When the revised CPI weights were introduced in January 1998, these five medical care categories together accounted for about 5.6 percent of total consumer expenditures.
The consumers’ out-of-pocket health insurance component represents only that portion of total health insurance premiums paid for directly by the consumer. This fact partly explains why medical care is a much smaller share of total expenditure in the CPI (5.6%) than it is in the national income and product accounts. In 1999 national health expenditure was 13 percent of gross domestic product and 17.6 percent of personal consumption expenditure (see Heffler et al., 2001; U.S. Department of Commerce, 2000:Table B.4, p. D-31). The health insurance component of the CPI excludes all employers’ contributions to health insurance. To avoid double counting, it also nets out any medical expenditures for which the consumer is subsequently reimbursed by an insurer. This direct outof-pocket health insurance expenditure is by far the largest of the five MCPI components—in 1995 it comprised 49.6 percent of all out-of-pocket medical expenditures.
If, instead, BLS constructed a price index for health insurance (distinct from health provider services), a number of very significant conceptual and measurement issues would need to be resolved. Although BLS is currently reassessing the feasibility of proceeding with direct measurement of prices of health insurance policies, it has not taken that route (see Greenlees and Fixler, 2000; Bureau of Labor Statistics, 2001). Rather than trying to price health insurance, the BLS distributes out-of-pocket expenditures for private health insurance (fees for service commercial carriers, Blue Cross/Blue Shield, preferred provider health plans, and health maintenance organizations) to the five MCPI subcomponents listed above.
In 1995, consumer expenditures for fee-for-service commercial carrier health insurance were reallocated as follows (Ford, 1995):
hospital services, 39.7 percent;
physician and dental services, 34.1 percent;
other medical professional services (such as home health care), 6.5 percent;
prescription drugs, 6.2 percent;
nursing homes, 0.6 percent; and
pure insurance, 12.9 percent.
By pure insurance the BLS means the services that insurers provide, such as processing claims, not payments to claimants. Thus, consumer expenditures on pure insurance services are computed essentially as premium revenues minus claims paid. Out-of-pocket expenditures to other private health insurers (e.g., Blue Cross/Blue Shield, preferred provider health plans, and health maintenance