organizations) are reallocated back to the five MCPI subcomponents in a similar manner.

Consumers also make direct out-of-pocket payments for health insurance to the federal government, which underwrites Medicare Part B (consisting of voluntary payments, primarily by the elderly and disabled, for insurance benefits supplementary to Medicare Part A compulsory hospital insurance).1 Consumers’ out-of-pocket Medicare Part B expenditures for health insurance are also reallocated by the BLS back to the MCPI components; Ford (1995) calculated the following allocation for 1995:

  • outpatient hospital services, 27.2 percent;

  • physicians’ and dental services, 56.8 percent;

  • other professional services, 9.2 percent; and

  • supplies and durable medical equipment, 6.8 percent.

Notice that BLS specifies there is no pure insurance component for Medicare Part B.

Finally, to obtain the total weights by subcomponent within the MCPI, the BLS sums up, for each category, consumers’ direct out-of-pocket expenditures (except health insurance), plus the reallocated private insurance (for commercial carriers fee for service, plus similar reallocations for Blue Cross/Blue Shield, preferred provider health plans, and health maintenance organizations), plus the reallocated federal government insurance. The resulting direct consumer payments plus reallocated health insurance payment expenditure weights were as follows for January 1998 (Ford and Ginsburg, 2001):

  • prescription drugs, 14.9 percent;

  • over-the-counter drugs and medical supplies, 7.6 percent;

  • physician, dental, and other medical professional services, 49.5 percent;

  • hospital and related services, 22.9 percent; and

  • pure health insurance services, 5.0 percent.

There is considerable price discrimination in medical markets (the law of one price does not hold). Prices paid directly by patients typically exceed those paid by large insurers. Medical care providers and insurers are often reluctant to disclose proprietary price information (indeed, they are sometimes contractually prohibited from doing so). As a result, BLS faces significant operational issues in


Medicare Part B insurance covers physicians’ services, outpatient hospital care, and medical equipment prescribed by the physician for use in the home. A deductible applies. Generally, Medicare Part B does not cover prescription drugs, except in a few special cases. See (“Glossary” and “Frequently Asked Questions”).

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