household healthcare costs
From Kaiser’s 2011 survey of employer health benefits:
Hidden away on page 218 of the annual Kaiser Employer Health Benefits Survey is a table that shows what employers think of the main strategies they have to control health care costs. More specifically, the table shows what the person in the firm responsible for its health benefits thinks, which is whom we survey. The short answer is, employer confidence in their own ability to control costs is not high.
Not more than about a quarter of employers felt any one strategy was “very effective,” and they were divided on virtually every cost-containment strategy they were asked about. For example, 22% said consumer-driven health plans were “very effective,” and 19% said they were “not at all effective.” Similarly, 18% said tighter managed care restrictions were “very effective,” while 26% said they were “not at all effective.” The “winner” this year seems to be disease management, garnering the most employer confidence, with 26% calling it “very effective” and 19% calling it “not at all effective.” The not very enthusiastic “somewhat effective” was the description often chosen by employers to characterize the cost-containment strategies available to them. Interestingly, many firms said they don’t have a lot of confidence in increasing employee cost-sharing as a way to decrease costs. Many firms also offer wellness programs, and in an answer to a different question, slightly more than half think those programs help to lower costs to some degree.
To me this is no surprise because none of these measures address the cost of care directly. Any solution devoid of personal responsibility and then transparency will not work in the long run. The problem of healthcare is very fundamental. It is absent of any laws of economics in nature that create competition between healthcare providers on price. The paradigm of healthcare must change such that low cost providers will be allowed to gain market share on higher cost providers. For that to occur, patients and employees need to have financial “skin in the game” at the point of purchase combined with price transparency. In the end, people need tools or the ability to shop their healthcare.
A new study starkly shows the financial burden of healthcare costs on households and how it rose from 1999 to 2009. For a typical family of four, its monthly health insurance premium contribution went from $85 in 1999 to $195 in 2009. Monthly out of pocket spending went from $135 to $235. That’s a combined increase of 95% over 10 years, a period in which overall inflation was very modest.
The authors conclude that after accounting for other household spending and taxes, the family had a measly $95 more in monthly income to devote to non-health spending in 2009 than in 1999. Healthcare cost increases essentially wiped out any growth in household income.
The increases in family income are restricted to certain geographical locations. Very few families have benefited in increased income. The healthcare cost curve keeps sharply rising despite the outcry to reduce healthcare costs.
The median-income US family of four with employer-based health insurance had gross income in 1999 of $76,000 a year and a net income $52,000 after federal, state and local taxes. Their annual direct outlay for healthcare (premium shares and out of pockets) in 1999 was $2,640, or 5% or net income.
As noted above, for a typical family of four, its monthly health insurance premium contribution went from $85 in 1999 to $195 in 2009. Monthly out of pocket spending went from $135 to $235. Why? Because the average annual deductible rose from about $250 to about $1,000. Also, co-pays for office visits went from the $5-$10 range to the $20-$30 range, and emergency rooms co-pays were very rare in 1999 but $100 or more in 2009.
These two family direct outlays sum to an increase of monthly spending $210, for an annual increase of $2,520 – an increase of 95% from 1999. These outlays in 2009 totaled $5,160.
But this figure fails to take into account indirect costs of healthcare, which ultimately affect family finances. One is the employer’s share of premiums, which on a monthly basis went from $240 to $550 per family, a 129% increase. This cost increase effectively depresses wages. And taxes devoted to healthcare grew from $345 to $440. Tax increases due to government health plans reduce net family income.
These indirect costs increased by 69%, or by $4,860. Total indirect outlays for healthcare in 2009 were $11,880, about double direct outlays. To best understand the burden of healthcare costs on the American family, you need to take into account all these costs.
Thus, for the typical family of four to total direct and indirect annual cost of healthcare rose between 1999 and 2009 by $2,520 + $4,860, or $7,380. This is a 76% increase to $17,040.
The authors of the study asked, after taking into account the growth of family outlays, inflation and the growth of income since 1999, how much was left for this typical family to spend in 2009 vs. 1999.
A figure for net post tax family income for 2009 is not available. The authors say that gross pre-tax income rose by about 30%. Contrast this with the 76% increase in total healthcare spending. Something has to give, and it was the household who gave.
Thus, they concluded that after accounting for gross income changes, price increases in other goods and services, medical spending, and the added burden of healthcare related taxes, the family had $95 more in monthly income to devote to non-health spending in 2009 than in 1999. Healthcare cost increases wiped out any growth in household income.
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.”
Healthcare costs we are talking about is about “cost of care” rendered by the provider. The cost is not transparent to the customer. That’s where change needs to happen at the “point of service” rendered by the provider to the patient. There has to be “skin in the game” by the customer/patient and information on the price of the service before any change can occur.
The article: David Auerbach and Arthur Kellermann, A Decade Of Health Care Cost Growth Has Wiped Out Real Income Gains For An Average US Family. Health Affairs September 2011 vol. 30 no. 9 1630-1636