The Inflation Thermometer Isn’t Measuring Health Care’s Heat

Washington says inflation is cooling. But when it comes to health care, the gauge isn’t measuring fever.

If you remember American politics from the 1990s, then you remember the famous phrase from Bill Clinton’s political adviser James Carville that when it came to winning voters, “It’s the economy, stupid.”

But if you listen to today’s political debate, you’ll hear a different word. Whether it’s President Donald Trump struggling to defend his record or Democrats attacking Trump’s lack of success, the buzzword has become “affordability” – and there’s a very good reason why.

To the millions of ordinary Americans often living from paycheck to paycheck, the most commonly cited economic statistics like the Dow (near its record high), the unemployment rate (still close to historic lows), or the inflation-gauging Consumer Price Index (CPI), which is also down from a 2022 peak, mean next to nothing. Critics say the government’s numbers are largely missing problems such as soaring rents, the cost of owning or leasing a car, or the pressure of paying back sizable student loans.

And then there’s health care.

In a recent post, the senior economist Dean Baker of the Center for Economic and Policy Research (CEPR) noted that the CPI, considered the government’s benchmark measure of inflation, does an especially poor job of reflecting what typical Americans actually pay out of their own pocket for medical visits or prescription drugs.

Most strikingly, Baker noted, the CPI – which is produced monthly by the U.S. Bureau of Labor Statistics – uses a particularly odd methodology to measure changing prices in the health care arena. He said the index will tally the changing costs of a particular procedure, such as a hip replacement, or a specific drug such as Celebrex, even though those prices are mediated for the most part by insurance, and most people have different health needs from year to year.

“What matters to patients is what they have to cough up themselves, not what their insurers pay,” Baker wrote in a post titled, “Affordability and Healthcare Costs.” He went on: “The CPI does not pick up at all an increase in out-of-pocket payments due to higher copays, deductibles, or increased use of uncovered care.”

In a follow-up interview, Baker stressed that the CPI is good for consumer items like groceries that people actually buy on a regular basis. “You get chicken, you get beef, you get eggs, you get bread, whatever,” he said. Conversely, he added: “ I don’t know anyone who thinks, ‘Oh, I got a good deal on this particular drug.”

Indeed, no one these days thinks that U.S. health care is a bargain. The current overall inflation rate of roughly 3% is dwarfed by an annual rise of roughly 7% in spending nationally on health care. But, as Baker notes, even that comparison likely understates the affordability crisis for American families because Big Insurance has been shifting more of these costs onto patients.

The real numbers offer an insight into a cost-of-health care crisis in the world’s only developed country without a strong nationalized system of insurance. In January, two of Baker’s colleagues at CEPR published an in-depth paper looking at what American middle-class families actually pay, from their own household budgets, for health care.

They found that a typical working family in 2024 paid $3,960 on health care costs – much of it in out-of-pocket expenses such as copays – which reflected the sharp increases in medical bills that have consistently out-performed the rate of inflation.

What’s more, those average numbers can turn catastrophic during a major illness. The CEPR paper – titled “The High Cost of Living: What Working Families Pay for Health Care” – also revealed that the 10% of families with the highest levels of expenditures spent, on average, a whopping $14,800 on health care costs. About 13.3% of U.S. households spend more than one-tenth of their annual income on medical expenses. No wonder America has the world’s highest rate of medical bankruptcies, by far.

In a recent essay for the Lown Institute, senior policy analyst Judith Garber noted that roughly one-third of all Americans under the age 65 report they are struggling with health care costs.

“In a country where most families have $500 or less in emergency savings,” Garber wrote, “any unexpected medical event could put insured Americans in debt.”

Remember, most of these statistics are from at least a year ago. What they don’t take into account is that the health care affordability crisis is getting a lot worse, thanks to shortsighted if not backwards decision-making in Washington.

Both major components of what real Americans actually pay to stay healthy are rising sharply in 2026, beginning with insurance premiums. Statistically, these payments increased by 6% this year on average for those with employer-sponsored insurance and a much steeper 21% for those with Affordable Care Act plans. The latter have seen a much bigger spike because the Republican-led Congress declined to extend a Biden-era subsidy that had held down costs.

As Garber notes in her Lown Institute report, the death of these popular subsidies have caused some individuals to see much larger monthly increases this year – sometimes doubling or even more. She points to the example of a New York Times reader who reported her monthly payments went from $406 last year to $1,123, which is 18% of her overall income.

The affordability crisis exacerbated by higher premiums has spilled over onto the other side of health care costs, out-of-pocket expenses. The biggest reason is that many families covered under the ACA have dealt with news of higher premiums by switching to another plan, often from the most popular Silver coverage into a Bronze policy that comes with a much larger deductible. While the average deductible for all policies under the umbrella of Obamacare is $2.912, the average for people in the Bronze plan is $7,476, a devastating blow for sicker Americans who need treatment.

“With health care, your personal needs can change,” Baker said. “One year you may never see a doctor at all, and the next year you might develop a heart condition or something and you’re seeing doctors all the time and dealing with copays.”

Of course, there’s a hidden cost here. That’s the millions of Americans who defer much needed medical care. Sometimes that is because families can’t even afford the copays, but there’s also a growing number of Americans who, faced with those sky-high premiums, have dropped insurance altogether.

A recent report from the health policy organization KFF found that some 36% of adults say that over the past year they have skipped or postponed getting treatment they needed because of the cost. The same is true for prescription drugs, with more than one-in-five reporting to KFF that they failed to pick up a medication they were prescribed because they simply could not afford their deductible.

The crazy part is that none of this crisis of affordability is getting picked up in the government’s main economic indicators, including the CP!. This matters because it means that decision makers on Capitol Hill can point to lower inflation numbers that have little or no connection to the real affordability crisis – and can thus avoid making the hard choices.

“If we are substantially understating the rate of health care inflation that people are seeing, then we would be overstating the rate of real wage growth,” Baker explained in his recent post. “This may not be the full story of complaints about affordability, but it could help to explain the gap between the data and the public perceptions.”

The crisis of health care costs would be catastrophic if happening in a vacuum, but, as Garber notes, it’s just one piece in a more troubling picture. “On the other side of the equation, the failure of wages to keep up with the escalating cost of living makes everything unaffordable,” she wrote. “Americans aren’t just struggling to afford health care, they’re skipping meals and delaying other important purchases because of the cost.”

And one very big reason why our wages aren’t keeping up is because our employers are having to send more and more money every year to insurance companies – money that otherwise could be available to pay workers more.

It’s beyond frustrating that Congress whiffed late last year on its opportunity to at least stop the downward spiral by extending the ACA subsidies. That makes it all the more critical that health care costs become a front-burner issue in the 2026 midterm election, with the expired subsidies just the beginning of a legislative assault on the obscene out-of-pocket costs that insurers force Americans to pay. But the first step toward a solution is a government that will acknowledge that, because of insurers’ greed and incompetence, almost no one in America can afford coverage unless an employer or government heavily subsidizes it, and that the giant for-profit insurance conglomerates that control our health care system are the reason why that is our reality.