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When 10 Percent Is Simply Too Much

Between 1996 and 2002, the average American family's out-of-pocket health care spending rose nearly twice as fast as its income. By 2002, nearly one-quarter of all families devoted high levels of their income--as much as 10 percent or more--on deductibles, coinsurance or copayments, payments for services not covered by insurance, and premiums.

These sobering findings are reported by Mark Merlis and colleagues in The Commonwealth Fund report Rising Out-of-Pocket Spending for Medical Care: A Growing Strain on Family Budgets, which draws on data from the Medical Expenditure Panel Survey, a household survey conducted by the government.

In 2001 and 2002, an average of 13 million families--11 percent of all families--had direct out-of-pocket costs equal to or exceeding 10 percent of family income, compared with 8 percent in 1996–97. Another 5 million families with incomes below 200 percent of the federal poverty level had direct costs equal to 5 to 10 percent of their income.

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Families with any member age 65 or older were much more likely than other families to have high medical care and premium costs relative to income, the report says, although the recent addition of prescription drugs to Medicare may provide better protection in the future. But even among low- and moderate-income families without an elderly member, the proportion who struggled with high out-of-pocket costs was also high: as of 2002, two of five (41%) nonelderly families with incomes less than twice the poverty level spent more than 5 percent of their income on out-of-pocket costs and premiums.

Perhaps most surprising, the prevalence of high out-of-pocket costs is growing most rapidly among fully insured, nonelderly families--those in which all members have coverage throughout the year. As of 2001–02, nearly 10 million people in such families had expenses that were high relative to income. Prevalence of high costs is still higher when any or all family members go without coverage for all or part of the year. But fully insured families have seen a larger proportional increase, because their uncovered costs are rising faster than their income.

"Today, families with low or modest incomes who are able to buy at least some health insurance coverage face an untenable choice: either stretch their budgets to take on unaffordable premiums for insurance that will protect their family and assure access to care, or purchase a plan that exposes them to very high costs and hope nobody gets sick," said Fund President Karen Davis.

Families struggling with high medical expenses are more likely than other families to report difficulties obtaining needed care. They also have trouble paying their bills, with many facing the prospect of falling into debt or bankruptcy or having to drop their health insurance coverage altogether.

"Creating financial incentives for consumers may play some part in solving the problem of growing health care costs," the report's authors say, "but it is also vital to ensure that the most vulnerable families are adequately protected against the risk of unsustainable medical bills."

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