Soaring Health Care Costs are Unsustainable for Families and Individuals,
Businesses, and All Levels of Government 

Skyrocketing health care costs – including insurance premiums, co-payments and prescription drugs– are contributing to the current economic crisis, weighing heavily on family, business, and government budgets. Inherited flaws in our health care system have led to higher health care costs, reduced access to care, and inconsistent quality of care throughout the country. Too many Americans live in fear of the astronomical costs they will incur if they or their families experience an unexpected health care emergency. 

Eight years of inaction contributed to high health care costs and a rising number of uninsured.This has created economic challenges and risks for: 

·Working families and individuals, whose medical costs are consuming a larger portion of their wages and leading to unsustainable debt, and who pay a hidden tax to make up for the uninsured;

·Businesses (especially small businesses); and

·Federal, state, and local governments struggling with the responsibility of providing health care coverage and fiscal constraints. 

Democrats know that, for our economy to truly recover and prosper, we must help middle-class families, businesses, and federal, state, and local governments cope with skyrocketing health care costs. That’s why we are committed to enacting health reform that addresses the health care cost crisis andensures quality, affordable health care for all Americans. 

Health care reform is economic reform. If we are to restore our economy and secure our nation’s fiscal future, now is the time to make health care affordable for American families, business, and government at every level. The status quo is not working and is clearly not sustainable.

 

Health Care Spending is Skyrocketing 

Real per person spending on health care has been increasing rapidly, rising over 40 percent in the past decade alone. Between 1980 and 2007, the share of gross domestic product (GDP) devoted to health care almost doubled. In 2007, the United States spent a total of $2.2 trillion on health care, which represents $7,421 per person or 16 percent of GDP. [Health and Human Services, accessed 3/11/2009] This is nearly twice the average of other developed nations. [Organisation for Economic Cooperation and Development, 12/10/2008

According to the White House: “Virtually all analysts agree that without major reform, health care’s share of GDP will continue to rise rapidly.” The health share is projected to rise to 28 percent in 2030 and to 34 percent in 2040. In 2009, health care expenditures are expected to be approximately 18 percent of GDP. [CEA, 6/2/2009]

 

National Health Expenditures as a Share of GDP, 1980-2040

Figure 1: National Health Expenditures as a Share of GDP, 1980-2040

[Chart from CEA, 6/2/2009]

 

Economic Impact on Families and Individuals 

Rising health care costs have consumed a larger portion of wages 

Over the past nine years, premiums for employer-sponsored health insurance have more than doubled, a growth rate four times faster than cumulative wage increases. According to the Kaiser Family Foundation, the average cost of an employer-based family insurance policy premium in 2008 was $12,680 – nearly the annual earnings of a full-time minimum wage job. [Kaiser Family Foundation, 9/24/2008; HealthReform.gov, 3/2009

Another recent study estimates that by 2016 the average cost of family employer-sponsored health insurance will top $24,000, an 83 percent increase over 2008 premium levels. [New America Foundation, 11/2008

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To meet this high cost, at least half of American families will have to spend more than 45 percent of their annual income to purchase health insurance. [New America Foundation, 11/2008

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Rising health care costs jeopardize employer-sponsored coverage.When the cost of premiums increase, employers have more difficulty providing health coverage, and their workers struggle to afford their share of the cost. With the increased cost of premiums over the past nine years, there has been an erosion of employment-based health coverage. The percentage of non-elderly individuals with employment-based health benefits decreased from 68.4 percent in 2000 to 62.2 percent in 2007. [Employee Benefit Research Institute, 9/2008] White House economists estimate that, in 2008, only 59 percent of employees have employer-provided health care. [CEA, 6/2/2009

Rising health care costs have consumed a larger portion of Americans’ wages. According to the White House,the rapid cost growthhas led to employers shifting to less generous health care plans. While this would reduce the growth rate of employer-sponsored health insurance premiums, workers would have to spend a larger fraction of their take-home pay on deductibles and co-payments. [CEA, 6/2/2009

In 2007, 33 percent of Americans spent 10 percent of their annual income on health expenses, a marked increase from 2001, when just 21 percent of adults were forced to dedicate such a high proportion of their income to health care bills. [The Commonwealth Fund, 8/2008

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The President’s Council of Economic Advisors recently estimated that a 1.5 percentage-point cut in the annual growth rate of health care costs would raise real GDP by more than two percent in 2020 and by almost eight percent in 2030. That kind of GDP growth would add $2,600 to a typical family of four’s income in 2020, $10,000 in 2030, and $24,300 in 2040. [CEA, 6/2/2009]

 

Rising health care costs lead to unsustainable medical debt 

A recent study reported that 49 million people, or 28 percent of the population, said they were paying off medical debt in 2007, up from 21 percent in 2005. Of those, one-quarter (24 percent) were carrying $4,000 or more in debt and 12 percent had $8,000 or more. Adults who experienced medical bill problems faced dire financial problems: 29 percent were unable to pay for basic necessities like food, heat, or rent because of their bills; 39 percent used their savings to pay bills; and 30 percent took on credit card debt.[The Commonwealth Fund, 8/2008

Nearly two-thirds of all personal bankruptcies are linked to medical expenses. In 2007, 62.1 percent of all Americans filing for bankruptcy pointed to medical costs as a reason for their filing – that is one family filing for bankruptcy in the aftermath of illness every 90 seconds. Most “medical debtors” were well educated and middle class and “three quarters of them were insured.” [The American Journal of Medicine, 2009

Between 2001 and 2007, the share of bankruptcies attributable to medical problems rose by 49.6 percent. In 2001, half of all Americans filing for bankruptcy pointed to medical costs as a reason for their filing.[The American Journal of Medicine, 2009; see also Health Affairs, 2/2/2005; Health Matrix, 8/18/2008; Washington Post, 2/9/2005

Medical crises are a major contributing cause of foreclosures. In the midst of an historic crisis in the housing market and record foreclosures, a recentstudy of four states found that medical crises contribute to half of all home foreclosure filings. More than one-third (37 percent) of homeowners that were studied had no health insurance whatsoever. “If these patterns hold nationwide, medical causes may put as many as 1.5 million Americans in jeopardy of losing their homes each year.”[Health Matrix, 8/18/2008]

 

Ranks of uninsured create a hidden tax on those with health insurance 

In 2007 and 2008, 86.7 million people – one out of every three non-elderly Americans – went without health insurance for some period of time. It is estimated that, after out-of-pocket payments and government and charity program contributions, in 2008, the uninsured received $42.7-47.9billion worth of uncompensated care from hospitals, doctors, and other providers. [Families USA, 5/2009; CEA, 6/2/2009

The increasing number of people without health insurance adds to the cost of the health insurance premiums that American consumers and businesses with private health insurance must pay for their coverage. When the uninsured cannot afford to pay the entire cost for the health care they desperately need, these costs are shifted to those who can pay. Doctors and hospitals charge insurers more for the services provided for patients who do have health insurance, and the insurers pass on these shifted costs in the form of higher premiums for consumers and businesses that purchase health insurance, resulting in a “hidden tax.” [Families USA, 5/2009

In 2008, this cost shift resulted in family coverage premiums that were an estimated $1,017 higher (7.7 percent); individual coverage premiums that were an estimated $368 higher. [Families USA, 5/2009] For 2009, the hidden tax is estimated at $1,100 per family ($410 for singles), or eight percent of annual medical costs. [Center for American Progress, 3/23/2009]

 

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[Source: Center for American Progress, 3/23/2009

These figures, of course, were derived before the full brunt of the economic recession inherited from the previous Administration had fully manifested itself. With unemployment on the rise (rising unemployment and job losses caused an estimated 14,000 people to lose their health insurance every day in December 2008 and January 2009 alone), the hidden health care tax could be considerably higher for 2009. [Center for American Progress, 3/23/2009] Studies show that each one percent increase in unemployment will result in an additional 1.1 million uninsured. [Kaiser Family Foundation, 4/2008]

 

Economic Impact on Businesses, Especially Small Businesses 

Most small business owners want to offer health insurance to their employees and believe it is the right thing to do. Many feel their business would be more productive if they had health coverage for themselves and their employees. But escalating health care costs stand in the way of America’s entrepreneurs and doing the right thing. [National Center for Policy Analysis, 2/11/2009

A broken health care system leads to lost productivity. A recent study shows that the U.S. economy loses between $124 billion and $248 billion due to the “uninsured Americans who live shorter lives and have poorer health.” [Center for American Progress, 5/29/2009] Current workplace productivity is also affected by the inability of some employees to afford certain prescription medications, due to the increasing health care costs. Several studies show that employees’ who suffer from manageable conditions such as “depression,migraines, and asthma, are costly to employers as they result in lost productivity. With roughly 50 percent of non-elderly working adults reporting at least one serious medical condition, inaction will result in continued loss of productivity.[CEA,6/2/2009

High health care costs hinder business growth. The cost of health care is holding businesses back, as 40 percent of small business owners have stated that high health care costs have a negative effect on other parts of their business, such as high employee turnover or preventing business growth.[The Main Street Alliance, 1/2009

High costs are a barrier to offering coverage. One survey found that three-quarters of small businesses that did not offer benefits cited high costs as the reason, with high administrative costs for servicing a very small group of insured individuals greatly contributing to those high costs. [Managed Care Interface, 9/2003] According to a survey conducted by the Robert Wood Johnson Foundation, these higher costs might force over one-third of small business owners to reduce their employees’ health insurance benefits. [Robert Wood Johnson Foundation, 12/3/2008

Fewer firms are offering coverage. Between 2000 and 2007, the percentage of small businesses offering health insurance coverage to their employees dropped from 68 percent to 59 percent. [Kaiser Family Foundation, 9/24/2008] This decline is expected to continue as approximately 10 percent of small businesses are considering eliminating coverage during the next year and around 19 percent of companies are planning to do so over the next three to five years. [Wall Street Journal, 5/26/2009] These expected reductions will add to the 13 million employees who are already uninsured by small businesses.[HealthReform.gov, accessed 6/7/2009

For small businesses, costs are on the increase while availability decreases. Small businesses usually pay premiums that are 18 percent greater than larger companies. Administrative costs account for up to 25 percent of the cost of premiums for some small business health plans, compared to 10 percent for large firms. [National Center for Policy Analysis, 2/11/2009] Many small business owners have begun to reduce coverage or shift more costs to their employees. 

High costs are a drain on payrolls. Small businesses that are able to offer health insurance to their employees find that it is a substantial drain on their payroll, with 40 percent of these businesses spending more than 10 percent of their payroll on health care costs.[The Main Street Alliance, 1/2009]These costs continue to rise, as health insurance premiums rose by 5.5 percent in 2007 and five percent in 2008. [National Coalition on Health Care, accessed 6/7/2009] One survey found that more than one-fifth of small businesses reported yearly premium increases over 20 percent for the past four years. [National Small Business Association, 3/23/2009]

 

Government Expenditures on Health Care Are Rising To Unsustainable Levels 

The Congressional Budget Office estimates that federal spending on Medicare and Medicaid was approximately 4 percent of GDP in 2008. Without a policy change, health care spending is projected to consume 25 percent of total GDP in 2025, just 16 years from now, while federal spending on Medicare and Medicaid will balloon to 7 percent of GDP during that time period. 

Projected Spending on Health Care

Under an Assumption That Excess Cost Growth Continues at Historical Averages 

%GDP

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[Chart from Congressional Budget Office, 1/31/2008

Almost half of current health care spending is covered by state and local governments.

If health care costs continue to grow at historical rates, federal and state Medicare and Medicaid spending will rise to nearly 15 percent of GDP in 2040. According to the White House, roughly one-quarter of this increase would be due to the aging of the population and other demographic effects, and three-quarters would be attributed to rising health care costs. 

Projections of Total Spending on Medicare and Medicaid
as a Share of GDP, 2009-2040

Figure 5: Projections of Total Spending on Medicare and Medicaid as a Share of GDP, 2009-2040

[Chart from CEA, 6/2/2009

As health care costs increase and the baby boomers retire, our nation faces a significant long-term imbalance between revenues and spending. In the absence of “potentially painful and harmful large tax increases or cuts in other government spending, these rising deficits will“lower national saving, raise interest rates, and crowd out investment. And, deficits are only a stop-gap; eventually we would have to choose among tax increases, spending cuts, and repudiation of our debt through high inflation or outright default.”[CEA, 6/2/2009

White House economists project that, with health care reform, the federal government budget deficit could be reduced by three percent of GDP relative to the no-reform baseline in 2030 assuming that the savings are dedicated to deficit reduction). [CEA, 6/2/2009] Expanding health care coverage would also increase the labor supply, which would tend to increase GDP and reduce the budget deficit. [CEA, 6/2/2009]