professional Services: 45% of Medical Care
- Hospital Services: 28% of Medical Care
- Insurance: 9% of Medical Care
What’s Going On?
- The relative importance of medical care only includes out-of-pocket expenditures, its share in the CPI is smaller than its share of gross domestic product (GDP) and other national accounts measures. GDP includes reimbursements that are fully paid for by public sources and employers, increasing medical care’s share of GDP.
- Employer paid portions of insurance premiums and fully tax-funded medical care (such as Medicare Part A and Medicaid) are not considered out-of-pocket, and therefore not used in weighting the indexes.
- Even though insurance premiums are an important part of consumers’ medical spending, the CPI does not directly price health insurance policies. In a direct approach, we would track the movement of insurance premiums, holding constant the quality of insurance, and use these price relatives to build the Health Insurance index. However, the CPI has been unable to consistently control for changes in quality such as policy benefits and risk factors. Price change between health plans of varying quality cannot be compared, and any quality adjustment methods to facilitate price comparison would be difficult and subjective. As a result, we developed an indirect approach called the retained earnings method.
The items above are direct quotes from the BLS medical fact sheet, emphasis mine.
I was aware of those points for a long time but could not come up with better numbers until I saw the chart from KFF.
Brief Synopsis of What’s Going On
- Costs paid by Medicare and Medicaid do not factor into the calculation.
- Costs paid by your employer do not factor into the calculation.
- Quality of care does not factor into the calculation.
- Insurance is imputed.
- Aging demographics means an increasing number of people are on Medicare, Medicaid, and disability. As a result of demographics alone there are negative pressures on the CPI medical care care services index.
This is how the cost of hospital care is up 4.7 percent year-over-year (undoubtedly understated by a mile) while the overall category of Health Care Services is allegedly down 2.6 percent from a year ago.
The same synopsis applies to medical care commodities as well. These undercalculations are no small matter, dampening the reported CPI at a demographically increasing rate.
Even Shorter Synopsis of What’s Going On
It’s total BS from the almost appropriately named BLS.
The Cost of Eating Out is Skyrocketing
Meanwhile, The cost of eating away from home has increased at least 0.4 percent for 25 of the last 27 months!
For discussion please see The Cost of Eating Out is Skyrocketing, Are You Cutting Back?
Krugman Says “We Won the War on Inflation at Very Little Cost”
Given that nobody eats, pays for gasoline, or needs shelter, Nobel prize winning economist Paul Krugman Says “We Won the War on Inflation at Very Little Cost”
I failed to note that those who pay for their own health care insurance don’t matter either.
[…] On the healthcare front, a family’s health insurance costs nearly $24,000 this year after the biggest increase in more than… […]
Not new news… been in works since 2005
curious how account for net premiums on subsidized ACA insured i.e. 2000K moth premium reduced by subsidy to 1200 is it accounted as 1200 or 2000? Also interesting see the strategy from 2020 to increase excise tax on employers to discourage employers from offering high premium “platinum” coverage and to require increase employees necessary contributions to disincentivize them from choosing platinum coverage…
punch line from CBO report :”High and rising premiums for private health insurance are a matter of concern for enrollees. They also affect the federal budget, because the federal government subsidizes most premiums—directly or indirectly—at a cost of roughly $300 billion in fiscal year 2016. Lawmakers have therefore expressed interest in examining the factors that affect premiums.”
link to cbo.gov
“The federal government subsidizes health insurance for most Americans under age 65 through various programs and tax provisions.”
“Although premiums for private insurance have grown relatively slowly in recent years, they have usually grown faster than the economy as a whole and thus faster than average income. Over the period from 2005 to 2014, premiums for employment-based insurance grew by 48 percent for single coverage and by 55 percent for family coverage. CBO and JCT expect them to grow at similar rates over the next decade—by about 5 percent per year, on average, or about 2 percentage points faster than income per capita. As a result of that growth, average premiums for employment-based coverage are projected to be about $10,000 for single coverage and about $24,500 for family coverage in 2025, nearly 60 percent higher than they were in 2016.”
“How Do Federal Subsidies, Taxes, and Fees Affect Premiums?
The federal government subsidizes health insurance premiums in two main ways. First, nearly all premiums for employment-based insurance are excluded from federal income and payroll taxes. That tax exclusion, estimated to cost more than $250 billion in fiscal year 2016, subsidizes roughly 30 percent of the average premium for employment-based coverage. Second, under the Affordable Care Act (ACA), the federal government offers tax credits to people who buy nongroup coverage through a health insurance exchange and meet various other criteria. Those premium tax credits are projected to cost about $40 billion in fiscal year 2016.
Not only do the subsidies reduce the portion of the total premium that enrollees must pay; they also affect the total amount of the premium. Both subsidies encourage relatively healthy people to enroll, which reduces insurers’ average spending for enrollees’ health care and thus helps to reduce premiums. However, the tax exclusion also provides an incentive for employers to offer, and for employees to select, more extensive coverage than they otherwise would—which raises total premiums. (The tax credits do not have that effect because their value, unlike the value of the tax exclusion, does not increase when people purchase more extensive coverage.) On balance, CBO estimates, the tax exclusion increases average premiums for employment-based coverage by 10 percent to 15 percent.
Various federal taxes and fees also affect premiums. Starting in 2020, a new excise tax on employment-based plans with relatively high premiums is scheduled to take effect; for people who buy those plans, the tax will roughly offset the incentive to obtain more extensive coverage that the federal tax exclusion provides. Consequently, employers and employees affected by the tax are expected to choose less expensive coverage than they would have otherwise—and as a result, the tax is expected to reduce average premiums. Other federal taxes and fees imposed on insurers, by contrast, tend to raise average premiums, because the insurers generally pass the costs on to all purchasers.”
I love hedonics. But does the BLS compare today’s industrial beef with 100% organic beef from 1913? Does it compare today’s GMO corn with 100% organic corn from an era when every farmer was an organic farmer? Watermelons one hundred years ago took an entire season to slowly ripen. Thus it was sweeter than today’s growth-accelerated melon. How about clean water? No one paid for pure drinking water a century ago. I’m sure there are other examples of comparisons.
Check out what Wolfstreet has been writing about it. This October, I believe, is the last month before a yearlong downward adjustment is replaced by an upward adjustment in the CPI, constituting a large swing.
Cooked books.
Ed Dowd has detailed the millions of vax injuries using data showing massive increases in disabilities in the working age population in the US since the covid vaccines were rolled out.
These people need serious medical care. This will be putting huge pressure on the system and also driving up costs
And the worst of the vax injuries is still to come. The more vaccines/boosters you get the worse it is. It’s estimated that 50% of the people that took the vaccines will be dead in 5 years.
The spending on Medicare & Medicaid is unsustainable.
1) Big business foisting on us too much salt, sugar and junk food, big pharma and
the medical institutes are hunting us, robbing us.
2) Family insurance : in 2000 $5000. In 2023 $24,000. 24,000/5,000 = 4.8.
The compound interest is 7%/y, while the average inflation was 2% :
1.07^23 = 4.74.
3) The internet may provide u with some knowledge & solutions : Dr Nathan Bryan, Dr
Richard Johnson, Dr Robert Lustig and Dr Rouzita Rashtian root canals and Dr
Mark Burhenne : keep your stupid mouth shut, zip it at night, for oral NO production
4) If u are addicted ==> skip.
Garbage statistics. I just completed enrollment for 2024 in my employer plan for Kaiser HMO. My annual costs are up 30.8%.
We had a 34% increase last year and a 24% increase this year for the same plan.
Since I retired I can almost heat my house just by burning the heaps of Medicare ‘Enhancement’ insurance sales pitches that fill my mailbox daily. There must be thousands of firms in this desperate business! As well as the mountains of pitches from firms that want to insert themselves into your utility bill. Weasels all. They seem to be America’s fastest growth ‘industry’.
Wait, you mean that the #1 cost outside of home ownership that’s bankrupting the USA is underreported in CPI? WOW! I would have never guessed. And we all agree that housing is under reported as well do to gimmicks in OER & rent. WOW Who would have thought? So that 9.1% CPI 15 months ago was really 13-16%? WOW! Again, who would have thought this could happen?
Health Care Costs Are Soaring, So Why Does the CPI Show Falling?
Simple: we’re being misled, manipulated, maligned and lied to, in manifold means, by mainstream media (and, for you conservatives, Fox is as corrupt as the rest – just ask RFK, Jr. of his dealings with Roger Ailes), big pharma, big tech, and, so saddeningly, by the folks we trusted enough to vote into office.
With integrity, nothing else matters; without integrity, nothing else matters.
Agree. Fox is now part of the MSM owned by Big Pharma which is why they don’t talk about vaccine injuries. I heard Tucker Carlson was able to do this as his contract allowed him to talk about anything he wanted without censorship.
Fox is the mouthpiece of the Republican party and the Israeli lobby. CNN has converted to less political spin and more of a professional outfit. CNN has anchors on the ground in Israel, Fox has second string reporters. I’m independent and don’t need political spin.
Then there are those who don’t see their doctor and get medical care in order to avoid the costs.
Except there is no avoiding it. The government takes ~3% of your check off the top for medicare, plus the same amount again from your employer which they’re not allowed to mention on your paycheck, but it is your pay all the same. They also take whatever they’re paying for your insurance out of your paycheck plus some amount again that they pretend is a benefit. The government then runs a huge deficit on medical, roughly 1/3 of all their spending, which immediately devalues the rest of your pay. All in the medical grift takes 1/5 dollars out of the economy and likely your paycheck, if not more even if you never see a doctor’s face.
its 1.45% always for employers; for single employees it is 1.45% on the first 200K then 2.34% beyond; on joint filers its 1.45% on the first 250K and then 2.34% beyond.
And that’s a big problem as little curable issues can become nightmares very easily if undetected ie cancer, high blood pressure/ kidney failure
link to wolfstreet.com
Glad someone else here is smart enough to follow WolfStreet. Mish should, he’d understand the healthcare CPI glitch a lot better.
When BLS reverses the flawed healthcare adjustment going forward, CPI is going to surge again. Stock and bond markets won’t like that.
Thanks Wisdom Seeker. I hope too Mish will take a look at WolfStreet. Amazing the amount of info there.
Using “retained earnings” to measure the price of health insurance is similar to the shenanigans of using “owners equivalent rent” to measure housing costs. The goal is to keep the CPI numbers as low as possible.
Congratulations to the bureaucrats at the BLS for keeping the CPI numbers low. You’d think they get a bonus for things like keeping the social security COLA to only 3.2% next year. But nope, they’re just doing their jobs.
“BLS” = Ball Licking Shit.
I am retired and my taxable income is barely in six figures. In a typical year medical costs are over one third of my income. That is because a High Deductible Health Plan for my wife (not on Medicare) and son (full time college student) is about $22,000 per year with $7,000 deductible per person, my Medicare Part B, Part D, and MediGap premiums are about $4,000 per year, and we have health care expenses of about $6,000 per year (dentist, eyeglasses, prescriptions, doctor visits). So that is $39,000 on $110,000 income. The cost of medical insurance is the one item that I didn’t factor in well in my retirement planning.
Ouch. On the plus side, fairly soon your son will pay for his own insurance saving you 11K and once your wife qualifies for medicare that will save you another 7K (her 11K should go drop to the same 4K you pay).
So at least there is a light at the end of the tunnel and it’s not a train (at the moment).
Of the $22,000, about one third is for my son, two thirds for my wife. I have been thinking about having my son go on Medicaid since the dependent tax credit for a 21 year old student is only $500 and Medicaid is “free”. And my wife will go on Medicare but that is six years away.
we have had good results w college kids going on school plans- better coverage and cheaper than being on our plan
And that is a perfect example of how the government will reduce inflation while continuing inflationary policies. The lower government inflation rate will mean that when you make more money (to cover actual inflation), you will be pushed into a higher tax bracket. Additionally, SS and other items indexed to inflation will be lower.
It’s a win win situation for government. When you get to make the rules, it’s easier to win.
Interesting piece. You should dig deeper. The intuition seems to be that when the government subsidizes consumer services, the CPI can’t keep track of the true cost of those services (and it’s not designed to do that). But the consumer will at some have to pay for those services through other channels, e.g. taxes or inflation.
BLS is the official government Three Letter Abbreviation (TLA) for BS.
Could you imagine being tasked with producing a figure and just saying, “It’s hard so we’re just going to put whatever we feel like.”? That is literally everything out of the Bureau of Lies and Scams (BLS). I’m surprised anyone pays any mind to their headline numbers.
My wife recently fell and had a small fracture in her arm. After going to the nearby clinic for initial diagnosis, she had to go to a follow-up at the huge, newly built orthopedic clinic. I was blown away by this facility. It is adjacent to one of the largest hospitals in Orlando. The orthopedic clinic itself is 7 stories tall. The parking garage across the street exclusive for the ortho clinic, is also 7 stories and must have room for 500 cars or better. The clinic has its own operating rooms, 75 overnight recovery rooms, gift shop, cafeteria etc. The waiting rooms and lounge areas are plush with artwork and with views of downtown Orlando. The place is the Taj Mahal to orthopedic practices. No wonder healthcare costs are zooming.
RJD,
Sounds really nice. I watched a video about the Taj Mahal a few years back. Amazing. Unfortunately it is surrounded by some of the worst slums in the world.
I get really nice, 8.5×11″ full color flyers in the mail on a regular basis from hospital groups in my area. The information is general information on what the hospital is doing. I don’t understand this waste of money. I’m sure it’s small compared to overall costs, but doesn’t make sense. I also see tons of hospital construction – new construction, add-ons, and renovation. Big surge lately.
Trying to cash in on Covid injuries and Boomers
I recently heard of multiple new hospital cancer treatment centers being built. There is a significant increase in the number of people being diagnosed for cancer. Treatments and medications for cancer are $$$$$$$.
No surprise there with all the untested vaccines and leaky nuclear plants around Not to mention all the carcinogenic crap in our groundwater supplies
Welcome to Columbus, Ohio. Sick-care is BIG business here. And another new hospital about 2.5 miles away, to open next year. We have multiple cancer facilities and pharmaceutical businesses. Healthy people don’t put doctors’ kids through elite universities.
no doubt cashing in on pickle ball injuries and fall injuries from all the cheerleading competitions held in Orlando- friend who is ortho surg- told me they bought new $120k Bronco Raptor with pickle ball injury surge in rev… he didn’t even want a new truck but the mattress was full so new money had to be moved…
Not everybody has insurance as for those who are self employed or not on an employment healthcare plan and in good health it can be cheaper to take the risk of an accident and for planned treatments to go overseas on a medical holiday. How do they factor in those who don’t have health insurance and pay for their medical care themselves?
How do they factor in those who find it cheaper to buy medicines from overseas?
I went without insurance family of 3 for 30 years but I had a good friend who treated us for next to nothing bless his sole Luckily never any major episodes
Nothing to see here. Although the price went up a lot, the outcomes improved even more so what you’re seeing here is a hedonic adjustment. And you can’t prove we’re wrong so just shut up and carry on.
Life expectancy has gone down the past few years, right? So I would say no positive hedonic adjustment should be made. It’s astounding that family health insurance can be $24,000 a year. What about copays and deductibles? Those keep increasing also. BLS is so full of BS it’s breathtaking!
This is quality sarcasm, please keep up the good work!