Families Spend 17% Of Their Income On Healthcare-Related Costs

One of our biggest long-term economic challenges is the exploding cost of healthcare. From 1999 to 2009, per capita healthcare spending grew at two and a half times the rate of inflation. Healthcare spending now constitutes 17.6% of our GDP, compared to 13.8% in 1999, and is expected to account for half of GDP by 2082 if current trends continue.

A new study from RAND quantifies how these rapid increases in healthcare costs affect a typical family.

The researchers looked at the budget for a median-income family with two married parents, two children, and employer-sponsored health insurance. This hypothetical family now spends $1420 a month, 17% of their pre-tax income, on healthcare-related costs. From 1999 to 2009, they saw their pre-tax monthly income increase 30%, nearly the same rate as inflation (29%). Their healthcare expenses, on the other hand, increased 76% over the same time period.

After accounting for inflation and subtracting out healthcare spending and taxes, a typical family in 2009 had $95 more per month to spend on non-health items than they did a decade earlier. However, if healthcare costs had risen at the rate of inflation (29%) instead of 76% over the decade, a family would now have nearly 6 times more ($545 a month) additional income available for non-health spending.

The RAND analysis uses a broad definition of “healthcare costs”, attempting to incorporate all of a typical family’s expenses that go toward health-related items. These include: insurance premiums paid by the family; insurance premiums paid by their employers, which are passed on to employees in the form of lower wages; out-of-pocket healthcare costs; and the portion of a family’s taxes that are used to pay for healthcare programs, like Medicaid and medical care for veterans. A broad analysis such as this helps uncover costs, like taxes and lower wages, that are often hidden from view.

If there is a small silver lining to this news, it’s that increased spending created 3.6 million jobs in the healthcare and social assistance sectors between 1998 and 2008.

A Decade Of Health Care Cost Growth Has Wiped Out Real Income Gains For An Average US Family
RAND // David I. Auerbach, Arthur L. Kellermann // Health Affairs // September 2011

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