|HOW MUCH DO WE SPEND?|
Americans spend about one of every eight dollars on health care. That’s $1.1 trillion dollars in 1998, or $4,000 for every man, woman and child in the country. It’s four times what we spent on health care in 1980. Median household income, meanwhile, only doubled between 1980 and 1997, from $17,700 to $37,000. Thus, health care costs have been rising at about twice the rate of income. Health spending is projected to double again to $2.1 trillion by 2007.The nation spends its health care dollars in a lot of ways. And so do families. The typical non-elderly family with health insurance spends between 4% and 7% of its annual income on direct medical expenses and premiums. A family with an income of $37,000 a year, for example, typically pays $1,000 to $1,800 as its share of the insurance premium through the husband or wife’s job. The family will spend another $500 to $1,000 on everything from aspirin to dental check-ups.
Source: Health Care Financing Administration
|THE HIDDEN COSTS|
But there are some hidden costs, too. You pay for the rising cost of health care as an employee, consumer, and taxpayer:Employee – Businesses pass along a portion of health insurance costs to their workforces in the form of lower wage increases. Companies in 1996 paid workers earning between $30,000 and $50,000 an average of $2,000 less because of the rising cost of health benefits.Consumer – Companies add the cost of their fringe benefits, including health insurance, to the price of products and services. Health insurance represents between 5% and 9% of wages and benefits for companies that offer the benefit, up from around 2% in 1965.Taxpayer – Government programs pay 47% of the health care tab in the U.S. – $517 billion in 1998. Spending on health care is 20% of the federal budget and of most state budgets, too. Most of the money goes to fund the Medicare and Medicaid programs. If you paid $5,000 in federal and state taxes last year, around $1,000 went to health care programs.
|A Typical Family’s Health Care Costs in 1998*Insurance premiums$1,250Out-of-pocket spending750Lowered wages1,500Higher prices for goods and services1,200As part of tax bill1,000Total$5,700|
|WHO PAYS MOST?|
These hidden costs have gone largely unnoticed. That’s because researchers usually measure only what families spend on insurance premiums and direct medical expenses – so-called out-of-pocket costs. And out-of-pocket spending has been declining over the past 20 years. In 1996, consumers paid 16.5% of a $1 trillion health care tab out of their own pocket, down from 24.4% in 1980.In the last few years, however, there’s evidence of a reversal of that trend. Workers are picking up a larger share of the cost of health premiums at their jobs and paying higher deductibles, too. In addition, many Americans today are paying the full cost for a range of alternative health services and products not covered by insurance.The upshot: one in eight – 11 million – families spent more than 10% of their income on health insurance premiums and direct out-of-pocket medical expenses in 1996. Experts agree that level of health expense makes it difficult for families to pay other bills. Many older Americans are hit even harder. One in five families headed by people aged 55 to 64 spent more than 10% of their income on health care. And the average family headed by a person aged 65 or over spent one out of five dollars on health care in 1997.
HOW MUCH DOES HEALTH INSURANCE COST?
The price of health insurance has more than doubled over the last 10 years. In 1988, workers paid an average $48 a month for family coverage obtained through their jobs. Their employers paid an average $152. By 1997, workers were paying $115 a month on average for family coverage. Employers were paying $329 a month.People who work at small businesses often pay more. Workers at firms with fewer than 200 employees paid 44% of the premium for family coverage in 1996, up from 34% in 1988. Employers got hit, too. In 1986, companies spent an average $1,600 per employee on health insurance. By 1997, that had risen to almost $4,000. In 1990, American companies spent $177 billion on health benefits for workers and their dependents. That rose to $252 billion by 1996, an average increase of 7% per year. Inflation during that period averaged around 3% per year.Business spending on health care also has some built-in unfairness. Small businesses pay more for health insurance because they have less clout to negotiate discounts with insurers and managed care plans.At the same time, big companies that provide insurance bear the brunt of the added cost hospitals and doctors incur attending to people without health insurance. In addition, all employers pay more for health care to make up for underpayments to hospitals, doctors and other health providers from the government. This phenomena is called “cost-shifting.”
Average monthly cost for family coverage in a Preferred Provider
Organization (PPO) plan; company with 200 or more workers
Source: KPMG Peat Marwick
WHY ARE HEALTH COSTS RISING?
Intense pressure to produce new and costly medical technologies, products and services – and strong consumer demand for them – are the chief reasons health costs are rising. But there are many contributing factors:An aging population (When the 77 million baby boomers reach their senior years, costs could skyrocket)Inappropriate and unnecessary care and medical errorsAn oversupply of hospital beds and specialty doctorsAccelerating costs for physician and other health professionals’ services relative to other countriesExcessive medical testing to protect against malpractice suitsHigh costs in administering health careExcessive and inappropriate treatment at the end of life.
HOW CAN COSTS BE CONTROLLED?
Health care is a large, diverse and rapidly evolving segment of the economy. Medicine is also a very human enterprise with certain built-in high costs. Hospitals, for example, are very expensive places to maintain and run. New drugs and medical devices are very costly to develop and bring to market.But most experts agree out system is riddled with inefficiencies, excessive expenses, inflated prices, poor management, inappropriate care, waste and frwud. They disagree on the best ways to address these serious problems. Some favor price controls and imposing strict budgers on medical spending Others believe unfettered free market capitalism is the best way to solve the problems. Still others believe we can “innovate” our way to a less costly system through medical breakthroughs that cure or reduce the incidence of major diseases. Finally, public health advocates believe that if all Americans would adopt healthier lifestyles, health costs would plummet as people required less medical care.The truth is there is no simple or single solution to medicine’s high price tag. Very likely, most of the means mentioned above – and more – will have to be used in the years ahead to control costs. If they are not, both government and family budgets will be severely strained and the number of people without health insurance will continue to rise.