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Health Care & General Inflation

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(@pizzaman)
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How is Health Care Inflation (entered on home tab) handled in PRC? I assume Heath Care inflation is General Inflation (also entered on home tab) PLUS Health Care Inflation and that % is added to health care costs on Expenses tab / Healthcare for each successive year. Is the healthcare inflation also added to Medicare premiums going forward?


   
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(@hines202)
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The health care inflation you enter will be added to the general inflation and used for your health care costs. The whole healthcare thing is kind of up in the air right now with the possibility in the new legislation of dropping the Medicare age to 60. But, if you're retired between 60 and 64 and getting health care from ACA, it should be inexpensive as is Medicare, so not a huge difference, I wouldn't think.


   
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(@smatthews51)
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Hi Pizza Man,

I had to look at the code to answer your question. Medicare premiums are strictly adjusted according to the general inflation rate. In retrospect, though, I'm wondering whether that's correct in light of the fact that the tool provides an alternate mechanism for healthcare inflation. What do you think? I'm definitely not inclined to make any changes in the 2021 model but want to make it right in the 2022 model.

Stuart


   
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(@pizzaman)
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Its not clear to me how Medicare premiums are adjusted year to year. It doesn't appear to be just related to inflation, however you determine that. I found these two links:

Like the COLA, the 2021 Part B premium will be announced in October after the Centers for Medicare & Medicaid Studies (CMS) makes adjustments based off the CPI-W and other data gathered from BLS. https://www.wemakemedicareeasy.us/blog/largest-cola-increase-in-a-decade-for-part-b-projected-for-2022.aspx

The Medicare-and-COLA math underscores the broad challenge retirees face in protecting themselves against inflation. Social Security is the only retirement benefit that provides any type of built-in inflation protection - one of the key reasons that the program is so valuable.

Still, rising healthcare costs pose a broader threat for retirees. Medicare’s trustees are forecasting annual Part B premium increases averaging 5.9% through 2028 - well ahead of general inflation.

Advocates for Social Security expansion hope to address the widening gap between healthcare and general inflation by adopting a COLA formula called the CPI-E (for elderly). This is an experimental index maintained by the U.S. Bureau of Labor Statistics that more accurately reflects the inflationary forces impacting seniors, such as healthcare. It has risen slightly more quickly than the CPI-W over the past decade - so it would help, but only a bit. https://www.reuters.com/article/us-column-miller-medicare-idUSKBN1XM2C1


   
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(@pizzaman)
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Looked into Medicare a little more: The Center for Medicare & Medicaid Services (CMS) administers Medicare & Medicaid. For the National Health Care Dollars for FY 2020, 23% is Medicare, 18% is Medicaid (total for the two 41%), Private Insurance 36%, Out of pocket 11%, others 12%. https://www.cms.gov/files/document/cms-financial-report-fiscal-year-2020.pdf. Where the annual increase in Medicare premiums comes from still looks like a black box to me, but Table 1 - National Health Expenditures and Selected Economic Indicators, Levels and Annual Percent Change: Calendar Years 2012-2028 https://www.cms.gov/files/zip/nhe-projections-2019-2028-tables.zip-0 apparently shows what CMS looks at to determine premium changes. The forecast of annual Part B premium increases averaging 5.9% through 2028 in my last post apparently comes from this table. This percent increase in not related to general inflation. So, since there are predictions on the future of Part B premiums, adding a specific inflation input into PRC for Part B premiums above general inflation may be a good idea. A separate input for inflation for non-medicare costs??????????????????????


   
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(@pizzaman)
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Got the annual increase in Medicare premiums figured out:


Today, most Medicare beneficiaries pay the standard monthly premium, which is set to cover 25 percent of Part
B and Part D program costs, but a relatively small share of beneficiaries (around 6 percent in 2015) with
incomes above $85,000 for single people and $170,000 for married couples are required to pay higher
premiums for Medicare Part B and Part Dranging from 35 percent to 80 percent of program costs, depending
on their incomes (Figure 1).

Monthly premiums for most people on Medicare
equal 25 percent of average per capita Part B
expenditures for Part B enrollees and 25.5 percent
of average per capita Part D expenditures for drug
plan enrollees.

https://files.kff.org/attachment/data-note-medicares-income-related-premiums-a-data-note


   
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(@pizzaman)
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I read an article about funding problems with Social Security (SS) and other programs (sorry I lost the link somehow) and it stated that Medicare Part B & D premiums are based on what it actually costs to run those two parts, in that they will never run into funding problems, like SS and Part A which are based on wage taxes. Of course Medicare needs to predict what cost will be in the coming year to set premiums and one of the things they look at is anticipated inflation. I did find an article that talks about how Medicare is funded: https://www.medicare.gov/about-us/how-is-medicare-funded and this article that explains medicare premiums to some degree: https://medicareguide.com/medicare-premiums-287354

I also saw this article about health care inflation: https://www.sanabenefits.com/blog/healthcare-inflation/

The U.S. healthcare inflation rate, or the “the year over year change in the healthcare component of the U.S. Consumer Price Index,” was 3.06% in January 2023 — lower than it was at the end of 2022 (hovering around 4%) but higher than it was a year prior (2.47% in January 2022).

Historically, healthcare inflation outpaces inflation in the rest of the economy. Medical care costs have risen a cumulative 110.3% compared to the Consumer Price Index for all urban consumers’ (CPI-U’s) 71% since July 2000.

However, inflation in the broader economy is not always reflected in health sector prices immediately. This is because contracts between payers and providers are often signed for multiple years, and payers set rates prospectively. This means that, once inflation hits providers, they have to wait until it’s time to renegotiate their contracts with payers to raise prices. In turn, payers can’t raise premiums until their customers’ renewal date.

Such a lag time was observed last year. According to KFF, “In October 2022 overall prices grew by 7.7% from the previous year, while prices for medical care increased by 5.0%.” But healthcare inflation is likely to catch up to, if not outpace, overall inflation eventually.

What I find confusing is how does health care inflation fit into general inflation, the various Consumer Prices Indexes (CPI), Personal Consumption Expenditures (PCE) price index, Medicare, etc. PCE is explained at this web site: https://www.federalreserve.gov/faqs/economy_14419.htm

An entity that produces indexes is BEA: https://www.bea.gov/resources/learning-center/what-to-know-prices-inflation

So, long story short, what does the health care inflation number we plug into PRC actually do?? Does adding health care inflation to general inflation and then applying it to all heath care costs in PRC truly reflect health care cost we pay? Are we double counting some costs? Or am I getting to picky? 😕. I think it would be a good thing to understand even if it does not impact what we input into PRC. Thoughts??


   
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 NC
(@nc-cpl)
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@pizzaman Funny you should pose this question on HC inflation and it's relation to general inflation. WSJ just had an article yesterday on this topic and specifically cll out HC, BUT, I couldn't isolate healthcare inflation as a measure independent from general inflation - just that it;'s folded into CPI and PCE at different percentages. Maybe Stuart can shed some light on how this field made it's way into PRC and where he gets the data from. It's always been a questionable entry for me too.

Had to attach as text file because pdf was too large to post

This post was modified 1 year ago 2 times by NC

   
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(@smatthews51)
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@pizzaman PRC inflates healthcare premiums and out-of-pocket costs at a rate = general inflation + healthcare inflation, and it does the same for the IRMAA brackets. I've been thinking recently that it might be more appropriate to inflate the IRMAA brackets at the general inflation rate while continuing to inflate the resulting premiums at the general inflation rate + healthcare inflation. What do you think?

Stuart


   
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(@smatthews51)
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@nc-cpl All I can add here is to say that I was aware that healthcare costs had some history of exceeding the general inflation rate, so I added the capability for users to specify a delta value. Then I applied it to all healthcare-related expenses, including the IRMAA brackets. In retrospect, I'm not sure applying the delta to the IRMAA brackets is the right thing to do.

Stuart


   
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 NC
(@nc-cpl)
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Thanks Stuart and let me clarify because "questionable" may not have been the right word to use. What I meant was I have not seen healthcare inflation expressed independently from General inflation - it always seems to be expressed as a portion of inflation so I'm never quite sure what to put in that field.


   
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(@pizzaman)
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The IRMAA for Part B and Part D is calculated according to your income. To determine whether you are subject to IRMAA charges, Medicare uses the adjusted gross income you reported on your IRS tax return two years ago. https://www.socialsecurityintelligence.com/the-2023-irmaa-brackets/

So yes, I would only use general inflation for IRMAA.


   
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(@wallace471)
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Attached is the most recent inflation analysis by economist Mark J. Perry (I mentioned this previously in another topic). The data is obtained from the BLS.

Eyeballing the slopes on the chart with a linear fit to the trend over the time period shown (Jan 2000-Dec 2022), it looks like Hospital Services increase at an annual rate of 227.2/23=9.78% and Medical Care Services increase at an annual rate of 132.3/23=5.75%. Note that the general inflation is captured on the chart as 76.1/23=3.3% over that period.

https://twitter.com/Mark_J_Perry/status/1616903822118649858

https://www.visualcapitalist.com/inflation-chart-tracks-price-changes-us-goods-services/

https://www.aei.org/carpe-diem/chart-of-the-day-or-century-8/


   
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(@pizzaman)
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So do we subtract general inflation from the health care numbers to get "real" inflation numbers for health care? Is that even a thing? 🤔


   
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(@wallace471)
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@Pizzaman I read this as the actual inflation rate for the selected item. I suppose that "Health Care" = "Medical Services"? Or perhaps some combination (average?) of Medical Services and Hospital Services? That "Overall Inflation" rate is the CPI. So the various rates for services, goods, wages, etc. were apparently extracted from the CPI by Perry using the BLS data.


   
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