Health care costs go up for families Middle-income wage earners have been hardest hit in 1990s by rises in spending for insurance

November 16, 1997

Last month, the National Coalition on Health Care released studies that examined the issues of cost, access and quality of health care.

The problems identified in the three studies are:

* Health care costs are increasing at twice the rate of inflation and consuming an increasing share of national spending.

* Despite one of the greatest periods of economic growth in U.S. history, the number of uninsured people continues to increase, with more than 40 million Americans without health care coverage in 1995.

* Millions of Americans suffer and tens of thousands die unnecessarily each year because of medically induced injury or negligence.

An abridged version of the cost study, prepared by Kenneth E. Thorpe, director of Tulane University's Institute for Health Services Research, appears today, and the reports on access and quality of health care will appear in coming weeks.

The National Coalition on Health Care is a nonpartisan organization with 90 members.

While most media attention has focused on the managed care revolution and its apparent success in slowing the growth of health spending, substantially less attention has focused on spending by families.

Families incur several types of health care spending, including payments for health insurance, spending on copayments, deductibles, as well as direct spending on services not covered through their health plans. The magnitude of these expenditures can be substantial, in some cases accounting for 15 to 20 percent of the family budget.

Based on our projections, we expect that the average household will spend about $2,000 on health care during 1997. When adjusting for inflation, this represents an average annual growth of 2.5 percent. What is notable about the overall results is the dominant role assumed by health insurance spending for the typical family. In fact, between 1991 and 1994, the period when large purchasers were actively engaged in cost-containment activities, inflation-adjusted health insurance spending for families increased 6.4 percent a year.

Our analysis indicates that:

* Across all families, direct spending on health insurance increased sharply during the 1990s, rising at an inflation-adjusted rate of 6.4 percent a year.

* The sharp rise in consumer health insurance expenditures was muted by slower growth in spending on medical services and supplies.

These averages mask important variations in direct spending among families during the period. In general, the growth in direct spending was relatively low among lower-income families - those earning less than $20,000 a year - and higher-income families - those earning more than $60,000 a year. In contrast, substantial increases in spending occurred among the middle-income - those earning $20,000 to $60,000 a year.

When examining the experience of middle-income families during the 1990s, we found these trends:

* After adjusting for inflation, the growth in private health insurance spending increased by a modest amount, 0.6 percent a year between 1993 and 1995. This relatively low rate of growth masked substantial differences in the experiences of two-parent families. Families earning $40,000 to $50,000 saw health insurance payments rise 8.5 percent a year, and families earning $50,000 to $60,000 had an average increase of 5.6 percent. But families earning more than $60,000 faced nearly no growth.

Based on these data, we have projected the average annual growth in health care spending among middle-income families between 1990 and 1997.

Among these families we find:

* The largest increase in consumer expenditures among middle-income wage earners was for families - both single head of household as well as families with both parents at home.

* Even after adjusting for inflation, the average annual growth in consumer spending was 5.5 percent for two-parent families, and nearly 10 percent a year for families with a single parent earning $30,000 to $40,000 a year.

* Middle-income families with two adults and no children experienced a similar, though slightly slower, increase in inflation-adjusted out-of-pocket spending - 5.2 percent a year among families earning $30,000 to $40,000.

Our projections indicate health insurance premiums will rise by TC percent a year for active workers, and nearly 8 percent annually for retirees. Out-of-pocket spending - copayments, deductibles and spending for services not covered by health insurance - will rise 5.5 percent.

In each case, these elements of private health care spending will rise faster than wages and will continue to consume a larger share of total payroll. Last year, health insurance accounted for 8.3 percent of payroll among companies that contributed toward insurance. Based on our projections, health insurance will account for 9 percent of payroll by 2002.

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