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Health insurance is getting cheaper, inflation report claims

Great news! Did you know that health insurance premiums fell 4.1% last month, and are down nearly 5% from a year ago?

Neither did we. But that’s what the government estimates in the latest official inflation calculations, out Tuesday.

So confirmed the US Department of Labor to MarketWatch.

Technically the government green eyeshadows aren’t claiming that actual premiums fell 4.1%, only that the government’s health insurance premium “index” fell that much, a department analyst explained. The index is what they use to calculate the overall rate of consumer inflation.

Confused? Us too.

The explanation: Based on the insurance company’s profits, the government reckons we are all using our health insurance more than we were a year earlier, so we are getting more bang for each buck of health insurance premium we pay.

When you adjust the cost of those premiums to reflect that, the “effective price” is down, they say.

(They do something similar to other stuff, too, like technology, which is subject to so-called “hedonic adjustments,” so that if this year’s $1,000 iPhone is better than last year’s $1,000 iPhone, the government says the “effective price” went down.)

Even the Labor Department admits it is a “methodological quirk.” That’s one way of putting it.

To make it even more confusing, these calculations aren’t based on what really happened in February anyway. These are annual adjustments they make, using health insurance data…from 2021.

So these numbers are a year out of date, too. People used their health insurance much more in 2021 than they did in 2020, because in 2020 they were under virtual house arrest. And then, in February 2023, the government announced that health insurance premiums just fell 4.1%.

Nothing to see here folks, move along.

Based on this magic accounting, the government claims that the prices Americans paid for healthcare services fell by 0.7% last month—an annualized rate of nearly 3% — and by more than 2% from a year ago.

This is one way the official inflation figures can show a helpful easing of inflationary pressures in February, even while Federal Reserve Chairman Jay Powell spent the month telling everyone who would listen that inflation was running too hot and he needed to keep interest rates higher for longer .

Until SVB blew up at the end of last week, the markets were so worried about inflation they were penciling in a half-point rate hike for the next week, and more to follow.

Meanwhile the latest inflation figures—however you want to calculate them—raise a growing risk that seniors may face a painful “double-whammy” later this year when Social Security calculates the next cost-of-living adjustment.

That’s because the actual inflation rate paid by seniors is running hotter than the official CPI, which is the one the government uses for the COLA.

The consumer-price index for the elderly jumped 0.61% last month, or at an annualized rate of 7.5% (and yes, that’s even after accounting for the “decline” in health insurance premium costs). The so-called “CPI-E” index, calculated to reflect the typical shopping basket of the over 62s, was up 6.5% over the past 12 months, compared to 6.0% for the mainstream price index.

Based on recent inflation trends, the Social Security cost of living adjustment calculated later this year “could be less than 3% while the CPI-E would be around 4.7%,” warns Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, a nonpartisan group that represents seniors.

That’s assuming the official inflation index continues to slow, and slow faster than the index for seniors, she says.

Johnson added that the organization has not yet issued any formal forecast for the COLA, which will be announced in the fall and is based on consumer prices from July to September.