104
On Adjusting Health Expenditures for Inflation: A Critical Review of Existing Measures and Directions for the Future
Data Sources. Major price index series produced by federal statistical agencies.
Study Design. This study compares the strengths and weaknesses of each price index and develops recommendations on which specific index to use in many common situations and general guidance on selecting price indices in other circumstances.
Data Collection/Extraction Methods. Price series and accompanying methodological documentation were downloaded from federal websites and supplemented with literature scans.
Principal findings. The GDP implicit price deflator or overall Personal Consumption Expenditures (PCE) index are preferable to the widely used Consumer Price Index (CPI-U) to adjust for changes in purchasing power for all goods and services. In most cases, the Personal Health Care (PHC) price index or the PCE health index are preferred to adjust total medical expenditures from one year to the expected equivalent value for another year. The CPI medical care index is preferred foradjustment of out-of-pocket consumer expenditures, although it should typically not be applied for total medical expenditures. A new experimental disease-specific Medical Care Expenditure Index is now available to adjust payments for a disease treatment episode as opposed to specific services.
Conclusions.There is no single gold standard for adjusting health expenditures for inflation; the most appropriate deflator depends on the research question. Selecting the wrong index may cause serious biases and misleading estimates. Researchers should consider the discussion of best practices, outlined here, that will help researchers select an index that is best suited to their study.