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Health Care Costs on Rise as Policy Changes

Health Care Costs on Rise as Policy Changes

By Monday, 28 October 2019 04:37 PM Current | Bio | Archive

We all know health care is expensive, and most of us have a vague awareness that it's gotten worse in the recent past. But a new study commissioned by Clever Real Estate reveals just how expensive it's gotten, how we got here, and that all signs point to price increases continuing in the near future.

Health Care Costs Have Far Outpaced Wages

Health care is a complicated issue, and there are dozens of different factors that influence everything from insurance premiums to individual copays, but let's start with one fundamental fact that informs the rest of the discussion. While insurance costs have increased by a staggering 740% since 1984, median income has only grown 18% over the same period. To some extent, the health care problem is a wage growth problem.

In 1984, the average American household spent $2,475 (adjusted for inflation) on health care; today, the average American household spends $5,000 a year on health care. That's a 100% increase over a period when wages rose less than 20%; as a result, the proportion of their income that Americans are spending on health care has nearly doubled, from 5% to 8%. And that's only on average; people with lower incomes spend much more of their incomes, proportionally, on out-of-pocket health care costs.

Systemic Problems, Systemic Inequality

Our makeshift insurance system has exacerbated these problems even while it's insulated us from the worst of the price shocks. Half of Americans are insured through their employers, with plans that share premium costs between employees and employers. The total cost of these premiums has increased by 125% since 1999, but that cost burden hasn’t been shared equally; while employer contributions have increased 120% since the turn of the century, employee contributions have gone up 141%. Over time, employers have slowly shifted more health care costs onto employees.

Things aren’t much better for the other half of Americans. People who aren’t insured through their employers generally have private plans, purchased through insurance brokers. While the premiums for these plans are usually lower than employer-sponsored plans, the entire cost falls on the insured, so they often end up paying more than people who split premiums with their employers. These premiums have been skyrocketing, too, though at a slightly slower rate than employer-sponsored plans; adjusted for inflation, the average American insured through a private plan paid $3,455 in 1996, and $5,722 in 2018. That’s a 67% increase in out-of-pocket costs over a period of weak (and, in the years of the Great Recession, negative) wage growth.

Paying More for Less

To make matters worse, people are paying higher premiums for less coverage. If you have insurance, you know that a deductible is the amount of money you have to pay, out of pocket, before your coverage kicks in. In 2007, just over a decade ago, the average deductible was $714; in 2018, it had risen 113% to $1,573. Part of that can be explained by a shift by the population onto lower premium, high deductible plans – the so-called “catastrophic health plans” that are designed to cover only massively expensive medical emergencies – but even then, it still shows a worrisome trend.

Recent governmental policies have subjected the market to a series of whiplash-inducing changes; after the ACA passed in 2010, the percentage of uninsured Americans decreased by 44%, and from 2010 to 2016, premiums for non-employer sponsored insurance plans went down by 6%. In the year after the administration change in 2016, premiums for those plans shot up 151%, and the percentage of uninsured Americans increased, too, as some people opted out of increasingly expensive private plans. All the news isn’t bad, though: between 2017 and 2018, which is the most recent data available, more Americans were enrolling in employer-sponsored plans, and those employees were paying 5% less in premiums than they had in previous years.

The Future Looks … Pricey

So what does the future hold? More cost increases, probably. In 2019, the number of people opting to go without insurance went up by 7%, meaning that insurance companies might have to increase premiums to make up for lost revenue. And, most tellingly, the Congressional Budget Office projects that government spending on health care will increase at a faster rate than economic growth over the next decade, hinting at a further steepening of the curve.

Since private and government spending tend to move in lockstep, average Americans can expect to spend more of their money on health care, too. The upshot? Eat that daily apple, because going to the doctor is only going to get more expensive.

Dr. Francesca Ortegren, Ph.D. is a Research Associate at Clever Real Estate where she focuses on helping people understand complex data, real estate, finances, business, and the economy by researching various topics, analyzing data, and reporting useful insights for general consumption.

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Since private and government spending tend to move in lockstep, average Americans can expect to spend more of their money on health care, too. The upshot? Eat that daily apple, because going to the doctor is only going to get more expensive.
health, care, costs, policy, changes
Monday, 28 October 2019 04:37 PM
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