Out-of-pocket health costs up, according to study

Family out-of-pocket health care costs rose at a much higher rate than income between 1996 and 2002, according to Commonwealth Fund research. As a result, by 2002 nearly 15% of families experienced high out-of-pocket costs relative to their incomes. That represents some 18 million families or 35 million individuals nationwide with high health care costs relative to income. Adding premiums to out-of-pocket costs for medical care, nearly one-quarter of all families devoted high levels of their total income to health care in 2002, representing some 27 million families.

Researcher Mark Merlis says the dramatic rise in out-of-pocket health care spending, which increased an average of 35% between 1996 and 2002, far outpaced the 20% increase in average family income during that time period. Mr. Merlis tells State Health Watch his research followed a similar study he did several years ago.

“People are paying on average roughly the same share for health care services as they did in 1996,” he says. “The problem is that medical spending is growing much faster than income so the burden is increasing.”

The researchers defined high health care costs as equal to 10% or more of income for all families, or 5% or more of income for a low-income family (below 200% of the federal poverty level). Out-of-pocket costs are defined as deductibles, coinsurance, or copayments, and payments for services not covered by insurance. Family health care costs are defined as out-of-pocket costs for health services plus premiums paid by families, including single individuals.

The proportion of families having high out-of-pocket spending was highest among elderly families. But it also was notably high and rising among nonelderly families with low and modest incomes. As of 2002, 41% of nonelderly families with incomes under twice the federal poverty level spent more than 5% of their income on out-of-pocket costs and premiums.

Mr. Merlis says while uninsured families are more likely to experience high out-of-pocket costs, insured families also are at risk. Among families who have private coverage, 36% of low-income families had high out-of-pocket spending when considering just medical care bills. Adding premiums, some 65% of these privately insured families spent a high share of their income on medical care and insurance.

Facing an untenable choice

“Today, families with low or modest incomes who are able to buy at least some health insurance coverage face an untenable choice: either stretch their budgets to take on unaffordable premiums for insurance that will protect their family and assure access to care, or purchase a plan that exposes them to very high costs and hope nobody gets sick,” said Commonwealth Fund president Karen Davis. “Meanwhile, since 2000, an additional 6 million adults have lost insurance altogether, increasing the total number of uninsured to 46 million. We need a fundamental change to our health care system to bring health and economic security to all Americans.”

Mr. Merlis says the rapid increase in premiums and cost-sharing in employer coverage since 2002 signals a trend that means many more families, especially low-income families, will need to devote a steadily larger share of their budgets to health care. He said the consequences can include reduced access to care, loss of insurance, and increased medical debt or bankruptcy.

“While changing incentives for consumers may play some part in the solution to growing health care costs, it is also vital to assure that the most vulnerable families are adequately protected against the risk of unsustainable medical bills,” Mr. Merlis says.

He tells SHW out-of-pocket expenses are one measure of the financial burden that families face in paying for medical care. “People with serious problems are being hit hard in the current system,” Mr. Merlis says. “With interest growing in health savings accounts and other things that call on people to increase their out-of-pocket payments for medical care, it’s important that we not lose sight of those who are already being hit hard under the current system.”

[Mr. Merlis may be contacted at (215) 862-9450.]