Medical care is one of the seven major groups of consumer items within the Consumer Price Index (CPI). Medical care services, which includes physician's services and hospital services, is the dominant component of medical care. The CPI for Medical care services is organized into two item groups: Professional medical services and hospital and related medical services. A third item group for health insurance is part of medical care services but is not separately published. See the table for definitions and sample sizes.

The base period weight for each CPI item group is the out-of-pocket expenditures households incurred for that item in 1982-84. The weights for CPI care reflect household expenditures for health insurance premiums as well as for out-of-pocket medical expenses (those not covered by health insurance). The CPI does not include employer-paid health insurance premiums nor government-paid health care such as Medicare; these are considered part of consumers' incomes and not their expenditures. Consequently, the share of medical care in the CPI is smaller than its share of the gross domestic product and other national accounts measures.

The Bureau of Labor Statistics (BLS) does not publish indexes for health insurance premiums because it employs an indirect method to measure price change for health insurance. This indirect approach reflects estimates of the impact on premium levels of: 1) Changes in the prices of medical care items covered by health insurance policies; 2) changes in the cost of administering the policies; and 3) changes in the cost of maintaining reserves and, as appropriate, profits. It excludes changes resulting from modifications in policy benefits and increased or decreased use of medical insurance. Increased use is an increase in the quantity of medical insurance consumed, and not an increase in its price.

Quality changes

One of the most difficult problems for the CPI is to accurately quantify changes in the quality of CPI items and to factor these quality changes out of the items' price movements. A BLS field representative selects an item for the CPI, and describes it by enumerating all its quality-determining attributes. Each successive time a field representative collects the price of the CPI item, he or she also compares its current specifications to that of its previous description. If any of its specifications change a quality improvement or deterioration may have occurred. In addition, because quality change often accompanies price change, when the price of an item changes significantly, the field representative asks the respondent to identify the specific cause of the price change for that item.

When there are changes in an item's specifications or significant changes in its price, an analyst in the national office who specializes in the item, reviews the data for it carefully. The analyst, using both information from the field representative on the item in question and knowledge about the market for it, determines if quality change has occurred. If so, and if the analyst can identify the value of the quality change, the value of that quality change is removed prior to calculation of the index. However, if the quality change is significant, and the analyst cannot determine its value, that item is not used in calculating the index for the month the quality change is reported. For example, for the physicians' services index, suppose one of the items selected is an office visit to recheck a patient's ears, a service a nurse had previously performed. Upon visiting the outlet, to collect the current price, the field representative discovers that the physician now performs the procedure, the price has increased, and the price change is strictly due to the change from the nurse to the physician performing the same procedure. This change in price, due to the change in the quality of the service provided, would not be shown in the index.

Alternate fees

In an effort to obtain transaction prices (prices actually paid and received), the CPI began in 1985 to select some fees other than the "paying patient rate" for physicians' services. Alternate fees represent fees other than "list prices" and reflect a discounted fee based on type of health insurance such as private insurance, Medicare, Blue Cross/Blue Shield, and preferred provider organizations. In 1992, the CPI extended alternate fee reporting to dental and eye care providers, if available. Medicaid or other public assistance rates are not eligible because they are government subsidized and apply to individuals and households who meet certain income requirements. BLS will soon attempt to obtain alternate fees for hospital room, other inpatient hospital services, and outpatient hospital services in cities undergoing sample rotation. However, in the case of hospitalization, Medicare rates are not eligible because Medicare Part A is considered an entitlement program, financed through taxes.

Additional information on medical care services may be found in the Monthly Labor Review, May 1988 "CPI Revision Provides More Accuracy in the Medical Care Services Component;" and the Handbook of Methods, Chapter 19, "The Consumer Price Index". Definitions of published medical care services indexes and the number of unique price observations (quotes) as of April 1993

Source: U.S. Department of Labor, Bureau of Labor Statistics URL: http://stats.bls.gov/cpifact4.htm Last modified: August 24, 1995