By Uwe E. Reinhardt
The New York Times, Economix, August 30, 2013
“Health Care Costs Climb Moderately, Survey Says” read the headline in The New York Times last week. It appears that health insurance premiums for job-based family coverage rose “only” 4 percent between 2012 and 2013, although still twice as fast as did wages.
The survey in question is the Kaiser Family Foundation’s annual survey of employment-based health insurance, widely viewed as a gold mine for anyone seeking information on that part of the American health system.
For example, 21 percent of the companies in the Kaiser survey paid premiums in excess of $19,387 for families and in excess of $7,062 for singles in 2013 — a hefty amount. At the other end, about a fifth of the companies in the sample paid less than $13,225 for family coverage and less than $4,708 for single coverage.
The benefit consulting firm Milliman annually publishes its Milliman Medical Index on the average total cost of health care for a typical American family of four under age 65, covered by a preferred provider plan, or P.P.O. That index includes not only the employment-based health insurance premium paid by employer and employee but also an estimate of the family’s out-of-pocket spending. In other words, if estimates total annual health spending for the hypothetical family.
According to Milliman’s report, the total cost of $22,030 in 2013 is composed of a total premium for insurance coverage of $18,430, of which the employer is estimated to contribute $12,886 and the employee $5,544. The rest represents out-of-pocket spending of $3,600.
Although not directly comparable, taken together these two data series raise the question of how many American families could afford this kind of health spending strictly with their own financial resources, if one took the extreme position that health care is a private consumption good for which American households themselves should be financially responsible. I hasten to add that I do not know anyone who actually holds that extreme position; the argument is and always has been only over how extensive such support should be.
But the numbers are daunting just the same, if one contrasts them with data on the distribution of household money income (after taxes and transfers) by income group.
It is seen that in 2011, 20 percent of American households had incomes below $20,262. Although the figure includes households of various sizes, including singles, it is nevertheless a small sum to absorb even Kaiser’s premium numbers for single coverage. Median household income in 2011 was $50,054, meaning that close to 50 percent of households had an income below that number.
While the nominal median household income (in current dollars, not adjusted for inflation) in the United States has increased substantially since 1975, in constant-dollar terms of 2011 it has been remarkably and disappointingly flat.
Most of the growth in real gross domestic product in the last several decades has actually accrued to households in the top quintile of the income distribution and, within that quintile, to the top 1 percent.
The gist of the preceding array of data is that even under what we now call “moderate” growth in health care costs, stagnating incomes for millions of American households will put American health care as we have come to know it out of their financial reach, unless they receive substantial help from households in the upper third or so of the household income distribution.
This central political dilemma in American health policy — leave health care to those who can afford it or increase tax revenues to broaden coverage — will continue as far as the eye can see. A good part of the current shouting match over the Affordable Care Act expresses anger over this dilemma, and it will not subside even after the act has been fully put in place.
NYT Reader Comments:
Don McCanne, San Juan Capistrano, CA
With typical family health costs at $22,000 and median household income at $50,000, clearly there must be a transfer from wealthier, higher-income individuals if everyone is to have the health care that they should have.
Although the Affordable Care Act moves in that direction by providing income based subsidies for exchange plans and expands Medicaid for low-income individuals, most people still obtain their health coverage through their employment. Since employer-sponsored insurance is paid for through forgone wage increases, health care costs contribute to the failure of most of us to share in the gains that the very wealthy have made.
The easiest solution is to end individual plans with their premiums based on average pooled costs and set up a single pool for our entire health care system that is funded based on ability to pay – automatically resulting in that transfer that we need.
That’s easiest except for one thing. Those who have fared so well in our economy must decide that a transfer that improves the health of the nation is worth pursuing. So far, we haven’t heard much from them.
Virginia, Boston
The ‘Medicare for all’ proposed by Physicians for National Health Program at pnhp.org has been in place for twenty years. The program is reflected in a current bill in the House, HR 676, brought by D-MI Rep. John Conyers. How likely is it that our corrupt and paid-for-by-lobbyist congress will honor that attempt to right the wrong of for-profit health “care”, and pass such a bill. Please take a look.
http://economix.blogs.nytimes.com/2013/08/30/the-central-challenge-in-u-s-health-policy/
Comment:
By Don McCanne, M.D.
The reports cited and the conclusions drawn by Uwe Reinhardt have been covered in our prior messages, but they bear repeating because, as Professor Reinhardt writes, this represents the “central political dilemma in American health policy — leave health care to those who can afford it or increase tax revenues to broaden coverage.”
Typical health care costs for a worker with a family of four – a relatively healthy subset of our society – are now about $22,000, when median household income (not identical to the worker’s family, but still instructive) is now about $50,000. Try pooling that. The numbers don’t work.
Use the link to Reinhardt’s article and check out Figure 4. The bottom one-fifth of households (bottom quintile) has incomes below $20,000. That doesn’t even pay for health care, much less all other essential living expenses. So we have Medicaid for some of them.
Then look at the three middle quintiles – the bulk of working American families. Household income ranges from $20,000 to $100,000, with the median at $50,000. Even at the high end, reducing income from $100,000 to $78,000 because of health care costs puts a strain on budgets that hopefully include retirement plans, tuition expenses, ensuring housing and transportation expenses, perhaps modest vacations, plus the living expenses that would be reasonable for a middle-income family. Even this family needs help with their share of evenly allocated health care costs.
The Affordable Care Act did include a few measures to facilitate a transfer from the wealthy, including income-indexed subsidies for mediocre, low-actuarial-value exchange plans, an expansion of the tax-payer financed, underfunded Medicaid program, and some modest tax increases on higher incomes. But there isn’t really much new help for most middle-income Americans who pay for employer-sponsored plans through forgone wage increases (and at that using inequitable regressive tax expenditures). The Affordable Care Act falls far short of the transfer that will be needed if everyone is to have the health care that they should have.
Single payer advocates already
understand the obvious solution. Do not allocate costs to individuals based on the average costs of their risk categories, which is what individual and group insurance does. Instead, eliminate the insurance plan vehicle of funding and replace it with a universal health care funding pool that is financed based on ability to pay – that is, financed through progressive taxes (and not simply through payroll taxes alone that would hit middle-income workers too heavily).
Single payer calls for not equal but equitable financing, and progressive taxes are the epitome of equitable. Now if only we can get the magnates to agree that improving the health of the nation would be worth their equitable contributions.