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. For additional information see Dunn, Grosse, and Zuvekas (2018).

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.*


Table 1: Crosswalk of Price Indices and MEPS Analyses

Objective of Analysis Recommended Index
GDP1 or PCE1 CPI2 PHCE3 or
PCE-Health1
Total
PHCE3
Component
CPI-M4
Trends in Expenditures X        
Trends in Out of Pocket Expenditures Only   X     X
Pooling Total Expenditures     X    
Pooling Out of Pocket Expenditures         X
Pooling Expenditures by Type of Service
(e.g. prescription medications)
      X  
Trends with Income Measures   X      

1 See https://www.bea.gov/data/gdp/gross-domestic-product#gdp for more information on the Gross Domestic Product (GDP) and Personal Consumption Expenditures (PCE).

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

3 See https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/downloads/dsm-16.pdf for more information on the Personal Health Care Expenditure (PHCE) component of the National Health Expenditure Accounts.

4 See https://data.bls.gov/cgi-bin/surveymost?cu for data on the Consumer Price indices for medical care (CPI–M).
Specific source pages on this website are:

  • Current Series U.S. Medical Care, 1982-84=100 - CUUR0000SAM
  • Medical care in the U.S. city average, all urban consumers, not seasonally adjusted

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 noninstitutionalized population were $964 billion in 2004 and $1499 billion in 2014 (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 2004 total expenditure estimate in 2014 real (inflation adjusted) dollars, an analyst should multiply the 2004 estimate of $964 billion by a factor of (103.687/84.778) (obtained from Table 2). When compared to actual expenditures in 2014 of $1499 billion, this inflated expenditure estimate ($1179 billion) indicates that about $320 billion more was spent on health care in 2014 than 2004, after accounting for inflation. Alternatively, the narrower Personal Consumption Expenditures index may be used.

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 best known general index, the GDP price index is generally 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 the broadest index and the best choice when conducting analyses from the societal perspective. It is also used by the Centers for Medicare and Medicaid Services (CMS) in the National Health Expenditure Accounts (NHEA). Alternatively, the narrower Personal Consumption Expenditures index, which excludes investment goods but includes health care and other expenditures made by third parties on behalf of consumers, may be used.


1.2 Out-of-Pocket Expenditures

  • Guideline: Use the Consumer Price Index (CPI all-item all urban consumers). See Table 2.

Note: The CPI does not include government purchases and investment goods and is the most widely used price index for consumer spending.


Table 2: Price Index Series (updated February 2019)

Year GDP1 CPI2 PCE1
1977* 33.445 60.6 31.986
1987* 57.041 113.6 55.964
1996 73.178 156.9 73.346
1997 74.446 160.5 74.623
1998 75.267 163.0 75.216
1999 76.346 166.6 76.338
2000 78.069 172.2 78.235
2001 79.822 177.1 79.738
2002 81.039 179.9 80.789
2003 82.567 184.0 82.358
2004 84.778 188.9 84.411
2005 87.407 195.3 86.812
2006 90.074 201.6 89.174
2007 92.498 207.342 91.438
2008 94.264 215.303 94.180
2009 94.999 214.537 94.094
2010 96.109 218.056 95.705
2011 98.112 224.939 98.131
2012 100 229.594 100
2013 101.773 232.957 101.346
2014 103.687 236.736 102.868
2015 104.757 237.017 103.126
2016 105.899 240.007 104.235
2017 107.932 245.120 106.073

1 Bureau of Economic Analysis, National Income Product Accounts Tables, https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey
Specific source pages on this website are:

  • Section 1 Domestic Product and Income
  • Table 1.1.4 Price Indexes for Gross Domestic Products [Index numbers, 2012=100] Seasonally adjusted
  • Line 1 Gross Domestic Product (GDP) and Line 2 Personal Consumption Expenditures (PCE)
Note: Indices are revised periodically, check the Bureau of Economic Analysis website for most current data.
Data last accessed February 07, 2019.

2 Bureau of Labor Statistics, Consumer Price Index-All Consumers, http://data.bls.gov/cgi-bin/surveymost?cu
Specific source pages on this website are:

  • Current Series U.S. All items, 1982-84=100 - CUUR0000SA0
  • All items in U.S. city average, all urban consumers, not seasonally adjusted
Note: Indices are revised periodically. Data last accessed February 07, 2019.


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 either the Personal Consumption Expenditure Health (Bureau of Economic Analysis) [Table 3, Column 1] or the Personal Health Care Index (CMS Office of the Actuary) [Table 3, column 2].

  • 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 3-11).

  • Guideline 3 (out of pocket): If pooling out of pocket expenditures, the CPI-M may be used (see Table 3, Column 12).

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 and the Personal Consumption Expenditure Health Indexes are 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 and the Personal Consumption Expenditure Health Indexes reflect total personal health care expenses, which is more appropriate than the CPI-M which only reflects out of pocket expenses. Both are also 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). The Personal Consumption Expenditure Health Index is constructed by BEA from many of the same CPI and PPI components used in the Personal Health Care Index. The Personal Health Care Index and the Personal Consumption Expenditure Health indexes have tracked very closely over the last two decades. The CPI-M is appropriate for pooling out of pocket expenses.


Table 3: Personal Consumption Expenditure Health (PCE-Health)1 and Personal Health Care (PHC; Overall and Component)2 Price Indices by year - Part 1 of 2, Updated February 2019

Industry/Commodity or Service PCE - Health PHC
(Overall)
PHC -
Hospital care
PHC -
Physician/ clinical services
PHC -
Other professional services
PHC -
Dental services
1977* 16.8 20.4 18.1 28.4 21.7 14.6
1987* 38.7 44.4 41.2 58.1 46.6 30.9
1996 64.7 64.7 62.1 75.4 66.8 51.9
1997 66.0 65.8 62.6 76.2 69.1 54.3
1998 67.3 67.2 63.1 77.8 70.8 56.6
1999 68.9 68.9 64.2 79.4 72.3 59.2
2000 70.9 70.9 65.9 80.7 73.7 61.9
2001 73.4 73.5 68.2 83.1 76.2 64.4
2002 75.5 75.7 71.3 83.1 78.2 67.3
2003 78.2 78.2 74.4 84.5 80.6 70.1
2004 80.9 81.0 78.0 86.2 82.8 73.5
2005 83.4 83.5 81.0 87.9 85.1 77.6
2006 86.0 86.0 84.5 88.7 87.5 81.7
2007 88.9 88.8 87.4 92.2 89.9 85.9
2008 91.2 91.2 90.1 93.2 93.6 90.3
2009 93.7 93.7 92.8 95.3 95.5 93.0
2010 96.1 96.2 95.5 97.5 97.6 95.5
2011 98.1 98.2 97.6 98.9 99.0 97.7
2012 100 100 100 100 100 100
2013 101.2 101.5 102.2 100.1 101.7 103.4
2014 102.6 102.9 103.5 100.6 103.1 105.6
2015 103.8 103.7 104.5 99.5 103.9 108.3
2016 105.4 104.9 105.7 99.7 105.2 111.4
2017 107.2 106.2 107.5 100.1 107.7 113.2


Table 3: Personal Consumption Expenditure Health (PCE-Health)1 and Personal Health Care (PHC; Overall and Component)2 Price Indices by year - Part 2 of 2, Updated February 2019

Industry/Commodity or Service PHC - Other health, residential, and personal care PHC - Home health care PHC - Other non-durable medical products PHC - Durable medical equipment CPI - M3 CPI - PMED4
1977* 20.3 23.4 30.8 32.6 57.0 13.0
1987* 40.5 53.3 64.7 60.2 130.1 32.0
1996 60.7 76.4 88.8 83.2 228.2 55.2
1997 62.8 79.1 90.3 84.4 234.6 56.6
1998 65.0 81.4 91.5 86.0 242.1 58.8
1999 66.7 82.1 91.8 86.8 250.6 62.1
2000 69.6 85.1 92.3 88.4 260.8 64.8
2001 72.8 87.4 93.4 89.9 272.8 68.4
2002 74.9 89.3 93.4 90.0 285.6 71.9
2003 76.6 89.7 94.5 90.2 297.1 74.1
2004 79.3 91.8 94.4 91.6 310.1 76.6
2005 81.4 92.8 93.8 93.0 323.2 79.3
2006 83.3 93.3 95.7 95.1 336.2 82.7
2007 85.9 95.0 97.3 96.6 351.1 83.9
2008 89.4 96.6 98.4 97.4 364.1 85.9
2009 91.7 98.1 100.7 98.5 375.6 88.8
2010 94.9 99.2 100.6 98.4 388.4 92.7
2011 97.8 99.2 99.3 99.0 400.3 96.6
2012 100 100 100 100 414.9 100
2013 102.2 99.9 100 100.5 425.1 100.6
2014 104.7 100.8 99.2 101.1 435.3 104.1
2015 106.7 101.9 98.4 100.8 446.8 108.9
2016 109.7 103.5 97.3 101.4 463.7 114.2
2017 111.1 104.4 98.1 101.7 475.3 118.1

1 Personal Consumption Expenditure Health (PCE-Health) indices are available from the Bureau of Economic Analysis: https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey
Specific source pages on this website are:

  • Section 2 Personal Income and Outlays
  • Table 2.5.4 Price Indexes for Personal Consumption Expenditures by Function [Index numbers, 2010=100]
  • Line 37 Health
Note: Indices are revised periodically, check the Bureau of Economic Analysis website for most current data. Data last accessed February 07, 2019.

2 Personal Health Care (PHC) indices for all services, except prescription drugs, are available from the National Health Statistics Group, Office of the Actuary, the Centers for Medicare & Medicaid Services: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Tables.zip
See table 23 of the National Health Expenditures Accounts. For definitions, sources, and methods go to https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/downloads/dsm-16.pdf. Data last accessed February 07, 2019.

3 The Consumer Price indices for medical care (CPI–M) are available from the Bureau of Labor Statistics: https://data.bls.gov/cgi-bin/surveymost?cu.
Specific source pages on this website are:

  • Current Series U.S. Medical Care, 1982-84=100 - CUUR0000SAM
  • Medical care in the U.S. city average, all urban consumers, not seasonally adjusted

4 The price index for prescription drugs is the Bureau of Labor Statistics' Consumer Price Index (CPI) for prescription drugs: http://data.bls.gov/cgi-bin/dsrv?cu
Specific source pages on this website are:

  • Not Seasonally Adjusted
  • U.S. city average
  • Current
  • Search Text: prescription drugs
Data last accessed February 07, 2019.

* Indices 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.

Notes: All indices except CPI-M are scaled to 100 in 2012. The base period for CPI-M is 1982-84=100. 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 CPI prescription drug index in the table does not account for rebates because MEPS measures transaction prices at the pharmacies.


3. Projecting Health Care Costs from Previous Years to More Current Years

Health care expenditure data from MEPS are sometimes used to project average costs for a specific disease or condition from one year to another year. For example, an estimate of average spending on diabetes care estimated with 2014 data might be projected forward to estimate spending in 2015. The following general guideline for adjusting health care expenditures mirrors the recommendation in section 2 above for pooling expenditures.

  • Guideline 1 (total):  If projecting total expenditures, use either the Personal Consumption Expenditure Health (Bureau of Labor Statistics)[Table 3, Column1] or the Personal Health Care Index (CMS Office of the Actuary)[Table 3, Column 2].

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

  • Guideline 3 (out of pocket):  If projecting out of pocket expenditures, the CPI-M may be used (see Table 3, Column 12).


4. 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). See Table 2.


5. References

Dunn, A., Grosse, S.D., & Zuvekas S.H. (2018). Adjusting Health Expenditures for Inflation: A Review of Measures for Health Services Research in the United States. Health Services Research, 53(1), 175-196.

Zuvekas, S.H., & Cohen, J.W. (2002). A Guide to Comparing Health Care Expenditures in the 1996 MEPS to the 1987 NMES. Inquiry: The Journal of Health Care Organization, Provision, and Financing, 39(1), 76-86.


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