Inflation Doesn't Know Quite What to Do With Healthcare

09/17/21 12:33PM EDT

Editor's Note: Below is a brief excerpt from a complimentary Health Policy Unplugged note written by our Health Policy analyst Emily Evans. Click HERE to learn more about Emily's research process and the analysis subscribers receive.

Inflation Doesn't Know Quite What to Do With Healthcare - AdobeStock 21591033

One of the many economic falsehoods visited upon the U.S. has been the manner in which the cost of health care has not been accurately included in inflation reports.

The BLS measures it indirectly based on insurance premiums and cost-sharing. It excludes most of Medicare, all of Medicaid and cash pay. Healthcare's exclusion from an important measure of economic health has allowed it to drift ever upward, constantly fooling policy makers into cures that are worse than the disease. 

Especially since the ACA, benefit expansions and subsidies have driven both costs and consumer prices up. It has been a situation of "too much money following too few goods" as old economists would say.

But don't tell the many White Houses that have committed to continuing that course.

Another head fake for medical cost inflation is that payer reimbursement is typically set months in advance of the plan year's start. Inflation in healthcare expenditures does not appear in the form of higher cost sharing and premiums until well after it has done so in commodities.

Confounding things is the vast amount of money that has poured into the sector in the form of cost sharing waivers for COVID patients; federal support of vaccine distribution and administration, Medicare bonus payments for COVID cases, to mention the big ones.

Cost sharing will eventually return, subsidization will eventually go away but margins will need to be protected.

While Tuesday's inflation number looks tame for the sector, remember, yet to be imputed in that indirect measure of inflation, cost sharing, are labor expenses, PPE and sanitation expense. 

 Inflation Doesn't Know Quite What to Do With Healthcare - CPI

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