(SOLUTION) ECON312N Week 6 Discussion: Inflation in the Costs of Education and Healthcare

Required Resources
Read/review the following resources for this activity:

Introduction
The Consumer Price Index (CPI) is a measure of the average monthly change in the price for goods and services paid by urban consumers between any two time periods. There are three steps in calculating the CPI.

  1. The cost of the CPI market basket is calculated at base year prices.
  2. The cost of the CPI market basket is calculated at current period prices.
  3. The CPI is calculated for the base period and the current period.

The CPI is used to calculate changes in the cost of living and changes in the value of money. To measure these changes, we calculate the inflation rate, which is the percentage change in the price level from one year to the other. Due to the volatility in the prices of certain goods and services, the CPI basket (that includes all items that Americans spend most of their incomes on) might not be a reliable measure of inflationary and deflationary periods. To get a more accurate measure of CPI, therefore, food and energy items are removed from the basket to get Core CPI (Consumer Price Index for All Urban Consumers: All Items Less Food & Energy [CPILFESL]). This measure of the cost of living is often used as a benchmark for changes in the cost of other goods and services.

Two key components of CPI are the costs of education and healthcare. These two variables constitute what is known in economics as human capital, which is a key determinant in the productivity of labor, and hence, essential for economic growth and development. In the last few decades, the value of these variables has risen faster than the value of the general level of prices (CPI), which they are subsets of. According to David Wiczer (2017), “the price of medical care has grown at an average annual rate of 5.3% while the entire basket (headline CPI) has grown at an average annual rate of 3.5%.” He goes on to state that “In the past 20 years, in the regime of stable inflation, headline CPI has grown at an average annual rate of 2.2%, whereas the price level of medical care has grown at an average annual rate of 3.6% – about 70% faster” (para. 1).

As shown in Figure 1, the increases in the costs associated with Health and Education have consistently exceeded the overall cost of living during the period of observation (2000-2018). There are many consequences for the high cost of healthcare and education, not least of which are skipping expensive but necessary medical procedures, discouragement from pursuing career enhancing educational requirements, or resorting to educational loans with the potential for life-long financial consequences.

Graph showing increases in the overall cost of living (CPI) vs. increases in the costs of health and education

Figure 1: Increases in the Overall Cost of Living (CPI) Vs. Increases in the Costs of Healthcare and Education.

 

Initial Post Instructions
For the initial post, you will focus on health or education. Address the following, providing specific examples within the area of focus, perhaps what you have seen in your own communities as well as research:

  • What are the implications (including tradeoffs and effects) of the high cost of either health or education on the human capital needs of the U.S. economy?
  • What policies would you recommend to rein in these costs or at least to slow down their rate of increase?

Follow-Up Post Instructions

Respond to at least one peer. Respond to a peer who chose the option you did not choose. Further the dialogue by providing more information and clarification.

Writing Requirements

  • Minimum of 2 posts (1 initial & 1 follow-up)
  • Minimum of 2 sources cited (assigned readings/online lessons and an outside scholarly source)
  • APA format for in-text citations and list of references

SOLUTION

As revealed in recent studies, there is an inflation in healthcare prices. Inflation is defined in our textbook as “a general and ongoing rise in the level of prices in an entire economy” (Greenlaw & Shapiro, 2017). Part of the reason for the rising costs of healthcare is due to the level of inflation in prices being similar to the level of inflation in wages; the cost of living is rising as well. Unfortunately, in 2019, U.S. healthcare spending grew to $11,582 a person, while the average household spent $8,169 on groceries and restaurants. This means that healthcare costs more per person than feeding a whole household costs for a year. Another reason for these high costs is the price of brand name versus generic prescription medications. 

     Another factor is the cost of medical care, such as x-rays and hospital stays. In 2019, the cost of hospital care services reached $1.2 trillion, and doctor and clinic services reached more than$770 billion. There is an increased intensity of these services that contributes to the cost. Thirdly, it costs a lot to treat chronic diseases, such as obesity, cancer, heart disease, and arthritis. Other factors include administrative burden and waste and the role of healthcare policy (Decker, 2021). Please click the purchase button to access the entire copy at $5