Measuring total-premium inflation for health insurance in the Consumer Price Index

The Consumer Price Index (CPI) for health insurance measures the price of health insurance services directly provided by insurance companies, but it excludes the price of indirectly purchased medical goods and services, which make up the majority of total premiums. This index may be difficult to interpret because the price most directly associated with health insurance is that reflected by the total insurance premium. In this article, I discuss existing methods for pricing health insurance, construct a CPI for implied total-premium inflation, and compare that implied measure with total-premium inflation as measured by the Producer Price Index for health insurance. The pricing of health insurance in the Consumer Price Index (CPI) is difficult. Health insurance can be viewed as a composite good. The total price of health insurance is reflected by the insurance premium, but much of that premium is used to indirectly purchase medical goods and services on behalf of the beneficiary.