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Study: Families Hit Much Harder by Health Costs Than Many Realize

By John Reichard, CQ HealthBeat Editor

October 3, 2011 -- Rising health care costs hit families much harder than many people realize. And the pocketbook impact, when fully understood, underscores how critical it is to control those expenses, according to a new study by Rand Corp.

Despite the rise in household incomes between 1999 and 2009, the average family only had $95 more per month to spend by the end of that period, the study said. One of the biggest reasons for that was the increase in insurance premiums, out-of-pocket costs and taxes related to health care, it added.

Rand analysts said the typical family's monthly before-tax income grew by $1,910. Rising prices for consumer goods and taxes not related to health care consumed 52 percent of that. Most of the rest went for higher health costs, leaving families with only $95 more per month.

"Had health care costs tracked the rise in the Consumer Price Index, rather than outpacing it, an average American family would have had an additional $450 per month—more than $5,000 per year—to spend on other priorities," Rand researchers said.

The statistics most often quoted to illustrate rising health costs fail to capture the impact on families, they added.

For example, U.S. health care spending between 1999 and 2009 nearly doubled, growing from $1.3 trillion to $2.5 trillion. Health spending consumed 17.6 percent of the gross domestic product, up from 13.8 percent. "Although these numbers are striking, they do not easily translate into figures that are meaningful to individual Americans."

Increases in premiums and out-of-pocket spending by families more vividly show the impact—but they are just part of the story. Health costs also affect families because they hold down wage hikes and also boost the state and federal taxes families must pay because of the rising costs of Medicare and Medicaid.

Between 1999 and 2009 the average family's share of monthly premium costs rose from $85 to $195. The part the employer paid rose from $240 to $550 per month. These extra payments by employers represented forgone wages, the study said. Most economists assume that the growing sums employers pay in premiums would have gone for higher wages had health costs not increased.

"Out-of-pocket health care spending also rose sharply, largely because of steeper co-pays and deductibles, as well as higher prices for drugs and medical supplies," the study said.

According to a Rand estimate, the family's monthly tax bill for government health care was $345 in 1999 and $440 in 2009. "The latter number would have been far higher if the government had collected enough taxes to cover health care spending," the study added. "Instead, it added the difference to the federal budget deficit."

Had taxes kept pace with the growth in federal health spending over the 10-year period, "the typical family would have paid out an additional $390 per month in taxes." So rather than having an added $95 per month to spend after the decade's growth in household income, they actually would have wound up with a deficit of $295 per month.

"The complex ways in which Americans pay for health care obscure the impact of health care cost growth on the finances of American families," the study concluded. "These sobering facts provide further evidence that lowering health care costs is one of the most important challenges of our time."

Other recent studies show no change in these trends.

A study of 371 large employers by the consulting firm Aon Hewitt found that premiums will rise 7 percent in 2012. The average total health care premium per employee will reach $10,475 in 2012, up from $9,792 in 2010. Employees next year will pay $2,306 toward that, compared to $2,084 in 2011.

Aon Hewitt added that "average employee out-of-pocket costs, such as co-payments, coinsurance and deductibles, are expected to be $2,275 in 2012, compared to $2,007 in 2011 and $1,691 in 2010."

Last week a joint study by the Kaiser Family Foundation and the Health Research and Educational Trust reported that premiums jumped 9 percent this year for employer-sponsored family coverage. The average tab: $15,073 this year, with workers paying $4,129 and employers $10,944. The study also assessed some of the impact of the health care law (PL 111-148, PL 111-152). It found that employers added 2.3 million young adults to their policies because of the health care law. Fifty-six percent of covered workers were in "grandfathered" plans exempt from some of the requirements of the law, such as covering preventive benefits with no cost sharing and having an independent board outside the company to which one could appeal denied claims.

The Kaiser-HRET study also found that 31 percent of covered workers are now in high-deductible health plans. That means they pay deductibles of at least $1,000 for single coverage. Higher deductibles are more prevalent among smaller employers. Thus half of covered workers who work for firms with 3 to 199 workers pay at least $1,000 as their deductibles.

The growth in high deductible health plan enrollment in part reflects growing use of health savings accounts or "health reimbursement arrangements." These are savings plans for health care expenses that provide tax breaks are and are sold in conjunction with high-deductible health plans. The proportion of workers in either of these two types of plans has grown from 8 percent in 2009 to 17 percent in 2011.

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