Health Crisis: Mega-Diary
by Bonddad, Sat Jun 25, 2005 at 08:31:18 AM EDT
This is a mega-post. For the last week, I have put together some information regarding the US' current health system. The facts are terrible. The bottom line is the average American is losing a great deal of economic ground because of health insurance and related costs. I do not have any idea for what the appropriate answer is. However, the facts indicate there is a very large problem.
To explain why Americans are so concerned about health issues, it's important to see the effect of health costs on the average American. To do this, I will use two hypothetical families and trace their financial condition for the last 5 years.
Family 1 is a single person who made $36,000/year in 2000.. He takes two prescriptions daily and his family has a history of heart disease, although these have not manifested in this particular person.
Family 2 have a husband, wife and 2 children. Their combined income was
$50,000/year in 2000. Everyone is in good health.
For the last 5 years, their wages have barely grown. According to the Bureau of Labor Statistics, the average earnings increase from 2000-2004 was 3.86%, 3.22%, 3.12%, 1.71% and 2.39% respectively. However wages have to be compared to inflation to determine the real rate of wage growth. For the same years, annual inflation was 3.4%, 2.8%, 1.6%, 2.3% and 2.7% respectively. When inflation is subtracted from wages, overall wage growth becomes .46%, .42%, 1.52%, -.59% and-.31% respectively for 2000-2004.
Therefore, family 1 who started in 2000 with $36,000 now makes $36,538.37 and family 2 makes $50,747.73.
According to the Kaisar Foundation, the average annual cost of medical insurance for a single person in 2004 is $3627/year and $9813 for a family. Therefore, for our single person, his average annual premium is 9.92% of his annual income. For the family, the premium is 19.33% of annual income.
Think about those figures for a moment. Before any other expense is taken into account, medical insurance is already a hefty expense for both families. However, their respective problems don't end there. According to a USA Today article (Medical costs prove a burden even for some with insurance):"Some employers are embracing high-deductible policies -- requiring workers to pay $1,000 or more a year in expenses before insurance kicks in. Such policies are also common for the self-employed, who buy their own insurance, because premiums are generally lower."
In other words, their respective annual or monthly insurance payments don't represent either family's total out-of-pocket medical expenses. Suppose both families have a higher deductible policy to lower their costs. If that deductible is $1000, then health costs increase to 12% for the single person and 21% for the family.
Compounding these problems are the higher than average wage growth increase in insurance premiums. According to the Kaisar Foundation, the average annual inflation adjusted increases for insurance premiums for 2000-2004 were 5.9%, 8.5%, 9.1%, 6.1% and 5.5% respectively. Compare this increase with the after-inflation increase in wages for each of those years of .46%, .42%, 1.52%, -.59% and-.31% respectively.
Up until now, I have focused on premiums. Another important component of health care is prescription drugs. As with premiums, escalating costs are deleteriously affecting the average American. According to a Health System Change study titled Tracking Health Care Costs: Declining Growth Trend Pauses In 2004, spending on prescription drugs increased 14.2%, 13.5%, 13.1%, 8.9% and 7.2%. Finally, According to a Health System Change study titled An Update on American's Access to Prescription Drugs: "In an effort to control rising prescription drug spending, health plans started using formularies more aggressively and increasing patients' out-of pocket payment requirements.."
Putting all the above facts together, we get this picture: Assuming a health plan has a prescription drug component, people are increasing spending on prescriptions at a rate that is growing faster than their annual inflation-adjusted wage increases. This is on top of the increases in their premiums and total out-of-pocket expenses caused by higher-deductibles.
So where does all of this information lead? To bankruptcy. According to a recent study by Harvard University:
"To investigate medical contributors to bankruptcy, we surveyed 1,771 personal bankruptcy filers in five federal courts and subsequently completed in-depth interviews with 931 of them. About half cited medical causes, which indicates that 1.9-2.2 million Americans (filers plus dependents) experienced medical bankruptcy. Among those whose illnesses led to bankruptcy, out-of-pocket costs averaged $11,854 since the start of illness; 75.7 percent had insurance at the onset of illness. Medical debtors were 42 percent more likely than other debtors to experience lapses in coverage. Even middle-class insured families often fall prey to financial catastrophe when sick."
Having insurance is no help in preventing bankruptcy. So the heavy increases in premiums, prescription drugs and overall medical spending lead to half of the people declaring bankruptcy to do so for medical reasons.
Let's sum all this up. After inflation, wages are near stagnant for the last 5 years. At the same time, the following areas of spending are increasing faster than wage growth: total medical spending, insurance premiums and prescription drugs. Finally, half of people declaring bankruptcy are doing so for medical reasons, even though most had insurance.
This system is not working.
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