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Out-of-Pocket Spending Continues To Rise

24 May

The purpose of health insurance is to pool risk so that individuals who fall ill and need health care services don’t end up facing an insurmountable amount of debt. Obviously, the current health insurance market works better for some than it does for others. Even two privately insured persons may face very different fiscal realities depending on the quality of their coverage. Health reform should begin to change that in the months and years ahead, but it’s still worth looking at where things are up to now (or more accurately, through 2006, the most recent year of data in the study I’m looking at today).

When people have health insurance, it usually doesn’t mean that they pay nothing for their health care. For starters, there’s the cost of their insurance premiums. These will vary based on the quality of the coverage, the number of family members enrolled, whether the individual has non-group or employer-based coverage, and how much of the costs their employer chooses to pay. Then, once care is sought, there are deductibles (amounts which the insured must pay before their benefit coverage begins), co-payments (fixed amounts the insured must pay for each visit to a provider), and co-insurance (usually a percentage of the total charges that the insured are required to pay themselves after the deductible has been met). So there are many areas in which the insured are still spending money on health care, and these are typically referred to as “out-of-pocket” (OOP) expenditures.

Using the 2006 Medical Expenditure Panel Survey (MEPS), Peter Cunningham took a look at both national and state trends in OOP between 2001 and 2006. The study appears in the May 2010 issue of Health Affairs (try the link, but a subscription may be required). Specifically, Cunningham measured financial burden, defined as the ratio of total OOP spending to total family income. In other words, how much of their money do families spend on health care? He goes on to define high-burden individuals as those whose financial burden exceeds 10 percent of family income.

In 2004, 14.4 percent of Americans were classified as high-burden, a figure which rose to 19.1 percent in 2006. It should be noted that this was prior to the economic recession we have recently experienced. The change depends significantly on the type of insurance coverage a person has. For instance, 19.3 percent of those with public insurance (e.g., Medicaid or Medicare) were high-burden in 2001, and the figure rose to just 19.6 percent in 2006. Similarly, the corresponding figures for the uninsured were 13.9 percent in 2001 and 15.3 percent in 2006. The low figures for the uninsured must not be misinterpreted, however. The reality is that the uninsured would face such enormous financial burdens if they were to seek care, that most of the time they actually choose not to do so, and their health tends to suffer for it.

Some 12.3 percent of those with private employer-based coverage were high-burden in 2001, with 18.4 percent of the group considered high-burden as of 2006. Without question, however, the private non-group market takes the biggest hit, with 35.9 percent considered high-burden in 2001, rising to 47.8 percent in 2006. Just for fun, I thought I’d plot these four groups’ high-burden percentage over time and fit a predictive line over them. Granted, these regression lines are based on the three-year trend from 2004-2006 continuing at a steady rate, making them a rough guess, but one that’s probably not far off. What you’ll see is that by 2016, upwards of 60 percent of families with private non-group coverage might expect to spend more than 10 percent of their income on health care, as would more than 30 percent of families with private employer-based coverage (that’s most of us, by the way). The deep recession, however, might increase the slope of these lines considerably. Hopefully, the implementation of health reform will do its part to flatten them back again. I’ll revisit this blog post in 5 years and let you know how well my crystal ball worked.

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1 Comment

Posted by on May 24, 2010 in Uncategorized

 

One response to “Out-of-Pocket Spending Continues To Rise

  1. Jan Baer

    May 25, 2010 at 12:57 pm

    My husband and I are represented by that magenta line – privately insured, and as of 2009 we spent 25% of our net income on health insurance premiums alone, despite having good health. With the huge 2010 premium increase, we were forced to choose lesser coverage, with $5,000/person deductible, 30% co-insurance, and a maximum $8,500/person out-of pocket limit.I would add that there is one factor missing from most health cost profiles: non-covered expenses. So many analysts and legislators seem to assume that if we have insurance, we have health care; when in fact many policies maintain profitability by excluding many services completely.

     

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