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Alternative Price Indexes for Medical Care: Evidence from the MEPS Survey

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  • Ana Aizcorbe
  • Ralph Bradley
  • Ryan Greenaway-McGrevy
  • Brad Herauf
  • Richard Kane
  • Eli Liebman
  • Sarah Pack
  • Lyubov Rozental

    (Bureau of Economic Analysis)

Abstract

Spending on medical care is a large and growing component of GDP. There are wellknown measurement problems that are estimated to overstate inflation and understate real growth for this sector by as much as 1-1/2 percentage points per year. Because of its size, this would translate into an overstatement of inflation for the overall economy of about ¼ percentage point with an equal understatement in real GDP growth. In this paper, we use data from the Medical Expenditure Panel Survey to obtain new, more comprehensive estimates for this bias and to explore a possible adjustment to existing official price indexes. The MEPS data show an upward bias to price growth in this sector of 1 percentage point, which translates into an overstatement of overall inflation of .2 percentage point and an understatement of GDP growth of the same amount. We also find that an adjustment recently used in Bradley et al provides a useful approximation to the indexes advocated by health economists.

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Bibliographic Info

Paper provided by Bureau of Economic Analysis in its series BEA Working Papers with number 0069.

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Date of creation: Feb 2011
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Handle: RePEc:bea:wpaper:0069

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  1. David M. Cutler & Mark McClellan & Joseph P. Newhouse & Dahlia Remler, 1998. "Are Medical Prices Declining? Evidence From Heart Attack Treatments," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 991-1024, November.
  2. Aizcorbe, Ana & Nestoriak, Nicole, 2011. "Changing mix of medical care services: Stylized facts and implications for price indexes," Journal of Health Economics, Elsevier, vol. 30(3), pages 568-574, May.
  3. Ana Aizcorbe & Eli Liebman & Sarah Pack & David M. Cutler & Michael E. Chernew & Allison B. Rosen, 2010. "Measuring Health Care Costs of Individuals with Employer-Sponsored Health Insurance in the U.S.: A Comparison of Survey and Claims Data," BEA Working Papers 0066, Bureau of Economic Analysis.
  4. Irving Shapiro & Matthew D. Shapiro & David Wilcox, 2001. "Measuring the value of Cataract Surgery," NBER Chapters, in: Medical Care Output and Productivity, pages 411-438 National Bureau of Economic Research, Inc.
  5. Berndt, Ernst R. & Cutler, David M. & Frank, Richard G. & Griliches, Zvi & Newhouse, Joseph P. & Triplett, Jack E., 2000. "Medical care prices and output," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 3, pages 119-180 Elsevier.
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Cited by:
  1. Bradley, Ralph, 2013. "Feasible methods to estimate disease based price indexes," Journal of Health Economics, Elsevier, vol. 32(3), pages 504-514.
  2. Abe Dunn & Eli Liebman & Adam Hale Shapiro, 2012. "Implications of Utilization Shifts on Medical-Care Price Measurement," BEA Working Papers 0087, Bureau of Economic Analysis.

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