Medical inflation and the Consumer Price Index (CPI) have a long-standing relationship that has been of great concern for policymakers, healthcare providers, and consumers alike. Medical inflation refers to the increase in the cost of medical services and products over time, while the CPI is a measure of the average change in prices over time for a basket of goods and services commonly purchased by consumers. Historically, medical inflation has been higher than the CPI, which has had significant implications for healthcare costs and access to care.

According to the Bureau of Labor Statistics, the average annual CPI inflation rate from 1960 to 2021 in the United States was 3.7%. In contrast, the average annual medical inflation rate during the same period was much higher, at 6.1%.

In the past decade, the difference between medical inflation and CPI has remained significant. From 2011 to 2021, the average annual CPI inflation rate was 1.7%, while the average annual medical inflation rate was 4.2%.

It is important to note that medical inflation and CPI rates can vary widely from year to year and may be influenced by a variety of factors, including changes in government policies, advancements in medical technology, and shifts in consumer behavior.

One of the primary reasons why medical inflation has historically been higher than the CPI is the rapid advancement of medical technology. New drugs, medical devices, and procedures are constantly being developed and introduced, which can be costly to produce and distribute. Additionally, as new treatments become available, patients may be more likely to seek them out, increasing demand and driving up prices.  Other reasons why medical inflation is higher than the CPI include the growing prevalence of chronic diseases coupled with increase life expectancy, the plethora of administrative costs associated with healthcare (which ultimately get passed on to patients in the form of higher prices), and so on.

Medical inflation is an important concept for attorneys to understand because it can have a significant impact on the value of life care plans in personal injury matters. A life care plan is a comprehensive document that outlines the medical care, support, and services needed by an individual who has suffered a catastrophic injury or illness. Life care plans are often used in personal injury cases to help determine the amount of damages that should be awarded to the injured party.

One of the factors that is taken into consideration when determining the value of a life care plan is the cost of medical care. Medical inflation can have a significant impact on the cost of medical care over the course of a person’s lifetime. As medical costs increase, the amount of money required to provide for a person’s ongoing medical needs also increases.

For example, if a person suffers a spinal cord injury that requires ongoing medical care and support, the cost of that care will most likely be significantly higher 10 years from now than it is today due to medical inflation. This means that the value of the life care plan must take into account not only the cost of care today, but also the cost of care in the future, accounting for inflation.

If the life care plan only relies on the CPI forecasts to estimate future medical care costs, it will underestimate the amount of damages that should be awarded to the injured party. This could leave the injured party without the financial resources needed to pay for necessary medical care and support over the course of their lifetime.

It is important to note that during times of hyperinflation, medical inflation can be relatively sticky compared to other prices in the economy.  For example, in 2022, the CPI was 8%, while medical care inflation was at 4%.  Prices for medical care costs are often regulated by government agencies or negotiated between insurers and healthcare providers.  It is very likely that 2023 prices will incorporate the high inflation of 2022 and we will see a significant increase in medical care services and commodities.

In summary, medical inflation can have a significant impact on the value of life care plans in personal injury matters. To ensure that injured parties receive the appropriate amount of damages to pay for their ongoing medical care and support, it is important to account for the impact of medical inflation when estimating future medical costs and hire the qualified experts to make these calculations.