On Tuesday we’ll get some new inflation data with the release of the October Consumer Price Index. It tracks price changes in a representative sample of everyday living expenses – everything from housing to food to health insurance. Starting with this report, the Bureau of Labor Statistics, which crunches these numbers, has changed the way it calculates that last expense – health care – in a way that could recalibrate the CPI just a bit.
For many people, health insurance costs equal premiums, according to Stephen Juneau, senior economist at Bank of America Securities. BofA is a marketplace insurer.
“Everybody’s looking at their pay stubs, and you’re kind of getting updated premiums from your employer,” he said.
Those went up this year – by about 7% – according to the Kaiser Family Foundation. But the health insurance index, as measured by the CPI, went down this year.
That’s because it doesn’t track health insurance premiums, said Steve Reed, an economist for the CPI program at the BLS. “It’s a little more complicated than you might expect or hope,” he said.
More complicated because one person’s premium doesn’t necessarily buy the same thing as another person’s. Health plans have different benefits and consumers use them to different degrees.
So the CPI simply measures how much of those premiums health insurers keep after paying for services.
Lately, it’s been a little crazy, says Matthew Fiedler of the Brookings Institution.
“One of the big things that happened during the pandemic was that people put off a lot of elective care because they didn’t want to go to the hospital,” he said. “And so insurance did quite well that year.”
That pushed the health insurance index up dramatically, only to pull it down again when people went back to the doctor in subsequent years.
“It’s a kind of noise that doesn’t reflect the pricing of health insurance,” said Laura Rosner-Warburton, a founding partner at MacroPolicy Perspectives who helped design the new BLS methodology.
The calculation will now reflect a two-year average of data that will be updated more frequently.
“It should be much less disruptive,” she said. “It will be smoother.”
The change will likely push the October CPI up a hair, Rosner-Warburton said, but will make the stats more meaningful in the long run.
