Uwe E. Reinhardt offers his viewpoint on trends in US health spending. Following are excerpts from two articles in the NYT’s Economix concerning the costs of our system and how they are apportioned in the big picture, and the impact on family budgets. Reading the charts is actually important.
There are trends in our health care system that are in place and that providers are responding to, making the regulation process only part of the bigger story.
For 2012, the nationwide average of the total health spending for a typical family of four was estimated by Milliman to be $20,728. On a regional basis, that average varies from a low of $18,365 in Phoenix to $24,965 in Miami.
A just-released study by the Health Care Cost Institute shows that much of these spending increases are the result of rising prices and not of rising use. Reporting on the study, Julie Appleby of Kaiser Health News notes,
Higher prices charged by hospitals, outpatient centers and other providers drove up health-care spending at double the rate of inflation during the economic downturn – even as patients consumed less medical care over all.
The chart below shows the path of the Milliman Medical Index since the year 2000. Although the increase of “only” 6.9 percent between 2011 and 2012 was the lowest since Milliman started publishing the index 12 years ago, a 6.9 percent increase is nevertheless alarming in a period when gross domestic product per capita and the gross wages of employees rise at much lower rates.
Although the family’s contribution of $8,584 is by no means trivial, it is less than half of the total average cost of a family’s health care cost. Most employees probably believe that “the company” – that is, its owners – absorbs the other 58 percent of the family’s total health spending.
Economists have long argued that this is an illusion – that over the longer haul the bulk and possibly all of the ostensibly employer-paid health insurance premiums gets indirectly shifted back into the employee’s paycheck through lower increases in take-home pay.
To the extent that there is a limit to this cost shift – e.g., for low-wage or unionized employees — the backward shift takes the form of reduced employment or, alternatively, the employer’s decision not to offer employees health insurance at all.
This point on backward cost-shifting was driven home recently in a paper in Health Affairs by David Auerbach and Arthur Kellerman. The authors present data showing that a decade of health care cost growth in employer-based health insurance “has wiped out real income gains for an average U.S. family” from 1999 through 2009. Health care has come to chew up American household budgets like Pacman.
Charts 1 and 2 show the growth of health spending from 1965 to 2010, broken down by source of payment. Chart 1 exhibits the time path of actual health spending, not adjusted for inflation. Chart 2 exhibits the percentage of total national health spending contributed by the various sources in the chart. In the charts the green area denotes out-of-pocket spending at the time health care is consumed, the red private health insurance, the gray Medicare, the yellow Medicaid and the blue “other third-party payments.”
Economists would explain such a trend as flows: as the fraction of G.D.P. devoted to health care increases, the added satisfaction, or utility, that people derive from added health care is likely to diminish relative to the added satisfaction derived from consuming more of other things. It could explain a gradual decline in the excess growth of health care spending.