In a post-recession America, even though overall income levels may rise, middle class families still won't be shielded from the crushing burden of healthcare costs, according to a study published this week in the New England Journal of Medicine.
"The Burden of Healthcare Costs for Working Families – Implications for Reform," by Daniel Polsky, PhD, and David Grande, MD, of the University of Pennsylvania's Leonard Davis Institute of Health Economics, used vignettes based on typical healthcare budgets for a mixture of income levels. Data indicates that wage growth for middle class workers will no longer be sufficient to keep pace with the rapidly escalating costs of healthcare as it swallows a larger proportion of the family budget and standards of living decline.
"For many families, one inevitable solution will be dropping private health insurance coverage altogether," the authorsm said.
They emphasized that the key to affordable healthcare for all is decisive action to contain healthcare costs. However, they cautioned that for healthcare reform based on private health insurance to be genuinely affordable, the distribution of healthcare costs will need to be shifted within the population.
"The growth in the rate of spending on healthcare hits the household finances of middle-class workers harder because healthcare makes up a larger proportion of their budget,” said Grande. “Progressive taxation could simultaneously address the regressive nature of healthcare cost growth and provide financing for healthcare reform."
The study notes that absolute increases in income for the nation as a whole are outpacing absolute increases in healthcare spending, suggesting that healthcare spending is not eroding the overall capacity to purchase other goods and services. But this is not the case for an increasing number of middle class families.
In calculating employee healthcare expenditures, the authors included not only the most obvious categories of spending – out-of-pocket spending and premium contributions deducted from workers' paychecks – but also forgone wages that employers instead contribute to premiums. They also included the share of income taxes that are devoted to public insurance programs such as Medicare and Medicaid.
As family income increases, employee- and employer-paid premiums as a percentage of overall compensation decrease. In other words, middle-income families pay a larger percentage of their income in the form of healthcare premiums and forgo a larger percentage of what would have been direct income compared to upper-income families.
For example, healthcare expenditures, which represent 25 percent of a two-income family's total $48,000 compensation, consist of employee-paid premiums and out-of-pocket expenses (8.6 percent) and healthcare premiums paid by an employer with wages that the family otherwise would have received, and by the government from a share of the taxes paid by the family (16.5 percent).
"Growth in employers' contributions toward health insurance premiums translates into slower growth in wages than would otherwise have occurred,” said Polsky. “Because this fact is not apparent to most families, the healthcare reform proposals that aim to control costs do not receive the level of support they deserve."
In the case of a family with a combined income of $97,000, healthcare accounts for 16.7 percent of the compensation, with employee-paid premiums and out-of pocket expenses totaling 6.4 percent and employer contributions and taxes totaling 12.2 percent.
Finally, at the $175,000 level, healthcare accounts for 13.9 percent of a family's compensation – with 2.6 percent being employee-paid premiums and out-of pocket expenses and 11.3 percent coming in the form of employer contributions and taxes.
While in all three cases per capita healthcare expenditures have grown at a rate of three percent, income has been growing at a slower rate for middle income families: 0.6 percent for the $48,000 household, one percent for the $97,000 household, and 1.5 percent for the $175,000 household.