Families Spend 17% Of Their Income On Health Insurance

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.

A study published in Health Affairs last fall quantifies how these rapid increases in healthcare costs affect a typical family.¹ 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, their pre-tax monthly income increased 30%, nearly the same rate as inflation (29%). Their healthcare expenses, on the other hand, grew 76% over the same time period.

The authors of this study use a broad definition of “healthcare costs” in an attempt 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. As the researchers write, “America’s complex system of financing health care delivery has successfully spread out – and therefore masked – the day-to-day consequences of cost growth for many American families.” A broad analysis such as this helps uncover costs, like taxes and lower wages, that are often hidden from view.

If current trends continue, healthcare is expected to account for half of our GDP by 2082. Both parties now acknowledge that getting healthcare costs under control is a critical concern, yet political leaders disagree strongly about the best way to do so. The outcome of this year’s election will play a major role in determining whether we move forward with the Obama healthcare reforms set to be implemented in 2014 or roll those reforms back and shift toward more state-level and private solutions.