The Wall Street Journal has alarming news:
Health-insurance costs are climbing at the steepest rate in years, walloping businesses and their workers. Costs for employer coverage are expected to surge around 6.5% for 2024, according to major benefits consulting firms Mercer and Willis Towers Watson, which provided their survey results exclusively to The Wall Street Journal.
I have trained you all well enough to know what's coming next, right? Here's the chart from the Journal article, but this time adjusted for inflation:¹
Assuming the Journal's numbers to be correct, the cost of health insurance is projected to grow about 2% in 2024—higher than the past couple of years but not a record or anything close to it. Why do people keep doing this stuff?
Always adjust for inflation. Always adjust for inflation. Always adjust for inflation. Always adjust for inflation. Always adjust for inflation. Always adjust for inflation. Always adjust for inflation. Always adjust for inflation. Always adjust for inflation. Always adjust for inflation. Always adjust for inflation.
¹I used an estimate for year-over-year inflation of 4% from this year to 2024.
At what point do you risk adjusting inflation for inflation, and thus conclude that there is no problem with inflation?
Kevin's already there.
Winner.
If you ALWAYS ADJUST FOR INFLATION then you are acknowledging that you are in a cage like a little spinning hamster wheel, and the best you can hope for is it won't spin faster than you can run to keep up with it.
Another way to look at it is to recognize that inflation is not the fundamental datum. Rather, it's the calculated summary of all the price data that go into the calculation. If prices go up, we call it inflation, not the other way 'round.
"Always adjust for inflation. .."
My pension isn't adjusted for inflation so why should I adjust my costs for inflation. Fortunately I am not totally dependent on my pension but my other income isn't reliably adjusted for inflation either.
bingo.
Drum's point isn't that rising prices have zero deleterious effects, or that everyone has adequate income protection. His point is that the headline and tone of the WSJ are not accurate. And in this he's correct. Per Kevin's chart, premiums in real terms rose more in 2021, and also quite a bit higher as recently as 2015.
Wages don't keep up with inflation, so... yeah, this is a problem.
To blithely make conclusions like this without charting nominal costs vs. nominal earnings is rather offensive.
I couldn't agree more. Sometimes Kevin seems to forget there are actual people affected by these increasing costs. It's not all about statistics, and I love statistics.
EXACTLY. I wish he would come down to the comments and reply to points like this. I'm curious what the argument would be. Is this just a math/statistics blog?
Nominal wages have been rising faster than inflation since around 1995, so that real wages have increased:
https://fred.stlouisfed.org/graph/fredgraph.png?g=18zHK
The average has declined since early 2020, but that value was due to the lowest-wage workers being laid off. Real wages crashed badly from 1973 to 1990 so that the current real wage is less than that in 1973. And since 1973 growth of wages has fallen far behind that of GDP/capita or worker productivity.
Yes, for the average production worker, the most relevant metric is probably nominal insurance costs divided by nominal wages. If the rate of increase of real insurance costs is coming down to that of real wages then workers may finally not be paying increasing fractions of their wages. But the cost is still too much and major reform is needed.
Or, as Kevin does, you chart real wages, i.e. nominal wages adjusted for inflation.
What hits most people, especially those who are most likely to vote, is the net cost of health care to their wallets. That would be the deductible, copays, and net contribution that their employer requires, and for self employed, the entire insurance premium. If these amounts go up, for any reason, it is a significant increase notwithstanding inflation. Also, unlike discretionary spending, you really can't cut back on this.
My pension income, except for SSI, is also not adjusted for inflation. The biggest medical cost risk to me is the increases in my Medigap insurance. Of course when the MAGA/GOP takes control of the Federal Government, both SSI and Medicare will likely be at political risk.
Why do people keep doing this stuff? "People" don't do this at all. Publications with an axe to grind do, for example right-wing news sites which want to make Biden look bad.
👍👍👍👍👍
Private / employer provided insurance has probably gone up - benefits changed - deductibles increased, but even for me it is hard to tell year over year given all the misdirection. HSA's benefits come and go too and they mask changes in deductibles. I can only speak of my own insurance, of course. On the other hand, they probably wanted to throw rocks because, apparently, medicare spending has gone flat! Who would have thought?
https://www.nytimes.com/interactive/2023/09/05/upshot/medicare-budget-threat-receded.html
Instead of growing and growing, as it always had before, spending per Medicare beneficiary has nearly leveled off over more than a decade.
The trend can be a little hard to see because, as baby boomers have aged, the number of people using Medicare has grown. But it has had enormous consequences for federal spending.
For what it’s worth… I looked back at a pay statement from two years ago and am still paying $35.50 per pay period today. Vision coverage increased from $3.50 to $4.00. Dental unchanged too. HSA contributions by company cover all my out of pocket expenses… new crown, medication, etc. I don’t make additional contributions to HSA.
The real challenge is the baseline. US health costs are extremely high, based on OECD comparisons. If the price of a Rolex increases 2% this year, while the price of a Timex increases by 5%, is the Rolex a bargain?
i don't give a flying you-know-what about inflation. this is the real world, not some academic exercise, and if income universally kept pace with inflation, kevin might have a point. unfortunately, for most of us, it does not.
yep.
Well, also for most of us, we don’t buy the exact market basket that the BLS uses (which changes over time anyway), so the price rises we experience likely vary from the official figures.
Sometimes it makes sense to adjust for inflation.
Sometimes it does not.
Blindly adjusting numbers without thinking about what you are doing isn't the brilliant idea that Kevin portrays it to be.
In the day-to-day short run that we all live in, it's a simple fact that we pay, and get paid, in nominal dollars. That goes for both casual transactions and long-term spending like mortgages. When we need to pay more for something this week than we did last week or last year, we notice. We exist every day in a world of nominal-dollar expenses and incomes.
This is particularly so now, after a generation of extremely low inflation-- you have to be at least middle-aged to have significant adult experience of generally rising price levels (the housing market is the big exception I can think of and it isn't even close to monolithic). Ditto wage/income levels.
So people are going to notice, and they're likely to get exercised when they do.
OTOH, when you're looking at the long run, and for macro and government-finance purposes, I think Kevin's right that you have to adjust for inflation and think in percent-of-gdp terms about government spending and debt. The context, what you're interested in, is what matters, and talking nominal dollars in these contexts isn't rationally about ability to bear costs, but about scare-mongering.
Politics, especially on the right, has lately been almost entirely about scare-mongering. WSJ is a political publication. Enough said.