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Health care inflation? It’s the insurer administrative costs, stupid.

January 17, 2020

Topics: Quote of the Day

By Dean Baker
Center for Economic and Policy Research, November 13, 2019

Over the year, the overall CPI is up 1.8 percent, while the core index is up 2.3 percent. There is some modest evidence of accelerating inflation in the core CPI.

The major item driving the core inflation rate higher is medical care, with the index rising by 4.3 percent over the last year and at an annualized rate of 6.6 percent, comparing the last three months with the prior three months. This index accounts for more than 11.0 percent of the core CPI.

Within the medical care index, by far the biggest problem is health insurance. This index has risen 20.1 percent over the last year and at a 22.9 percent rate, comparing the last three months with the prior three. It is important to remember that this is just the administrative costs and profits of insurers, this index is not measuring premiums.

The index for hospital and related services is also rising rapidly, increasing by 3.4 percent over the last year and rising at a 7.8 percent annual rate, comparing the last three months with the prior three months. The rapid inflation in this sector likely reflects increased consolidation in the industry. By contrast, the index for professional medical services rose by just 0.1 percent in October and is up 1.6 percent over the last year.

Inflation in most other sectors is well contained.

Overall, this report shows that inflation remains well-contained almost everywhere, with the major exception of the health care sector.



By Don McCanne, M.D.

Everyone is concerned about health care costs, except maybe the insurers. We continue to debate what to do about it. This report should give us some guidance.

Currently inflation is well contained, except in medical care. Professional medical services are not contributing to health care inflation. But because of consolidation in the industry, hospital and related services are contributing somewhat to the increase in the medical care index.

But by far the biggest problem is health insurance. This index has risen over 20 percent in the past year, and that is just for the administrative costs and profits of the insurers, not for premiums.

So what solutions are we debating? Conservatives want market solutions, but they have been unable to come up with any proposals that would not make the situation worse. Moderates want to add to the current system a public option Medicare for Some that would preserve the role of the private insurers who are largely responsible for these inflationary administrative costs and profits. Only those advocating for the single payer model of an improved Medicare for All are supporting a proposal that would eliminate most of these administrative excesses and their unmerited profits.

The perpetual delay in enacting and implementing single payer Medicare for All has wasted trillions of dollars that we could have recovered over the past couple of decades. Are we going to continue with inaction while we have these silly debates over Medicare for All, Medicare for Some, or Medicare for None? Too many are experiencing preventable financial hardship, physical suffering, and even death. Shame on us!

For those who need a reminder of what we could have:

Landmark administrative waste study updated:

Projected costs of single payer in the United States:

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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