A typical American family saw its income grow by $23,000 between 1999 and 2009, but the rising cost of health care gobbled up so much of the increase that the family was left with just $95 a month in additional spending money after inflation, according to a study published this month in the journal Health Affairs.
“During the past decade, growth in health care spending sharply reduced the disposable income of Americans while increasing the federal deficit,” wrote authors David I. Auerbach and Arthur L. Kellermann of the RAND Corporation. “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.”
Their analysis was aimed at putting the nation’s skyrocketing health care spending into tangible terms, to build political will to address the cost growth that Kellermann said is distorting every sector of the economy–from companies struggling to keep up with rising health insurance costs, to states unable to fund their education systems. Even the Department of Defense, during wartime, is focusing on containing military health care costs, he noted.
More often, the nation’s health care spending is described in large numbers. It grew from $1.3 trillion to $2.5 trillion between 1999 and 2009, climbing to 17.6 percent of gross domestic product.
“Although these figures are sobering, they don’t easily translate to real-world consequences for American families–or for any taxpaying, working adults, for that matter–because many health care costs are hidden from their view,” wrote Auerbach, a health economist at RAND, and Kellermann, vice president and director of RAND Health.
Kellermann said they hope the article will lead people to see the need to target costs and inefficiencies in the health care system, and to recognize that more health care–or the latest, most advanced technology–doesn’t necessarily lead to better health. The article notes that while the use of medical services grew in the U.S., health didn’t seem to follow, with the nation ranked last among high-income countries in deaths from readily treatable conditions.
Cutting government spending, including on health care programs, has been a major topic in Congress. But Kellermann said the discussions have centered on how much government should pay, focusing on shifting costs–from the federal government to the states, or from the states to individuals–rather than on how to reduce spending overall.
“Shifting the burden of costs doesn’t change the underlying price tag,” he said. “The goal is to get people to focus on the fact that unless we make the system more efficient and more sustainable, it really doesn’t matter because none of us can afford it.”
In their analysis, Auerbach and Kellermann took into account both the cost of a typical family’s health care–insurance premiums and out-of-pocket costs–and state and federal taxes that paid for health care. They also factored in the amount employers paid toward the family’s health insurance, saying economists generally agree that employees bear the costs of employer contributions through reduced wages.
As a representative family, they used a median-income married couple with two children and employer-sponsored health insurance.
In 1999, the family would have earned roughly $76,000 before taxes. Health insurance premiums would have cost the family $85 a month (the actual cost was higher, but because money spent on health insurance premiums is not taxed, Auerbach and Kellermann adjusted it to reflect the net cost to the family). Their employer paid $240 a month, and the family spent $135 a month on health care out of pocket. Another $345 a month in taxes funded Medicare, Medicaid, military health and other state and federal health programs. Altogether, $805 a month, or $9,660 a year, went to health care costs.
By 2009, the family’s income would have risen to $99,000, a 30 percent increase. Average prices grew by 29 percent. But the family’s monthly health insurance premium rose by 128 percent.
Out-of-pocket health care spending rose 78 percent, to $235 a month, largely because employees have increasingly become responsible for a larger share of health care costs. Copay also rose.
And the portion of the family’s taxes that went to health care rose from $345 to $440. Overall, health care spending rose to $1,420, or $17,040, a 76 percent increase.
Of the family’s overall increase in before-tax income between 1999 and 2009, the authors found that 43 percent, or $820, went to health care payments, including taxes that fund government health care programs. Another $125 went to other taxes, and $870 went to increased prices for other goods. That left $95 a month to spend on other things.
But even that might be too rosy a picture. The authors wrote that the health care-related tax cost in 2009 was “misleadingly modest,” because taxes did not keep pace with the growth of government health care spending, which rose by 140 percent at the federal level and 76 percent at the state level.
Had taxes grown to cover the portion of the federal deficit that stems from health care spending, the family would have owed another $390 in taxes a month in 2009, leaving them with $295 less discretionary spending per month than they had in 1999.
Auerbach and Kellermann acknowledged that the analysis lacks precision because it relies on data from multiple sources, but wrote that it captures how increased health care spending affects families, “substantially eroding what is left for them to spend on everything else.”
They noted that the Congressional Budget Office in 2007 projected that if the nation continues its current course, health care spending will represent half the nation’s gross domestic product by 2082.
“Even if Americans don’t watch the numbers, they will find it increasingly difficult not to notice their other spending options being compromised,” they wrote.
So where can money be cut?
Kellermann cited studies indicating that a substantial amount of health care spending goes to waste, inefficient treatment or treatment that hasn’t been shown to be effective.
He pointed to end of life care as an example. Research indicates that a substantial proportion of health care spending occurs at the end of a person’s life. Palliative care and hospice care can improve patients’ quality of life, and cost less, but often, patients aren’t given the choice and die hooked up to machines in intensive care units, even if it’s not what they would have wanted.
But efforts to promote planning for end of life care got branded as death panels during the health reform debate. Other efforts to make changes–such as a Food and Drug Administration panel considering revoking approval of a drug for breast cancer patients after studies showed it did not extend life for patients with advanced conditions–have drawn fierce backlash and similar charges.
Health care has been one of the few sectors of the economy that has added jobs; a report released last week by the public policy research group Connecticut Voices for Children found that only the private health care sector grew in the state during the recent recession. That could make the prospect of cutting back on health care costs less than palatable for politicians concerned about job growth.
Kellermann sees it differently. The money families spent on health care could have instead been spent buying American products. He said he’s less concerned about losing jobs in health care than about creating jobs in the rest of the U.S. economy.
And just how realistic is the sort of discussion he’s looking for in the current political environment, which he acknowledged is “pretty toxic”?
“It’s a very challenging time for our country, especially heading into an election season,” he said. “But concerns about health care costs should not be seen as a partisan issue because it really affects the economic future of our country, the financial stability of American families, and the competitiveness of American businesses.”