What is final consumption expenditures of nonprofit institutions serving households (NPISHs) and how do revisions to this category affect total personal consumption expenditures (PCE)?

In the national income and product accounts (NIPAs), personal consumption expenditures (PCE) measures the goods and services purchased by “persons” -- that is, by households and by nonprofit institutions serving households (NPISHs) -- who are resident in the United States. These purchases include those from private business and from government. PCE also includes the expenses incurred by NPISHs in providing services on behalf of households, such as hospital care and education, and the expenditures financed by third-party payers on behalf of households, such as employer-paid health insurance and medical care financed through government programs.

In the NIPAs, the services provided by NPISHs -- their gross output -- is measured as their current operating expenses because these services are not generally sold in markets with observable prices. Final consumption expenditures by NPISHs is the portion of PCE that represents the services that are provided to households by NPISHs without explicit charge. It is equal to their gross output less their sales to households. Services that are provided by NPISHs and are paid by, or on behalf of, households are accounted for in PCE as spending by households.

In the NIPAs, spending on medical services is classified either as household consumption expenditures, as final consumption expenditures of NPISHs, or as government consumption expenditures. By far, PCE for health care accounts for the largest share of this spending. It includes direct payments by households and by insurance companies (or the government) on behalf of households to both for-profit and government health care providers, as well as the gross operating expenses incurred by nonprofit hospitals and other nonprofit health care providers. (Government consumption expenditures for health care are measured the same way as for nonprofits -- that is, output is measured as operating expenses, and government consumption expenditures are measured as operating expenses less sales.)

The NIPAs identify consumer spending on health care services by households separately from the consumption expenditures of NPISHs in the recording of total PCE. Health care services provided by nonprofit institutions are separated into the amount paid for by the households directly (or on behalf of the households by insurance companies or the government) and the amount paid for by the nonprofit institutions in the form of “noncovered” operating expenses. The former equals the receipts earned by the nonprofits for the sale of their services, and the latter equals the nonprofits’ net operating expenses after subtracting the amount covered by the receipts.

The PCE services portion of the NIPA tables present the economic transactions of households and nonprofits separately. In the “Household consumption expenditures (for services)” section, the spending by (or on behalf of) households is shown. In the “Final consumption expenditures of nonprofit institutions serving households” section, the net operating expenses (or gross output less receipts from sales) are shown. When the nonprofit-related health care values in these two sections are summed, the health care services provided by NPISHs can be seen to equal the total operating expenses for the NPISHs.

On a quarterly basis, for the “third” estimate of GDP, the source data for developing these PCE health care estimates are based on the Census Bureau’s quarterly services survey (QSS) data on (1) receipts for tax exempt firms to estimate the health care services provided by nonprofit institutions to households, (2) receipts of firms that pay taxes to estimate the health care services provided by proprietary (and government) health care providers, and (3) the operating expenses of tax-exempt firms to estimate the gross output of nonprofit health care providers. Before these data are available (that is, during BEA’s “advance” and “second” estimates of GDP), data on wages and salaries for the health care industry are used as indicators for these estimates.

The following is a simplified example of the treatment of PCE health care services when the services provided by NPISHs are a factor. For simplicity, assume that PCE nursing homes services is the only category of PCE services, and that the value of the “second” quarterly estimate of current-dollar PCE services was $140. Household consumption expenditures for nursing homes was $150 ($50 for nonprofit nursing home services to households + $100 for proprietary and government nursing homes). Final consumption expenditures of NPISHs was –$10, and the gross output of nonprofit nursing homes was $40. The transaction will be reflected in PCE services as follows:

Now suppose that for the “third” quarterly estimate, newly available revenue data for tax-exempt nursing homes from the Census Bureau’s QSS was incorporated, indicating that the nonprofit nursing homes services to households should be revised up by $10. The revision would be reflected as follows:

Note that in this simplified example, total PCE services is not impacted by the revision to nonprofit nursing homes services to households because even though the revised QSS data raised household consumption expenditures by $10, there was an equal and offsetting reduction in final consumption expenditures of NPISHs. That is, the sum of the revised household consumption expenditures ($160) and the final consumption expenditures of NPISHs (-$20) equals the same value of PCE services ($140) that is shown in the first table because proprietary and government nursing homes ($100) and gross output of NPISHs ($40) were unrevised.

Additional information on how BEA uses the QSS data to estimate PCE services is available in a FAQ.