Family budgets slashed by health care costs

We know healthcare is increasingly expensive. Still, I always find the numbers stunning. For instance, from 1999 through 2009 U.S. spending on healthcare nearly doubled--from $1.3 trillion to $2.5 trillion. The percentage of the economy (gross domestic product) devoted to healthcare soared from 13.8% to 17.6%.

What do these economy-wide figures mean for the average family with health insurance? That's what David I. Auerbach and Arthur L. Kellermann of the Rand Corporation figured out in A Decade Of Health Care Cost Growth Has Wiped Out Real Income Gains For An Average US Family. The article is published in Health Affairs. They determined that thanks to higher healthcare costs the average household in 2009 was $95 better off than in 1999. Yes, you read that right.

Although a median-income US family of four with employer-based health insurance saw its gross annual income increase from $76,000 in 1999 to $99,000 in 2009 (in current dollars), this gain was largely offset by increased spending to pay for health care. Monthly spending increases occurred in the family's health insurance premiums (from $490 to $1,115), out-of-pocket health spending (from $135 to $235), and taxes devoted to health care (from $345 to $440). After accounting for price increases in other goods and services, the family had $95 more in monthly income to devote to nonhealth spending in 2009 than in 1999. >

By contrast, had the rate of health care cost growth not exceeded general inflation, the family would have had $545 more per month instead of $95--a difference of nearly $5,400 per year. Even the $95 gain was artificial, because tax collections in 2009 were insufficient to cover actual increases in federal health spending. >

It's no wonder folks with jobs and health insurance don't feel better off, even before taking the long economic contraction into account. Of course, those without jobs and those without health insurance--not always the same--are more vulnerable. .

What's the payoff from all that increased spending? It's depressing. According to the authors, from 199 to 2009 overall adult life expectancy in the U.S. grew by about one year. Sounds good, right? Well, that less than half the improvement achieved by 34 other countries in the OECD. Worse yet, the life expectancy of a significant segment of the population is stagnant at best and even declining. Pay more. Get less.

What if we paid less, say, health spending grows at the rate of GDP plus 1% or health spending increases at the same pace as consumer price inflation. We'd be better off.

Their conclusion is that this state of affairs can't continue:

In this article we have quantified the impact of rising health care costs on the finances of a typical American family. Our analysis reveals that during the past decade, growth in health care spending sharply reduced the disposable income of Americans while increasing the federal deficit. Given the perilous state of the US economy, the fiscal burdens imposed on all payers by steadily rising health care costs can no longer be ignored. Controlling health care spending is a defining challenge of our times.>

There is a link between strained household budgets and the long-term fiscal budget deficit. Both reflect rising healthcare costs. The trend can't be blamed on the Administration, either. It has been in place for too long.

Everyone should ask the candidates for the Presidency--as well as the incumbent--what they will do to address soaring healthcare costs. Obama got his healthcare reform bill through. It had some cost control measures (especially with Medicare), but the main focus was on universal access--bringing the uninsured and those with preexisting conditions into the system. His rivals for the White House don't like it. The mantra is repeal. Okay, what's the alternative? Throwing more people into the ranks of the uninsured is wrong economically and morally.

Remember, the Rand study is focused on the financial strain for people with jobs and health insurance. Meanwhile, while we're waiting for solutions rather than slogans we're paying more and getting less in return.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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