The Health Care Challenge: Sailing Into a Perfect Storm

By Uwe E. Reinhardt
The New York Times
November 7, 2008
Even if the financial markets had not gone into a tailspin and the economy had not slouched toward a prolonged recession, non-elderly Americans in lower-middle-income families — those with family incomes between $20,000 and $60,000 — would have sailed into a perfect storm brewing in health care. Roughly one-third of American households fall into that category.
Consider a family headed by two income earners each with a gross wage base of $30,000. One might be a taxi driver, and the other a sales clerk in a department store or at, say, Home Depot.
By “gross wage base” is meant here the sum of all of the debits that an employer makes to the account “Payroll Expense” for an employee. It includes the employee’s cash take-home pay, all the income taxes and Social Security taxes and other deductions — for example, the employee’s contributions towards health insurance and pensions — withheld from the employee’s paycheck, as well as the employer’s share of Social Security taxes and the employer’s contributions toward the employee’s health insurance, pension, vacation pay, sick days and so on. It is a sum that supports all taxes paid by or on behalf of the employee and all fringe benefits earned by the employee, whether formally paid by the employer or taken out of the employee’s paycheck.
It follows from this definition of gross wage base that it must support all of the health expenditures made by or on behalf of the family in a given year — that is, the employer’s contribution to premiums for the employee’s health insurance, the employee’s own contribution and the employee’s out-of-pocket health spending.
According to the Milliman Medical Index, this total health spending figure for a typical non-elderly American family of four had reached an average of $15,600 by 2008. It had grown at an average compound growth rate of about 8.6 percent from $11,192 in 2004.
To return to our family with an assumed gross wage base of $60,000: If that gross wage base grew by, say, 3 percent per year over the next decade, to $80,600 by 2017, while total family health spending grew by, say, 8 percent per year over the same time frame, to $33,700 by 2017, then about 41 percent of the family’s gross wage base would be taken up by health care alone, before any deductions for taxes or fringe benefits. If the wage base grew by 4 percent, health spending still would absorb about a third of the family gross wage base.
These numbers, which are realistic, suggest that before long the gross wage base earned by American households will become too small a donkey to carry the load of the family’s spending on health care. It will put before Americans an uncomfortable choice.
Either Americans in the higher income strata must step up to the cashier’s window to help subsidize, with higher income taxes, the health care of the most hard-working members of the lower income classes, or the United States will have to evolve toward a noticeable two-tiered or multi-tiered health care system, with bare-bones, low-tech health care for families in the bottom half of the income distribution and increasingly superior, high-tech health care for families in the upper-income strata.
It is one of the several unpleasant trade-offs facing President-elect Barack Obama.
http://economix.blogs.nytimes.com/2008/11/07/the-health-care-challenge-sailing-into-a-perfect-storm/?hp

And…

2008 Milliman Medical Index

The total medical cost in 2008 for a typical family of four is $15,609.
http://www.milliman.com/expertise/healthcare/products-tools/mmi/pdfs/milliman-medical-index-2008.pdf

If we are truly serious about establishing an affordable system that would provide all necessary care for everyone, we have to seriously look at the Milliman Medical Index numbers. We are already spending an average of $15,609 for a family of four, with a typical family income of maybe $60,000. Those numbers no longer compute.
If we include everyone, how should we pay this bill? Should we attempt to continue with an administratively wasteful and inequitable system of private health plans with unaffordable premiums? Or should we adopt an efficient and equitable single payer national health program.
Regardless, if we want everyone to have the health care that they should have, higher income individuals must help pay for the care of those with modest incomes, as Uwe Reinhardt explains.
If we used private health plans, we would have to depend on an unstable and administratively burdensome system of sliding scale subsidies to help pay these high premiums (tax credits, vouchers, employer and/or individual indexed mandates, etc.).
If we established a single payer national health program, it would be simple to finance it with an equitable, stable and administratively efficient system of progressive taxes.
$15,000 means a lot to a great many of us and forces us to make choices that we shouldn’t have to make. For the wealthy, the progressive tax that they would pay would not force them into any difficult choices at all. It would merely be reflected in some numbers that would appear in the forms provided by the accountant. The emotional trauma of being exposed to some numbers on a sheet of paper is not a very big price for them to pay.

By Uwe E. Reinhardt
The New York Times
November 7, 2008

Even if the financial markets had not gone into a tailspin and the economy had not slouched toward a prolonged recession, non-elderly Americans in lower-middle-income families — those with family incomes between $20,000 and $60,000 — would have sailed into a perfect storm brewing in health care. Roughly one-third of American households fall into that category.

Consider a family headed by two income earners each with a gross wage base of $30,000. One might be a taxi driver, and the other a sales clerk in a department store or at, say, Home Depot.

By “gross wage base” is meant here the sum of all of the debits that an employer makes to the account “Payroll Expense” for an employee. It includes the employee’s cash take-home pay, all the income taxes and Social Security taxes and other deductions — for example, the employee’s contributions towards health insurance and pensions — withheld from the employee’s paycheck, as well as the employer’s share of Social Security taxes and the employer’s contributions toward the employee’s health insurance, pension, vacation pay, sick days and so on. It is a sum that supports all taxes paid by or on behalf of the employee and all fringe benefits earned by the employee, whether formally paid by the employer or taken out of the employee’s paycheck.

It follows from this definition of gross wage base that it must support all of the health expenditures made by or on behalf of the family in a given year — that is, the employer’s contribution to premiums for the employee’s health insurance, the employee’s own contribution and the employee’s out-of-pocket health spending.

According to the Milliman Medical Index, this total health spending figure for a typical non-elderly American family of four had reached an average of $15,600 by 2008. It had grown at an average compound growth rate of about 8.6 percent from $11,192 in 2004.

To return to our family with an assumed gross wage base of $60,000: If that gross wage base grew by, say, 3 percent per year over the next decade, to $80,600 by 2017, while total family health spending grew by, say, 8 percent per year over the same time frame, to $33,700 by 2017, then about 41 percent of the family’s gross wage base would be taken up by health care alone, before any deductions for taxes or fringe benefits. If the wage base grew by 4 percent, health spending still would absorb about a third of the family gross wage base.

These numbers, which are realistic, suggest that before long the gross wage base earned by American households will become too small a donkey to carry the load of the family’s spending on health care. It will put before Americans an uncomfortable choice.

Either Americans in the higher income strata must step up to the cashier’s window to help subsidize, with higher income taxes, the health care of the most hard-working members of the lower income classes, or the United States will have to evolve toward a noticeable two-tiered or multi-tiered health care system, with bare-bones, low-tech health care for families in the bottom half of the income distribution and increasingly superior, high-tech health care for families in the upper-income strata.

It is one of the several unpleasant trade-offs facing President-elect Barack Obama.

http://economix.blogs.nytimes.com/2008/11/07/the-health-care-challenge-sailing-into-a-perfect-storm/?hp

And…

2008 Milliman Medical Index

The total medical cost in 2008 for a typical family of four is $15,609.

http://www.milliman.com/expertise/healthcare/products-tools/mmi/pdfs/milliman-medical-index-2008.pdf

Comment:

By Don McCanne, MD

If we are truly serious about establishing an affordable system that would provide all necessary care for everyone, we have to seriously look at the Milliman Medical Index numbers. We are already spending an average of $15,609 for a family of four, with a typical family income of maybe $60,000. Those numbers no longer compute.

If we include everyone, how should we pay this bill? Should we attempt to continue with an administratively wasteful and inequitable system of private health plans with unaffordable premiums? Or should we adopt an efficient and equitable single payer national health program.

Regardless, if we want everyone to have the health care that they should have, higher income individuals must help pay for the care of those with modest incomes, as Uwe Reinhardt explains.

If we used private health plans, we would have to depend on an unstable and administratively burdensome system of sliding scale subsidies to help pay these high premiums (tax credits, vouchers, employer and/or individual indexed mandates, etc.).

If we established a single payer national health program, it would be simple to finance it with an equitable, stable and administratively efficient system of progressive taxes.

$15,000 means a lot to a great many of us and forces us to make choices that we shouldn’t have to make. For the wealthy, the progressive tax that they would pay would not force them into any difficult choices at all. It would merely be reflected in some numbers that would appear in the forms provided by the accountant. The emotional trauma of being exposed to some numbers on a sheet of paper is not a very big price for them to pay.