You recently got a raise? Congratulations, but chances are increases in your health care costs have already taken a big bite out of the extra money in your paycheck.
Researchers for the RAND Corporation say ever-rising health costs have eaten nearly all the income gains made by a median-income American family of four over the past decade, leaving them with just $95 per month in extra income, after accounting for taxes and price increases.
To illustrate just how quickly health care costs are rising, the researchers point out that if those costs had risen only as fast as the cost of other goods and services from 1999 to 2009, the same family would have an additional $545 per month to spend in 2009.
Treading water
"Accelerating health care costs are a primary reason that the so many American families feel like they are just treading water financially," said David Auerbach, the study's lead author and an economist at the RAND Corporation, a nonprofit research organization. "Unless we reverse the trend, Americans increasingly will notice that health costs compromise their other spending options."
Between 1999 and 2009, total spending on health care in the United States nearly doubled, from $1.3 trillion to $2.5 trillion. During the same period, the percentage of the nation's gross domestic product devoted to health care climbed from 13.8 percent to 17.6 percent. Per person health care spending grew from $4,600 to just over $8,000 annually.
It's long been known that rising health care costs have taken a heavy toll on American consumers. A 2005 Harvard study found that Illness and medical bills caused half of the 1,458,000 personal bankruptcies in 2001.
Surprisingly, most of those bankrupted by illness had health insurance. More than three-quarters were insured at the start of the bankrupting illness. However, 38 percent had lost coverage at least temporarily by the time they filed for bankruptcy.
Hidden costs
Although the numbers in the RAND study are sobering, they don't easily translate to the daily routine of American families because many health care costs are hidden from view, the researchers say. Auerbach and co-author Dr. Arthur L. Kellermann, director of RAND Health, combined information from many sources to describe the burden that rising health care placed on a median-income family of four with employer-sponsored health insurance from1999 to 2009.
Health care costs are visible to American families in two ways -- through the monthly premium they pay for their share of private insurance and through out-of-pocket spending for copayments, deductibles, medications and other health care items.
But other costs are not so visible, researchers say. One is an employer's share of the family's premium for private health insurance, which in effect reduces an employee's wages and other compensation. The second is the portion of a family's federal and state tax burden that is devoted to government health programs such as Medicare, Medicaid and the military health care system.
While the median-income American family experienced a 30 percent gain in income from 1999 to 2009 (from $76,000 to $99,000 annually), health spending grew much faster. The family's monthly health insurance premium grew by 128 percent, from $490 to $1,115, and out-of-pocket spending rose 78 percent over the period, from $135 to $240.
