by Buck Throckmorton
Have you heard the great news about inflation falling? The Biden administration is heavily promoting the storyline that inflation is low again, and trying to insinuate that the falling inflation rate means that prices are actually decreasing. The obedient regime media is playing along. Here is just one example last week from CNN.
Anyone buying groceries, utilities, insurance, etc. knows that prices are continuing to rise dramatically. So how does the government come up with its fraudulent inflation rate?
Here is just one outrageous example. There are undoubtedly many more like this.
Per the October 2023 inflation figures released by the Bureau of Labor Statistics, the cost of premiums paid for Health Care Insurance decreased by 34% from October 2022 to October 2023. Fraudulent inputs with negative values are certainly one way to artificially deflate the actual inflation rate.
There is going to be a little bit of math in this post, but it’s important that I show my work.
First, immediately below is a chart from page 15 (of 38 ) of the BLS’ October Consumer Price Index (“CPI”) report, which can be found at this link.
You’ll notice that it shows that the cost of Health Insurance is down 34% from October 2022 to October 2023. That is obviously preposterous.
On page 5 of this same report, we are given guidance about this change. Feel free to read “Changes to Health Insurance Methodology” (pasted just below), or don’t bother, but in summary:
• The BLS has decided to “smooth” the methodology of calculating changes in the cost of Health Care premiums used in their inflation reports effective with this October 2023 report. If I might add, there was apparently a lot of negative “smoothing.”
• This also reveals that the BLS does not even measure the actual cost of health care premiums paid to insurance companies. Instead, it is based on what the BLS refers to as “retained earnings.” (This is not the same thing as Retained Earnings in accounting.) As I’ll get to in a moment, the BLS’ “retained earnings” is a calculation with a methodology that negates the inflation impact when health care premiums and benefit payouts increase at the same rate.
“Retained earnings” as defined by the BLS for calculating its impact on inflation is effectively “Health insurance premiums collected by insurance companies minus benefits paid out.”
This is akin to measuring inflation by tracking a grocery store’s gross profit per gallon of milk as prices rise, rather than tracking how much a consumer is actually paying for that gallon of milk.
A simplified example would be that Bob’s health insurance costs $10,000 per year and benefits paid out on Bob’s behalf totaled $9,000. Thus the “retained earnings” for the insurance company on Bob was $1,000.
Here is why that calculation invites distortion:
Let’s say that Bob’s benefits payout increases by $500, from $9,000 to $9,500. At the same time, his insurance premium is also increased by $500, from $10,000 to $10,500. Bob’s insurance premium just increased by 5%, but according to the BLS, there is no inflation here because the insurance company’s retained earnings remained static at $1,000.
For the BLS to be showing negative inflation for health insurance means that retained earnings (as the BLS defines the term) are declining. If so, that is not happening because consumer insurance premiums are decreasing, rather it is because the cost of benefits being paid out is increasing faster than insurance premiums are increasing, which means that insurance premiums will have to go up to maintain the margin that allows for salaries and expenses to be paid.
In other words, not only is a decrease in health insurance companies’ “retained earnings” not deflationary, but it is actually inflationary.
I had a boss once who occasionally stung employees with these simple words when doing a cursory review of their work and finding an error, “I find one mistake and wonder how many more there are.” I feel similar about the fraudulent data inputs in the BLS’ inflation reports. A 34% decrease in the cost of health insurance sticks out as obviously flawed, but how many other erroneous inputs that are less egregious are also distorting the official published inflation rate?