- Starting in October, health insurance is likely to act as a balancing force and boost inflation for about a year, economists say.
- Since October 2022, health insurance prices have fallen by about 3% to 4% per month.
- Starting in October, the CPI for health insurance will increase by just over 1% per month for one year.
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It is difficult for economists to quantify health insurance prices.
The BLS does not measure direct consumer costs such as monthly premiums. This is because these premiums do not guarantee the same quality of insurance. For example, benefits and risk factors vary from policy to policy.
“Price changes between health plans of different quality cannot be compared, and any quality adjustment methods to facilitate price comparison would be difficult and subjective,” a BLS fact sheet states.
Instead, the agency measures health insurance inflation indirectly, based in part on health insurers’ profits. Profit margins serve as an indicator of consumer prices.
The BLS updates these calculations once a year in October.
It looks like health insurance prices, as measured by the CPI, are “bouncing back,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.
Health insurance Since October 2022, prices have fallen about 3% to 4% monthly, helping to reduce inflation at a time when other metrics have proven stubbornly high.
Now the consumer price index for health insurance will rise a little more than 1% a month for a year starting in October, said Mark Zandi, chief economist at Moody’s Analytics.
At the beginning of the Covid-19 pandemic, health insurers’ profits skyrocketed. Consumers continued to pay premiums but were generally not allowed to visit doctors or hospitals for elective procedures.
However, consumers used their insurance more frequently in 2021. Insurers’ overall profits shrank because they paid out more insurance benefits compared to 2020. Therefore, the monthly inflation figures turned negative.
The BLS’s updated calculation will assess insurers’ profits in 2022, which were higher than last year – and that is the dynamic that will be reflected in the upcoming CPI update, Zandi said.
The Federal Reserve has been aggressively raising interest rates since the beginning of last year to curb persistently high inflation. Financial experts believe the central bank is nearing the end of this cycle, if not already.
The annual inflation rate has fallen significantly to 3.7% from its pandemic-era peak of 9.1% in June 2022 – the highest since 1981. But it’s not back to its destination yet.
Anything that keeps inflation high could increase the likelihood that the Federal Reserve will raise borrowing costs again, economists say. Federal Reserve Chairman Jerome Powell said in August that inflation “remains too high” and that the Fed “stands ready to raise interest rates further.”
When assessing inflation trends, policymakers tend to prefer a measure that ignores potentially volatile food and energy prices. This measure is known as “core inflation.”
Getting back to target would require steady core CPI readings of about 0.2% per month, economists said.
The health insurance index subtracted about 3 basis points, or 0.03%, from the core CPI for a month, Zandi said. That will change in October. He estimated this would increase the monthly core CPI by over 1 basis point, or 0.01%.
Last year, health insurance reduced the core CPI by more than 0.2 percentage points. Next year it will rise by less than 0.1 percentage points, said Zandi.
“In the grand scheme of things, it’s small,” he said. “But when you’re fighting for every basis point of inflation, that’s important.”