CPI vs Reality: Medical Care Costs Soar Out of Control

Mish

The BLS reports once again that inflation is tame. Reality depends on your needs.

According to the BLS, the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.3 percent in November on a seasonally adjusted basis, after rising 0.4 percent in October. Over the last 12 months, the all items index increased 2.1 percent before seasonal adjustment.

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Increases in the shelter and energy indexes were major factors in the seasonally adjusted monthly increase of the all items index. Increases in the indexes for medical care, for recreation, and for food also contributed to the overall increase. The gasoline index rose 1.1 percent in November and the other major energy component indexes also increased. The food index rose 0.1 percent, with the indexes for both food at home and food away from home increasing over the month.

Hooray! Inflation Tame

Hooray, inflation as measured by the BLS is only up 2.1% from a year ago.

But does your basket match this?

CPI Percentage Weights

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Those buying their own health coverage will tell you that chart is absurd.

Medical Plans

I went to NerdWallet for some quotes. My base case was a husband and wife making a combined $100,000, both aged 60, non-smokers, with no dependents.

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Same Couple Making $60,000

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Synopsis

  • For a couple, aged 60, making $100,000 per year, "affordable" care costs $19,776 right off the top. Then there is a max out of pocket expense of $8,150 per person. Yes, per person.
  • For a couple, aged 60, making $60,000 per year, "affordable" care costs $3,804 right off the top. Then there is a max out of pocket expense of $8,150 per person.

The BLS tells us, medical care is only 6.654% of the "average" household expense.

Average includes all those on medicaid and medicare. It also includes those on company plans.

It does not count corporate costs. Why? The BLS is only concerned with "consumer" prices. No other measures of inflation are important.

Averages take into consideration the average person does not go to the hospital.

Heaven help you if you actually need help.

What About Home Prices?

Good question, especially if you want to buy a house.

Owners' Equivalent Rent is the largest component in the CPI, accounting for a whopping 24.281% of the CPI.

The Owners’ Equivalent Rent (OER) Calculation method is absurd.

The expenditure weight in the CPI market basket for Owners’ equivalent rent of primary residence (OER) is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence: “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?

Home Prices vs OER vs Earnings

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Already have a home?

If not, don't expect to find an affordable one. Sorry. You simply do not fit the BLS mode where averages rule.

BLS Model vs Reality

If you are in school, looking to buy a home, buying your own health care, or even having insurance but getting sick, then your measure of the CPI will be dramatically different than what the BLS tells you.

If you are 65, on Medicare, and own your own home. Congratulations. You fit the BLS CPI mold perfectly!

Mike "Mish" Shedlock

Comments (33)
No. 1-12
Stuki
Stuki

The idea is exactly the same as it was in the Antebellum plantation economy that progressivism is modeled on: Every penny anyone is capable of producing, above his very subsistence, is to be confiscated for the leeches’ benefit.

The sole variation, being that the currently fashionable “justification” for the loot is now unbridled “democracy,” instead of some variation of White Man’s Burden. Hence, some breadcrumbs of the confiscated loot, is now being spent on buying votes from those who are no longer able to produce even for their own subsistence.

Hence, self righteous deadweight above 65 who never saved a penny, now cheer for Massa to rob other people’s children. As do those who prefer working half time for $60K (in your example), vis-a-vis those who work a bit more to earn $100K. It’s all about getting Massa to rob someone else, the field Niggas, as long as Me-Me-Me get a percent or two of the loot and get to be house Nigga. Which is fine by Massa, who get to keep the remaining 98% and lord it over all his little niggas, without having, in any way shape nor form earned any of it.

Harry-Ireland
Harry-Ireland

Honestly, this is beyond shocking. Aside from the horrible reality of living in a post-truth reality, where every figure is either fake or heavily manipulated, I blame the media for not doing their job. They perpetually engage in lies and propaganda, rather than exposing this fraud, this incredible corruption. Luckily, there are people like Mish who ARE in fact exposing this. Stuff like this should be on the news every single day until it's resolved. I guess we all know, they serve interests, opposite of the people's. Something has to give and considering the swamp is obviously populated with bankers, central bankers and Wall Street executives....it'll probably be a carefully orchestrated series of events, eventually leading to a global digital currency. Ban all cash, track, tax and control every single transaction. I think, 2 decades from now, our world will look completely different in this regard. And....it's all for our benefit, of course, winkwink!

Greggg
Greggg

Remember when the unions were pushing for "National Healthcare NOW!"? John Dingle's (D) primary career goal was to get it implemented, "serving" as a US Representative from 1955 to 2015... that was after his own father spent 16 years cheer leading the same agenda. Well now we got it and the rank and file has found out what it's all about. Just another corrupt corporate lead sheep-sheering chapter in their book of tricks and CONgress, being what it really is, will advance bills through CONgress that will never pass, ect, ect, just to keep their illusion of virtue alive.

JonSellers
JonSellers

I'm 57, working, six-figure income, own my home outright, live 5 miles from work and drive a Honda Civic. In my world there is almost zero inflation. Gas prices could double and it might cost me an extra $1000 between my wife and I. I wouldn't even notice. It's a sweet spot to be in.

I actually could retire, but I just can't abide the idea of paying $20k+ for health insurance. There is no bigger rip-off on the planet. Like Stuki says above, it makes us all field niggas. That is just about what my employer pays for health insurance for my wife and I. But that's modern America. Anything to avoid competition and a market based economy.

Carl_R
Carl_R

No CPI type index can ever match "your" personal expenditures. Trying to create such a thing is an exercise in futility, for reasons too numerous to mention. That's why I have long preferred the more accurate GDP deflator, which is much simpler to produce, and doesn't need adjusting.

That said, it's important to remind people that the CPI is not just a number. It is a number that is used to adjust people's Social Security checks. If the CPI is off even a little, over the longer term, it makes a huge, huge difference in the standard of living of the elderly. There will be real effects, obvious effects, that will tell you something serious is wrong.

Let's pretend for a moment that the Shadow Stats inflation index is completely correct, and the CPI is flawed. If true, that leads inescapably to the conclusion that the standard of living of the elderly has fallen by about half since the 1990's. Now, if the standard of living of the elderly has fallen by half, surely all the nicer Senior living homes would close, and we would build warehouses for the elderly where they are simply turned every hour, and fed, until they pass away, and surely the gray panthers would be marching on Washington demanding attention to their concerns. I don't see any of those things happening, so obviously the CPI is fairly close to reality, and the number from Shadow Stats is well off the mark.

Note, though that due to the nature of a CPI type index, there will be some people who will see more inflation than the CPI, and some who will see less. Human nature being what it is, though, we will all pay more attention to the things going up fast, and little attention to things not going up, or falling.

Realist
Realist

The US health care system is twice the cost of most single payer systems. It does not cover everyone. It causes financial distress for Americans who need a lot of care. And Americans are always complaining bitterly about it.

Yet, many Americans will still defend it compared to single payer systems. As I keep saying, the US will eventually bring in a single payer system, but not until they try everything else; and see health care rise to 25% of GDP compared to 18% today.

Alexll
Alexll

OK, I think it's my first time posting here. I've been reading Mish for many years now. Thanks for this great blog. And I'm infuriated. These medical costs are beyond outrageous. They are destroying people's lives and someone is getting rich off of it. What is really causing this? Is it lack of competition among insurance companies?

SMF
SMF

A quick glance of history will see how healthcare cost have risen in direct proportion to government intervention.

Since the cost per capita here is so much more expensivehere, an actual solution to this problem would be someone, anyone telling us how much money they are going to save us, not how much more it would cost.

hmk
hmk

Is Inflation Hot or Not? It Depends on the Gauge. By Lisa Beilfuss Dec. 13, 2019 4:22 pm ET Order Reprints Print Article

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Inflation is painfully stubborn, if you ask the Federal Reserve. Or it’s running hot, also if you ask the Fed.

Which one is it?

In recent years, the Federal Reserve’s Open Market Committee, responsible for setting monetary policy, has said its preferred inflation gauge is the PCE. That’s short for the personal consumption expenditures price index, and it has been tepid—consistently running below the Fed’s 2% inflation target and last registering at 1.4% (or 1.6% when you back out food and energy prices, as economists like to do). PCE’s so-called core measure hasn’t touched 2% since last year, and it hasn’t held above it for any meaningful stretch for about a decade.

Then there are the regional Fed banks, some of which devise their own inflation gauges using the CPI, or consumer price index. These measures tell a different story. Take the Atlanta Fed’s Sticky-Price CPI, which is a weighted basket of items that change price relatively slowly. It’s running at 2.8%, with or without food and energy prices. What’s more, it has been above 2% since mid-2014.

Core Questions Inflation is running hot or cold dependingon the gauge. Core Inflation Readings Sources: Bureau of Economic Analysis; AtlantaFed; Bloomberg Note: Data represents annual monthly changes;excludes food and energy prices % Consumer Price Index Atlanta Fed Sticky CPI Personal Consumption Expenditures 2000 ’05 ’10 ’15 ’20 0 1 2 3 4 Atlanta isn’t alone. The Cleveland Fed’s core CPI has been registering above 2% for a while, as has the Dallas Fed’s. And that’s not to mention the Labor Department’s own core consumer-price index, which has held at or above 2% since early 2018.

The divergence in PCE and CPI largely can be explained by how health-care and housing prices are treated, says Peter Boockvar, chief investment officer at Bleakley Advisory Group in Fairfield, N.J.

PCE has a bigger health-care component than its peer, and the problem, says Boockvar, is that it measures Medicare and Medicaid reimbursement rates. Because those rates are set by the government, he says the PCE is pulling in artificially low prices because they’re not true market prices reflecting what consumers are spending. “It’s not an accurate measure of real inflation,” Boockvar says.

By contrast, CPI measures out-of-pocket health-care costs such as deductibles.

This all matters because the Fed’s interest-rate policy hinges on inflation continuing to undershoot its 2% target. The Fed this past Wednesday said it would leave interest rates unchanged after three consecutive cuts, and more importantly, it telegraphed that rates aren’t likely to budge for the foreseeable future. Updated economic estimates released by the Fed underscore a view that inflation won’t consistently run at 2% until 2021.

“I would want to see a significant rise in inflation that is also persistent” before moving interest rates higher, Fed Chairman Jerome Powell said following the rate decision.

This all makes sense, but only if you look at PCE and ignore the CPI gauges.

It wasn’t always this way. Market veterans might remember that CPI used to be the dominant inflation measure on which investors focused. When the Fed started issuing quarterly economic projections in 2007, it picked PCE as its inflation metric.

For investors, the upshot is that the favoritism isn’t likely to reverse soon—meaning the sanguine rate environment should continue. “No one wants to be the one to end the party,” Boockvar says.

But there’s another side effect that investors might heed. Wages have been stagnant a long time, and key to lifting real wages is low inflation. Favoring an inflation gauge that some say is artificially low translates to less juice for workers’ purchasing power. Higher pay leads to higher consumer spending, and that’s the heart of the U.S. economy.

Write to Lisa Beilfuss at lisa.beilfuss@barrons.com

hmk
hmk

“The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” The Rothschild brothers of London writing to associates in New York, 1863.

On occasion, the truth is fully exposed, even though the deliverer of that truth never meant for it to be seen by the public eye. In the case of the Fed, as the Rothschild’s pointed out, the truth is evident but will not be comprehended by the general population. Actually, the truth is not even desired, for acceptance of this truth, and reversal of the scam, would cause financial upheaval and hardship, and therefore would require individual responsibility. In this country today, the widespread acceptance of personal responsibility is clearly absent, so accepting the truth and the consequences of that truth is avoided at all cost. But this avoidance will only cause the associated problems to increase in severity over time, and when the levee finally breaks, the flood of misery may be insurmountable. The “mentally incapable” masses spoken about by Rothschild will likely not awaken in time, so their fate is almost certainly already established.

Against the State: An ... Llewellyn H. Rockwell Jr. Best Price: $5.02 Buy New $8.56 (as of 06:50 EST - Details)

The fascist control of money began in earnest in 1913 with the creation of the Federal Reserve System, and is now reaching its pinnacle, and is moving ever closer toward total monetary destruction. The elite controllers that hold a monopoly on all money production will protect themselves, but the rest of society will be financially destroyed due to the nefarious deeds of this criminal banking cartel. Those in government responsible for reporting on such matters hide facts about real inflation, but it should be obvious to any “normal” person that the inflationary environment in this country has reached exceedingly dangerous levels. With that said, the imminent monetary collapse will bring such monstrous inflation that few will be able to comprehend the massive scope of this upcoming event.

Currently, it seems panic has taken the lead in this race toward a monetary breakdown. It has been announced that the Fed will pump $500 billion (1/2 trillion dollars) over just the next 30 days. This grand expansion has been going on for decades, but was dramatically increased over 10 years ago after the Fed induced housing collapse, and has never subsided. Since last September, the Fed has been creating money out of thin air at an alarming pace to fund “repurchase” operations in order to stop a huge market crash, which of course would require even more fake money in what is being labeled as the next round of counterfeiting called QE4. All of this is said to be an attempt to prevent financial Armageddon, but it has gotten completely out of control, and is a powder keg ready to explode.

The Fed balance sheet will increase over the next month by $365 billion (1/3 trillion dollars) to a level of over $4.5 trillion, an all time high. This is reason for major concern, as the Fed is now in a position of no return, which indicates that massive continuous monetary expansion will be deemed necessary in order to delay market failure. This should concern all Americans, as this train is headed toward financial hell, and all the brakes are gone.

End The Fed Ron Paul Best Price: $2.18 Buy New $8.43 (as of 08:10 EST - Details)

I realize these numbers are not truly fathomable by most, and that alone is reason to take cover with the understanding that this insanity cannot continue without dire consequences in uncharted waters. If the markets continue to remain at these levels, and collapse does not happen during this round of excessive expansion, the situation will not have been corrected, but made worse. That will bring additional measures of money printing, and simply increase the severity of this looming financial disaster. The banking system and Wall Street will continue to print and steal this money, knowing full well that they will survive, while the rest of society is financially raped.

The very people responsible for the problem have now been forced to expose the risk, and have nowhere to hide. The money pumping is now virulent, and is so open at this stage, that it is impossible not to recognize the carnage expected by the controlling elite. Total economic chaos is in our future, and the longer this is pushed down the road, the worse it will be for all of us. As I said earlier this year:

“If the people continue to evade all moral responsibility, to spend and consume while hiding their heads in the sand, allowing for the destruction of their worth, then the state will reign supreme, and the resulting tyranny will be beyond even Orwell’s imagination.”

The Best of Gary D. Barnett

Cajundoug
Cajundoug

It’s appalling that we don’t call our healthcare system what it is, racketeering. Americans with good insurance from large corporations are happy to see others screwed. It’s also appalling that we buy the story that not doing anything about drug prices makes for all of the innovations in drugs, when we know that the drug companies spend much more on marketing than research. I don’t usually watch TV or read magazines, but when I do I find the drug commercials disgusting.

Expat
Expat

What's the problem? This is exactly what Americans want: free market capitalism in health care. 'Murica nummer wun! And don't go blaming this on Obamacare either. That is bullshit. American health care was expensive and crappy well before Obamacare. In any case, Obamacare was written by the pharma and medical industries (insurance as well), not by "socialists". So if you want cheap health care that works, move to the system that every other civilized country on earth uses: government organized, centralized, socialist health care.
If you don't want to be "commie" (because you are an ignorant fuckwit), then go ahead and go broke and then die because you can't afford treatment. Honestly, the world is better off without ignorant, racist, xenophobic Americans.