Long time readers/followers know that I from time to time, address health care costs. I follow economics generally and write about the same, especially when there are intersectional issues to address.
As we are heading into a presidential election cycle (we are in the early innings) and, issues like health care costs in this country should be front and center. Medicare is structurally, not sustainable. It is a behemoth program that continues to grow, consuming large amounts of tax funded resources. In September, I wrote about Medicare solvency. The article is here: https://rhislop3.com/2023/09/18/issue-medicare-solvency/
Recently, the Kaiser Family Foundation released its annual report of its Employer Health Benefits Survey. The data is rather alarming in terms of cost growth for health insurance (premium increases and how the same, are including greater shares of employee contributions and cost share (deductibles, copayments, etc.). The report is available for download, here: Employer-Health-Benefits-Survey-2023-Annual-Survey
The present gap between earnings/wage growth and inflation across the past years has yet to close and likely, may not until sometime in 2024. Between 2021 and the end of the second quarter of 2023, inflation’s impact on prices was 15.3% while wages rose 12.8% (Bureau of Labor Statistics). The gap between cost and income is sufficient enough to create strain on an economy that relies heavily on consumption.
Adding rising health care costs to the costs of daily consumables (energy, food, shelter/housing), creates an additional drag on any family’s ability to save and in many cases, consume (live a lifestyle) at pre-pandemic levels. A softening jobs market and now, slowing wage growth, compounds the problem.
Per the Kaiser report, annual family premiums for employer-sponsored health insurance climbed 7% on average this year to reach $23,968, a sharp departure from virtually no growth in premiums last year.
On average, workers this year will contribute $6,575 annually toward the cost of a family premium, a $500 increase from 2022. Employers are paying the rest. Future increases are on the horizon, as 23% of employers say they will increase employee costs in the next two years.
Medicare premiums are similarly rising. Part B premiums will increase $10, from $164.90 to $174.70. The reason for the increase is additional health care spending under Part B, rising faster than spending under Part A. Part B for those that don’t know, is the outpatient/physician care side of Medicare. Part A is the inpatient side, reimbursing providers like hospitals, nursing homes, etc., when a patient is admitted. Part B is funded by participant premiums and then, general purpose tax revenues as the premium amounts fall below the actual spend for the program.
The 7% increase in average premiums is greater than the year-over-year rise in wages (5.2%) and inflation (5.8%). Over the past five years, premiums rose 22%, slightly less than wages (27%) and about par with inflation (21%). These numbers are net of total costs including increased deductibles and cost share over the same period.
Employees with an annual deductible for single coverage, the amount comes in at $1,735, similar to last year. The average deductible amount has increased 10% over the last five years and 53% over the last ten years. Employees at small firms (under 200 workers) face much larger deductibles than compared to larger firms ($2,434 vs. $1,478). Cost shares on everything from doctor visits to prescription drugs, both of which vary widely, add even more dollars to the health care cost picture. A good summary of the overall report’s findings is available via a Health Affairs article, at this link https://www.healthaffairs.org/doi/10.1377/hlthaff.2023.00996
The takeaways from this report are, that left unchecked, health care in this country will consume an increasing portion of individual and household incomes, at a rate when all costs are totaled (premiums and cost share) that is basically equal to, wage growth. That functionally, creates a two-part problem. First, for most folks that need and must have health care, they will sacrifice other consumption or savings to pay for their health care/health insurance.
Two or second, if the cost of health care is too much a portion of the individual’s/family’s monthly budget, netted against food, energy and shelter primarily, the choice may be selective, forgoing access to care to avoid out-of-pocket costs or, using urgent and emergent services only when necessary – a higher cost, least effective method of attaining care.
In my opinion, this should be a major topic of all political conversations this election cycle. The U.S. spends more on health care than the GDP of all other world nations, save China. As interest on the nation’s debt grows, adding health care spending to that portion of the budget, and the overall picture for all other investments or needs, gets very, very dim. The net effect will be additional deficit spending, a practice we as a nation, need to curtail if we ever hope to curb inflation.
The answer to this dilemma is not additional government programming or spending. Government programs for Medicare, Medicaid, etc., are a major problem and government’s involvement in private health care via bureaucracy and various other coverage and benefit mandates (Affordable Care Act, among others), an equal contributor to the present problem.
In reality, there are only two paths toward a solution and neither, are quick or without significant changes in how we pay for and use health care. One, belly-up (sorry) and pay the freight via increased taxes. If we believe the spending needs to be at the level that it is at and the trend of growth that is present, we need to decide to cover the tab and quit believing that the same can be done without additional taxation. It can’t.
Second, if you believe as I do that reforms can actually be implemented to reverse the trend and to create real savings, then we need to change policy and implement reforms. More privatizations will help. Tort reform would save billions. Simplified billing, something HIPAA was supposed to tackle, would also help. Complete transparency around costs, between providers, will also help. Remove government as a purchaser of care will save billions upon billions. The list I have is long.
Hopefully, as the campaigns move forward, some candidates will begin to address health care costs. I’m certainly going to do my part to put these issues to each campaign and see their policy platforms, disclosing the same as I can.