- Economists say health insurance is expected to act as a countervailing force for inflation for about a year starting in October.
- Health insurance prices have fallen by about 3% to 4% every month since October 2022.
- Starting in October, the CPI for medical insurance will begin to rise by just over 1% from the previous month.
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It is difficult for economists to quantify the price of health insurance.
The BLS does not measure direct consumer costs, such as monthly insurance premiums. This is because you cannot buy insurance of the same quality with that premium. For example, benefits and risk factors vary from insurance to insurance.
According to the BLS, “Price changes between health plans of different quality are not comparable; quality adjustment methods to facilitate price comparisons will be difficult and subjective.” fact sheet.
Instead, the agency measures health insurance inflation indirectly, based in part on health insurance company profits. The profit margin acts as a proxy for consumer prices.
BLS updates these calculations once a year in October.
Andrew Hunter, deputy chief U.S. economist at Capital Economics, said health insurance prices, as measured by the CPI, appear to be “starting to recover” again.
Health insurance Since October 2022, prices have fallen by about 3% to 4% a month, helping to bring down inflation at a time when other indicators have proven stubbornly high.
Mark Zandi, chief economist at Moody’s Analytics, said the health insurance CPI will start rising at just over 1% month over month for a year starting in October.
In the early days of the COVID-19 pandemic, profits for health insurance companies soared. Consumers still paid premiums, but were generally not allowed to visit doctors or hospitals for elective procedures.
However, consumers used insurance more frequently in 2021. Insurers’ gross profits shrank as they paid out more claims compared to 2020. As a result, the monthly inflation rate turned negative.
The BLS’s latest calculations will assess insurers’ profits in 2022, which was stronger than the previous year, and that will be reflected in future CPI updates, Zandi said.
The US Federal Reserve has aggressively raised interest rates since the beginning of last year in an effort to curb persistently high inflation. Financial experts predict that central banks are nearing the end of their cycle, if not yet.
Annual inflation has fallen significantly to 3.7% from a pandemic-era peak of 9.1% in June 2022 (the highest since 1981). However, he has not yet returned to his goal.
Economists said anything that leads to persistently high inflation could increase the likelihood that the U.S. Federal Reserve will raise borrowing costs again. Fed Chairman Jerome Powell said in August that inflation “remains too high” and that the Fed was “ready to raise rates further.”
When assessing inflation trends, policymakers tend to favor indicators that take into account volatile food and energy prices. This measure is known as “core” inflation.
Economists say core CPI measurements would need to maintain a sustained rate of about 0.2% per month to return to target.
The health insurance index is subtracted by about 3 basis points (0.03%) per month from the core CPI, Zandi said. Things will change in October. He calculated that it would push up monthly core CPI by more than 1 basis point (0.01%).
Over the past year, health insurance has pushed down core CPI by more than 0.2 percentage points. Next year’s increase will be less than 0.1 percent, Zandi said.
“It’s a small thing in the grand scheme of things,” he said. “But it’s important when you’re fighting for every basis point of inflation.”
