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USING APPROPRIATE PRICE INDICES FOR ANALYSES OF HEALTH CARE EXPENDITURES OR INCOME ACROSS MULTIPLE YEARS

This document provides guidelines to help ensure consistency and avoid confusion about the use of price indices with MEPS expenditure or income data.

Table 1 contains a summary of the recommended applications of different indices described in this document while Tables 2 and 3 provide the actual price indices for 1996 (first MEPS survey year) through the most recent year available.1


Table 1: Crosswalk of Price Indices and MEPS Analyses

  Recommended Index
Objective of Analysis GDP1 CPI2 or PCE1 PHCE3
Total
PHCE3
Component
Trends in Expenditures X      
Trends in Out of Pocket Expenditures Only   X    
Pooling Total Expenditures     X  
Pooling Expenditures by Type of Service
(e.g. prescription medications)
      X
Trends with Income Measures   X    

1 See http://www.bea.gov/national/#gdp for more information on the Gross Domestic Product (GDP) or Personal Consumption Expenditures (PCE).

2 See http://www.bls.gov/bls/proghome.htm for more information on the Consumer Price Index (CPI).

3 See http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/downloads/dsm-14.pdf for more information on the Personal Health Care Expenditure (PHCE) component of the National Health Expenditure Accounts.


1.  Comparing Total or Out-of-Pocket Expenditures for Different Years

1.1  Total Expenditures

Most often, comparisons are made of aggregate expenditures of one type or another. As a simple example, total expenditures for the U.S. civilian non-institutionalized population were $553 billion in 1997 and $811 billion in 2002 (both in nominal terms). Comparisons may also be done on a per capita basis, for certain subpopulations, or for certain types of services or drugs (for example, antidepressants). Regardless, the same considerations and options for adjusting expenditures to make cross-year comparisons apply.

  • Guideline 1: Make comparisons in nominal (or unadjusted) dollars. That is, leave expenditure estimates as they are, but document this clearly.

  • Guideline 2 (recommended): Use the Gross Domestic Product (GDP) price index1 to put in constant dollars (also known as real or inflation adjusted dollars). For example, to express the 1997 total expenditure estimate in 2002 real (inflation adjusted) dollars, an analyst should multiply the 1997 estimate of $553 billion by a factor of (85.055/78.097) (obtained from Table 2). When compared to actual expenditures in 2002 of $811 billion, this inflated expenditure estimate ($602 billion) indicates that about $209 billion more was spent on health care in 2002 than 1997, after accounting for inflation.

Explanation: In making these comparisons, what we are really asking is how has the amount of society’s resources devoted to health care changed over time. One option is to simply make expenditure comparisons in nominal terms but this does not account for price inflation—a dollar today is not worth a dollar tomorrow. A general price index should be used to put dollar figures into constant terms, because it provides an overall sense of what a dollar can buy today vs. yesterday, be it health care or something else.

While the Consumer Price Index (CPI) is the better known general index, the GDP price index is preferable for a number of reasons. Most notably, the composite CPI only covers about 60 percent of the economy, omitting rural consumers, government purchases, and investment goods. Given the high proportion of health care expenditures that comes from federal, state, and local governments, it is especially important to use a price index, such as the GDP index, that is broadly reflective of the entire U.S. economy. The GDP price index is also used by the Centers for Medicare and Medicaid Services (CMS) in the National Health Expenditure Accounts (NHEA).


1.2  Out-of-Pocket Expenditures

  • Guideline: Use the Consumer Price Index (CPI all-item all urban consumers) or alternatively the Personal Consumption Expenditures (PCE) Index--See Table 2.

Explanation: The CPI does not include government purchases and investment goods and is the most widely used price index for consumer spending. The PCE index is an alternative that can also be used.


Table 2: Price Index Series (updated April 2016)

Year GDP1 CPI2 PCE1
1977 35.209 60.6 34.091
1987 59.935 113.6 59.650
1996 76.767 156.9 77.981
1997 78.088 160.5 79.327
1998 78.935 163.0 79.936
1999 80.065 166.6 81.11
2000 81.89 172.2 83.131
2001 83.755 177.1 84.736
2002 85.04 179.9 85.873
2003 86.735 184.0 87.572
2004 89.118 188.9 89.703
2005 91.985 195.3 92.261
2006 94.812 201.6 94.729
2007 97.34 207.342 97.102
2008 99.218 215.303 100.065
2009 100.000 214.537 100.000
2010 101.226 218.056 101.653
2011 103.315 224.939 104.149
2012 105.220 229.594 106.121
2013 106.935 232.957 107.572
2014 108.694 236.736 109.105
2015 109.782 237.017 109.440

1 Bureau of Economic Analysis, National Income Product Accounts Tables, http://bea.gov/iTable/iTable.cfm?ReqID=9&step=1
Section 1 Domestic Product and Income
Table 1.1.4 Price Indexes for Gross Domestic Products
Line 1 Gross Domestic Product (GDP) and Line 2 Personal Consumption Expenditures (PCE))
Index numbers, 2009=100
Note: Indices are revised periodically, check the Bureau of Economic Analysis website for most current data.
Data last accessed April 5, 2016.

2 Bureau of Labor Statistics, Consumer Price Index-All Consumers,
http://data.bls.gov/cgi-bin/surveymost?cu
U.S. All items, 1982-84=100
Note: Indices are revised periodically. Data last accessed April 5, 2016.


2.  Pooling Two or More Years of MEPS Expenditures For Average Annual Estimates

Occasionally, sample size limitations make it necessary to pool two or more years of MEPS expenditure data to produce expenditure estimates of acceptable precision (for example, to analyze infrequently occurring health conditions or small demographic subpopulations).

  • Guideline 1 (total): If pooling total expenditures, use the Personal Health Care Index, CMS Office of the Actuary (see Table 3, column 1).

  • Guideline 2 (service type): If pooling only one type of health care expenditure, for example prescription drugs, then use the price index for that component of the Personal Health Care Index (see Table 3, columns 2-10).

Explanation: Pooling expenditures requires a price index that is specific to health care services. Essentially, we are trying to mimic an annual expenditure estimate rather than compare inflation adjusted resources used for health care over time. But health care prices change from year to year, and faster than overall price inflation, so we need to account for these health care price changes when pooling.

The Personal Health Care Index is recommended over two alternatives, the CPI component specific to medical care (CPI-M) and the GDP price index for medical care. The Personal Health Care Index reflects total personal health care expenses, which is more appropriate than the CPI-M which only reflects out of pocket expenses. The Personal Health Care Index is preferable to the GDP price index for medical care because the GDP index includes some expenses extraneous to MEPS such as those for medical research and public health programs. The CMS Office of the Actuary constructs the Personal Health Care Index based on components of the CPI-M and the Producer Price Index (PPI), and additional composite indices (see Table 3).


Table 3: Personal Health Care and Component Price Indices by year - Part 1 of 2 Updated April 2016

Industry/Commodity or Service 1. Personal health care (Overall) 2. Hospital care 3. Physician/ clinical services 4. Other professional services 5. Dental services
19771 21.8 19.5 29.8 22.7 15.7
19871 47.4 44.4 60.9 48.8 33.2
1996 69.1 66.9 79.1 69.9 55.8
1997 70.3 67.5 79.9 72.4 58.4
1998 71.8 68.0 81.6 74.1 60.9
1999 73.6 69.2 83.3 75.7 63.7
2000 75.7 71.0 84.7 77.2 66.6
2001 78.5 73.5 87.2 79.8 69.3
2002 80.9 76.9 87.2 81.9 72.4
2003 83.5 80.2 88.6 84.4 75.4
2004 86.5 84.1 90.4 86.7 79.1
2005 89.1 87.3 92.2 89.1 83.5
2006 91.8 91.1 93.1 91.6 87.8
2007 94.8 94.2 96.8 94.1 92.3
2008 97.3 97.1 97.7 98.0 97.1
2009 100.0 100.0 100.0 100.0 100.0
2010 102.7 103.0 102.3 102.2 102.7
2011 104.8 105.2 103.7 103.7 105.1
2012 106.8 107.8 104.9 104.7 107.6
2013 108.4 110.2 105.0 106.5 111.2
2014 109.9 111.6 105.5 107.9 113.6


Table 3: Personal Health Care and Component Price Indices by year - Part 2 of 2 Updated April 2016

Industry/Commodity or Service 6. Other health, residential, and personal care 7. Home health care 8. Prescription drugs 9. Other non-durable medical products 10. Durable medical equipment
19771 22.1 23.9 14.6 30.6 33.1
19871 44.1 54.4 36.0 64.2 61.2
1996 66.2 77.9 62.1 88.2 84.5
1997 68.5 80.7 63.8 89.7 85.7
1998 70.8 83.0 66.1 90.9 87.4
1999 72.7 83.7 69.9 91.2 88.2
2000 75.9 86.8 73.0 91.7 89.8
2001 79.3 89.1 76.9 92.7 91.3
2002 81.6 91.1 80.9 92.7 91.4
2003 83.5 91.4 83.4 93.9 91.7
2004 86.4 93.6 86.2 93.8 93.1
2005 88.8 94.6 89.2 93.1 94.5
2006 90.8 95.2 93.1 95.1 96.6
2007 93.6 96.9 94.4 96.6 98.1
2008 97.5 98.5 96.7 97.8 99.0
2009 100.0 100.0 100.0 100.0 100.0
2010 103.5 101.2 104.3 100.0 99.9
2011 106.7 101.2 108.7 98.6 100.5
2012 109.0 102.0 112.6 99.3 101.6
2013 111.3 101.9 113.2 99.4 102.1
2014 113.9 102.7 117.2 98.5 102.7

Notes
Indices for all services, except prescription drugs, are from Table 23 of the National Health Expenditures Accounts, produced by the Centers for Medicare & Medicaid Services. Office of the Actuary, National Health Statistics Group: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Tables.zip
Data last accessed April 5, 2016.
For definitions, sources and methods go to http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/dsm-14.pdf

The price index for prescription drugs services is from the Bureau of Labor Statistics’ Consumer Price Index (CPI) tables. http://data.bls.gov/cgi-bin/dsrv?cu
Not seasonally adjusted -> U.S. city average -> Current -> search text prescription drugs
Data last accessed April 5, 2016.

All indices are scaled to 100.0 in 2009.

Note that the Personal Health Care Index accounts for changes in nursing home prices and manufacturer's rebates for prescription drugs. The nursing home care component of the overall index is not included as a separate column in the Table 3 because MEPS does not cover residents of institutions. The prescription drug index in the table does not account for rebates because MEPS measures transaction prices at the pharmacies.

1Indices for 1977 and 1987 are included in Tables 2 and 3 to facilitate comparisons between MEPS and its predecessors, the 1977 National Medical Care Expenditure Survey (NMCES) and 1987 National Medical Expenditure Survey (NMES), respectively. It is important to note that the 1977 NMCES and the 1987 NMES used charges as the fundamental expenditure concept, whereas the MEPS uses payments to measure expenditures. Zuvekas and Cohen (2002) describe a method using payment to charge ratios to adjust the 1987 NMES data to be more consistent with the 1996 MEPS and beyond.

Reference
Zuvekas, S. H., & Cohen, J. W. (2002). A Guide to Comparing Health Care Expenditures in the 1996 MEPS to the 1987 NMES. Inquiry, 39(1), 76-86.


3.  Analyses Using Annual Income Data

Individual and family income data collected in MEPS are commonly used as covariates in behavioral analyses of health care spending and/or to construct measures of burden (e.g. ratio of out-of-pocket medical expenses to income). The following general guideline for adjusting income data mirrors the recommendation in section 1.2 above for adjusting out of pocket expenditures.

  • Guideline: Use the Consumer Price Index (CPI all-item all urban consumers) or alternatively the Personal Consumption Expenditures (PCE) Index--See Table 2.


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