Publications

Too Great A Burden:Americans Face Rising Health Care Costs

05/06/2009

INTRODUCTION
Long before the current economic crisis began, Americans were already straining under the burden of two related trends: shrinking coverage and rising health care costs. Over the last decade, millions of Americans have joined the ranks of the uninsured, and millions more have become underinsured as the value of their coverage has declined. At the same time, health insurance premiums and out-of-pocket costs have risen steadily, and the number of families who are facing unmanageably high health care costs has grown. Left unchecked, health care costs will keep going up, forcing more and more American families into debt—and even into bankruptcy and foreclosure.

To better understand the magnitude of the health care cost crisis, Families USA commissioned The Lewin Group to analyze data from the U.S. Department of Health and Human Services and the U.S. Census Bureau that reveal how many Americans face very high health care costs. This analysis allowed us to determine how many non-elderly people are in families that will spend more than 10 percent of their pre-tax income, and more than 25 percent of their pre-tax income, on health care in 2009.

Our analysis paints a stark picture: Nearly one in four Americans under the age of 65—some 64.4 million people—will spend more than 10 percent of their family income on health care in 2009. The vast majority of these people (82.6 percent) have health insurance. And 18.7 million non-elderly Americans—more than threequarters of whom have health insurance—are in families that will spend more than 25 percent of their income on health care in 2009.

This analysis also reveals the rapid growth in the number of people in families with high health care costs over the last nine years. From 2000 to 2009, the number of people in families that spend more than 10 percent of their income on health care will increase by nearly 22.7 million (54.4 percent). Over that same period, the number of people in families that spend more than 25 percent of their income on health care will increase by nearly 7.1 million (60.6 percent).

With the economy faltering and unemployment at its highest rate in decades, millions of Americans are at risk of losing their jobs and, consequently, their health insurance. Many others still have health insurance, but reductions in that coverage are leaving them higher out-of-pocket costs. For a growing number of Americans, health care costs are truly too great a burden. The need to secure true health reform has never been more urgent: The economic security of American families lies in the balance.

KEY FINDINGS

Millions of Americans Are Affected by High Health Care Costs

• 64.4 million non-elderly Americans are in families that will spend more than 10 percent of their pre-tax income on health care in 2009. That’s nearly one in four non-elderly Americans (24.3 percent) (Tables 1 and 2).
• 18.7 million non-elderly Americans are in families that will spend more than 25 percent of their pre-tax income on health care in 2009 (Table 1).

Table 1
People in Families with High Health Care Costs, 2000 to 2009
[See attached PDF for graph]

Table 2
Percent of People in Families with High Health Care Costs, 2009
[See attached PDF for graph]

Millions of Insured Americans Are Affected

• More than four out of five people (82.6 percent) in families that spend more than 10 percent of their pre-tax income on health care are insured (Table 3).
• 53.2 million non-elderly Americans with insurance are in families that will spend more than 10 percent of their pre-tax income on health care in 2009 (Table 4).
• More than three out of four people (76.4 percent) in families that spend more than 25 percent of their pre-tax income on health care are insured (Table 3).
• 14.3 million Americans with insurance are in families that will spend more than 25 percent of their pre-tax income on health care in 2009 (Table 4).

Table 3
Insurance Status of People in Families with High Health Care Costs, 2009
[See attached PDF for graph]

Table 4
Insured People in Families with High Health Care Costs, 2000 to 2009
[See attached PDF for graph]

High Health Care Costs: Middle Class Is Affected
 

• Nearly two-thirds (63.5 percent) of people in families that will spend more than 10 percent of their pre-tax income on health care in 2009 are from families that earn more than $30,000 per year (Table 5).
• More than one-third (37.1 percent) of people in families that will spend more than 25 percent of their pre-tax income on health care in 2009 are from families that earn more than $30,000 per year (Table 5).

Table 5
Family Income of People in Families with High Health Care Costs, 2009
[See attached PDF for graph]

A Growing Burden: More Americans with High Health Care Costs, 2000 to 2009

• From 2000 to 2009, the number of people in families spending more than 10 percent of their pre-tax income on health care will grow by nearly 22.7 million— an increase of 54.4 percent (Table 1).
• From 2000 to 2009, the number of insured people in families spending more than 10 percent of their pre-tax income on health care will grow by nearly 20.0 million—an increase of 60.3 percent (Table 4).
• From 2000 to 2009, the number of people in families spending more than 25 percent of their pre-tax income on health care will grow by nearly 7.1 million—an increase of 60.6 percent (Table 1).
• From 2000 to 2009, the number of insured people in families spending more than 25 percent of their pre-tax income on health care will grow by more than 5.8 million—an increase of 69.1 percent (Table 4).

Family Budgets: How Tight Are They? Health care costs that consume 10 percent or more of a family’s pre-tax income represent a significant burden for working families and their already tight budgets. See, for example, this budget for a family of four with a pre-tax annual income of $60,000, which was derived from the Bureau of Labor Statistics Consumer Expenditure Survey (see the Methodology on page 23). [See attached PDF for graph] This family has only $2,770 left after paying for housing, food, and other necessities. The health care expenses that they will need to cover from this $2,770 include health insurance premiums, payments for physician and hospital services (including copayments and deductibles), prescription drugs, over-the-counter medications, and medical supplies. But what if this family’s health care expenses come to more than $2,770? What if these costs add up to $6,000, or 10 percent of their pre-tax income, as happens to so many other American families? As this report shows, 64.4 million Americans are in families that spend more than 10 percent of their income on health care. In this particular example, the family would have to find another $3,230 to cover their health care costs—or go into debt.

Table 6a
People in Families Spending More than 10 Percent of Their Pre-Tax Income on
Health Care, 2000 to 2009, by State
[See attached PDF for graph]

Table 6b
Insured People in Families Spending More than 10 Percent of Their Pre-Tax
Income on Health Care, 2000 to 2009, by State
[See attached PDF for graph]

Table 7a
People in Families Spending More than 25 Percent of Their Pre-Tax Income on
Health Care, 2000 to 2009, by State
[See attached PDF for graph]

Table 7b
Insured People in Families Spending More than 25 Percent of Their Pre-Tax
Income on Health Care, 2000 to 2009, by State
[See attached PDF for graph]

DISCUSSION
Relentless growth in health insurance premiums and out-of-pocket costs has made spending on health care a growing burden over the past decades. For many Americans, this means that health care is consuming an ever-growing share of their family budgets, forcing them to make difficult sacrifices in other areas so they can make ends meet. And for many hard-working families, the burden of these health care costs has become too great to bear.

To determine how many Americans face health care costs in excess of 10 and 25 percent of pre-tax family income in 2000 and 2009, Families USA asked The Lewin Group to analyze data from the Department of Health and Human Services and the Census Bureau. The results are troubling: Nearly 64.4 million people under the age of 65—almost one in four non-elderly Americans—are in families that will spend more than 10 percent of their pre-tax income on health care in 2009 (Tables 1 and 2). More than four out of five (82.6 percent) of these people have insurance (Table 3). Just over 18.7 million nonelderly people—more than three-quarters of whom have insurance—are in families that will spend more than 25 percent of their income on health care in 2009 (Table 3).

Moreover, the number of families facing high health care costs has grown substantially over the last nine years. From 2000 to 2009, the number of people in families that spend more than 10 percent of their income on health care will rise by nearly 22.7 million (Table 1). The number of people in families spending more than 25 percent of their income on health care will increase by nearly 7.1 million (60.6 percent) between 2000 and 2009 (Table 1). Our findings also indicate that middle class families bear the burden of high health care costs. For example, nearly two-thirds (63.5 percent) of people who will spend more than 10 percent of their pre-tax family income on health care in 2009 are in families that earn more than $30,000 per year (Table 5).

Why Is the Number of People with High Health Care Costs on the Rise?
As this analysis demonstrates, millions of Americans are in families that face high health care costs, and this number has increased substantially in the last nine years. A number of factors are driving this phenomenon. First and foremost, health insurance premiums are increasing. As premiums rise, employers are forced to make tough decisions about the coverage they offer to their employees: Some drop coverage, others increase the share of the premium that employees must pay, and more offer insurance that covers fewer services and/or requires high out-of-pocket costs. This, in turn, means that American families must shoulder a greater proportion of health care costs on their own.

• Premiums on the Rise
  Much of the growing burden of health care costs comes down to simple economics: As health insurance premiums increase, the burden that these costs place on American families increases as well. And, in the last few years, health insurance premiums have risen substantially. Between 2000 and 2008 alone, the average annual premium for job-based family health coverage doubled, rising from $6,351 to $12,680.¹ During the same period, the average worker’s share of annual family premiums rose from $1,656 to $3,354, an increase of nearly 103 percent.² Efforts to slow the pace of premium increases are unlikely to succeed unless they include steps to control underlying health care costs and to limit certain insurance company practices.
   
• Rising Health Care Spending
  Much of the increase in health care spending is accounted for by the rising costs and use of services such as prescription drugs and hospital care.³ For example, from 2000 to 2009, annual spending on prescription drugs more than doubled, rising from $120.6 billion to a projected $244.8 billion.⁴ Likewise, spending on hospital services rose from $416.9 billion in 2000 to a projected $789.4 billion in 2009, an increase of nearly 90 percent.⁵
  
  While rising spending on prescription drugs and hospital care accounts for a substantial portion of the increase in underlying health care costs, the growing use of new medical technologies also plays a significant role. Advances in the tools that are used to diagnose and treat medical conditions, including the development of new surgical procedures, biologic drugs, and medical devices, have all improved the quality of care. These new technologies, however, come at a price, with some health care experts estimating that the use of new technology accounts for as much as half of the increase in health care spending.⁶
  
  Together, rising spending on health care services and increased use of new technologies drive up the cost of care provided in the United States. From 2000 to 2009, personal health care expenditures are projected to rise by nearly 70 percent, growing from $4,032 to $6,826.⁷ This, in turn, results in higher premiums.
  
  
• An Insurance Market without Necessary Protections
  While underlying health care costs are a significant driver of rising premiums, the weak regulation of insurance companies is a prescription for further increases. Currently, insurance companies are governed by a hodgepodge of state and federal rules. In many states, insurance companies have free rein over how much of each dollar that is collected in premiums is spent on providing care and how much is retained as profit or spent on overhead, such as advertising and marketing (called medical loss ratios). In addition, in some markets, insurers are free to charge people
  more—or deny coverage altogether—based on age, health status, and a range of other factors.⁸ This increases premiums even more for the very people most likely to need comprehensive, affordable health coverage.
  
  The lack of insurance market regulation is compounded by the growing advantage that insurance companies have over American families. A 2008 study found that 94 percent of commercial insurance markets were “highly concentrated” (according to standards used by the U.S. Department of Justice and the Federal Trade Commission), resulting in near-monopoly power among insurance companies. In 44 percent of major metropolitan areas, a single insurance company controls half or more of the market, and in 89 percent of major metropolitan areas, a single insurer controls at least 30 percent of the market.⁹ Without appropriate consumer protections and rules to govern the influence and growth of large insurers, premiums are likely to continue their rapid ascent.

What Rising Premiums Mean for Employers
As premiums rise, it becomes more difficult for employers to offer their employees quality, affordable health coverage, and they must make difficult decisions about the coverage that they are able to provide to their employees. For some employers, particularly those that operate small businesses, the cost of health insurance has become too
much to bear. Between 2000 and 2008, the total percentage of firms offering health coverage declined by 6 percentage points (from 69 percent of firms offering coverage to 63 percent), with small businesses being the most likely to drop coverage.¹⁰

While some employers have been forced to cut coverage across the board, others have dropped coverage for specific groups of people or have placed limits on which employees are eligible. Some employers have found that it is no longer financially viable to offer coverage for workers’ spouses and children (dependent coverage). Between 2001 and 2005, for example, a loss of dependent coverage accounted for 11 percent of the decline in job-based coverage.¹¹ In addition, many employers do not offer coverage to part-time, temporary, or seasonal workers.¹² Others now require that employees work for the company for a period of time before becoming eligible for coverage. In 2008, three out of four employers (75 percent) imposed a waiting period for coverage, with the average waiting period being just over two months.¹³

The vast majority of employers who have continued offering coverage have been forced to shift some portion of rising health care costs onto their workers, usually by increasing the amount that workers are required to pay toward insurance premiums.¹⁴ Others have resorted to “thinning” coverage—offering health insurance that covers fewer services and/or that comes with higher deductibles, copayments, and co-insurance. ¹⁵ In addition, insurance coverage is evolving to require more cost-sharing for certain services, such as prescription drugs and hospital care. For example, more than 93 percent of workers are in tiered drug plans that charge more for some drugs than for others, and 75 percent of workers are enrolled in plans that require hospital-specific cost-sharing (e.g., a separate deductible, co-insurance, or copayments).¹⁶

These trends are likely to continue in coming years, with nearly half (45 percent) of firms saying that they are “very likely” or “somewhat likely” to increase cost-sharing for doctors’ visits, 41 percent saying that they are very or somewhat likely to increase deductibles or the amounts that employees pay for prescription drugs, and 40 percent saying that they are very or somewhat likely to raise employees’ premium contributions in 2009.¹⁷

The thinning of coverage and the increasing number of plans that require higher deductibles and cost-sharing reflect a trend toward coverage that shifts financial risk onto families.¹⁸ A range of “consumer-directed” plans have gained popularity among some employers in recent years as a way to hold down costs. Although relatively few people have chosen to participate in these plans (only 8 percent of employees in 2008), 22 percent of companies with more than 1,000 employees and 13 percent of all firms now offer plans that pair high-deductible coverage with tax-sheltered health savings accounts (HSAs).¹⁹

New trends that shift financial risk onto families have been facilitated by several changes in federal law and regulations that occurred a few years ago. For example, in 2006, employers were given an additional impetus to move to higher deductible plans when Congress passed the Bush Administration’s proposal to increase the size of tax shelters for high-deductible plans that were linked to health savings accounts. These plans offer little or no benefit to low-income families, but they do provide a lucrative tax shelter for the wealthy.²⁰

In addition, employers that are attempting to rein in costs are turning to programs that make workers directly responsible for their health care costs. In 2007, changes to federal insurance anti-discrimination protections were implemented.²¹ These changes allow employers to charge workers more for their health insurance if they do not participate in certain health programs, or just because they have high blood pressure or other indicators of less-than-perfect health.²² Employers that have chosen to implement these programs have gone so far as to dock the paychecks of workers who are unable to meet standards for cholesterol, blood glucose, blood pressure, and other similar measures.²³

Consequences for American Families
More families are facing burdensome health care costs, regardless of their insurance status. Rising premiums are only part of this equation. Now, nearly 64.4 million Americans live in families that face health care costs in excess of 10 percent of their pre-tax income. Insurance simply no longer offers the protection that America’s families need.

As health care costs consume a growing share of family budgets, more and more Americans report having trouble paying for care. In 2007, 48 million Americans reported having trouble paying medical bills. Of these, 28 million had used up all of their savings to pay their medical bills, 21 million took on substantial credit card debt, and 7.5 million took out a mortgage against their home or other personal loan.²⁴ Among those with insurance, one in three working-age adults report having trouble paying medical bills or say that they are in the process of paying off medical debt.²⁵

The problem is even worse for people who are in plans that have high premiums, that charge hefty cost-sharing, or that offer limited benefits, and for those who have gone for even part of the year without health coverage. In 2007, more than three out of five (61 percent) insured individuals with high health care costs, and people who were uninsured during the year, reported having problems with medical bills, such as difficulty paying bills or being contacted by a collection agency.²⁶

When the burden of health care costs becomes too great, the consequences can be catastrophic. Faced with medical debt, families often have no choice but to consider making drastic changes in lifestyle and, eventually, face bankruptcy or home foreclosure. One study found that, in the two years prior to filing for bankruptcy, more than 40 percent of families lost telephone service, approximately one-fifth went without food, and more than one-half went without needed medical or dental care because of the costs associated with this care.²⁷ When no options remain, bankruptcy often becomes the last resort for families. From the beginning of 2000 through June 2007 alone, 5 million American families filed for bankruptcy following a serious medical problem.²⁸ Moreover, economists estimate that 16 times as many families are on the brink of financial troubles that are dire enough to benefit from filing for bankruptcy.²⁹ In all, approximately half of bankruptcies are due, at least in part, to medical expenses.³⁰

Recent data also confirm the link between medical debt and housing insecurity. Nearly half (49 percent) of home foreclosures in 2006 were caused, at least in part, by financial issues stemming from a medical problem.³¹ Another study found that more than onequarter (27 percent) of people with medical debt experienced housing insecurity, including the inability to qualify for a mortgage, trouble making rent payments, and eviction.³² Housing problems were most prevalent among individuals with larger medical debts (debt in excess of $5,000), and the likelihood of facing housing insecurity increased the longer a debt went unpaid.³³

CONCLUSION

With a growing share of middle-class families spending more than 10 percent—or even more than 25 percent—of their income on health care, rising costs are putting millions of families at risk. If nothing is done to bring the cost of health care under control, an ever-larger strain will be placed on the budgets of working families. The results are likely to be catastrophic. Inaction is no longer an option. Our leaders in Washington, D.C. and in the states must take meaningful action to achieve health reform that extends access to quality, affordable coverage while bringing costs under control.

Drowning in Debt: Americans Facing High Health Care Costs With rising health care costs and thinning coverage, families are paying more out of pocket for their health care. Millions of people have taken on significant financial risks to pay for their medical care. Too often, however, these risks do not pay off, and many families find themselves shouldering the heavy burden of medical debt. More than two out of five non-elderly adults—41 percent—have had trouble paying their health care bills, are paying off accrued medical debt, or both.34 High medical costs and medical debt can compromise a family’s access to health care and undermine its economic security. No Guarantee: Coverage without Adequate Protection One out of three insured adults (33 percent) is in the process of paying off medical debt and/or reports having trouble paying medical bills.35 The situation is even more troubling for individuals with inadequate insurance (the “underinsured”). More than three out of five underinsured adults (61 percent) report having problems paying their medical bills and/or having accrued medical debt.36 About 78 percent of those with private insurance and medical debt work full-time.37 Two-thirds of privately insured adults with medical debt have household incomes between $20,000 and $75,000.38 Thinning Benefits: People Bear the Burden Thinner benefit packages mean that people have to pay more to obtain basic health care services. Americans with job-based insurance pay nearly a third (32 percent) of their total medical bills out of pocket, while those in the individual health insurance market pay for more than half (55 percent) of their health expenses out of pocket.39 Plans that do not cover necessary services, such as prescription drugs, put Americans at risk for having unreasonably high health care costs. For example, among non-elderly insured adults without prescription drug or dental coverage, 44 percent report having problems with medical bills and/ or medical debt.40 People enrolled in health plans that place a limit on the total value of health services that can be covered were much more likely to have problems with medical bills and/or medical debt as people enrolled in plans without a dollar limit on coverage (43 percent versus 27 percent).41 Plans with high deductibles are burdensome for American families. More than half of adults (53 percent) enrolled in plans with annual deductibles equal to or more than 5 percent of their annual income reported having problems with medical bills and/or medical debt.42 People diagnosed with a chronic illness may discover too late that their insurance does not cover their care. For example, among cancer patients with health insurance, 23 percent report that their plan paid less than expected for a medical bill.43 The problems that American families face due to thinning coverage are likely to grow. Over the next year, 45 percent of employers that offer health insurance, report that they are “very likely” or “somewhat likely” to increase employees’ cost-sharing for doctor visits, 41 percent report that they are “very likely” or “somewhat likely” to increase employees’ deductibles, and 41 percent report that they are “very likely” or “somewhat likely” to increase the amount that employees pay for prescription drugs.44 Cost: Barrier to Access More than one in three adults (35 percent) with uninterrupted health insurance reported going without needed care due to cost: These adults didn’t fill a prescription; did not see a specialist when necessary; skipped recommended tests, treatments, or follow-up care; or didn’t go to the doctor when there was a medical problem.45 People with inadequate insurance are even more likely to go without needed care. Three in five underinsured adults (60 percent) reported that they went without needed care because of cost.46 More than one in four cancer patients (27 percent) delayed or went without care because of the cost.47 Medical debt also poses barriers to access. Insured adults who report having medical debt are nearly five times more likely than insured adults without medical debt to postpone medical care due to cost (28 percent versus 6 percent).48 Insured people with medical debt are nearly three times as likely to go without a needed prescription as those without medical debt (24 percent versus 9 percent).49 Health care providers are using more aggressive billing and debt collection practices, which has made it difficult for people with medical debt to obtain care. Increasingly, providers are requiring payment for services at the time they are provided, which deters people who cannot afford the cost of care or forces people to pay with credit cards.50 At Risk: Medical Costs Undermine Financial Security Insurance coverage doesn’t guarantee protection against having to take substantial financial risks to pay for care. Among insured adults with medical bill problems or medical debt, 33 percent used up all of their savings to pay medical bills, 30 percent took on credit card debt, and 10 percent took out a second mortgage or personal loan.51 Nearly 29 percent of low- and middle-income households with credit card debt reported that medical expenses contributed to their current level of credit card debt.52 When medical debt becomes too great to bear, the consequences can be catastrophic. Legal action, such as seizure of wages, assets, and property, may be taken against people with unpaid medical bills.53 Bankruptcy is often the last resort for families with high medical costs. About half of all personal bankruptcy cases are due, at least in part, to medical reasons. 54 Between 2000 and June 2007, approximately 5 million families filed for bankruptcy after experiencing a serious medical problem. 55 And, among those whose illness led to bankruptcy, more than three in four had insurance at the onset of the illness.56 Most people who report having medical debt on their credit reports say that their credit has been damaged because of it.57 Damaged credit can make it difficult or impossible to secure and maintain housing, to get a job, to buy a car, to obtain utilities, and to meet other needs.58 Medical Debt Leads to Housing Insecurity Nearly half (49 percent) of home foreclosures in 2006 were caused, at least in part, by financial issues stemming from a medical problem.59 One study found that more than one-quarter (27 percent) of people with medical debt experienced housing insecurity. Of these: 11 percent were unable to qualify for a mortgage, and 7 percent were turned down from renting a home or apartment; 10 percent were unable to make rent or mortgage payments; 5 percent were forced to move to less expensive housing; 2 percent were evicted; and 2 percent were homeless because of medical debt.60 More than half (52 percent) of people with medical debt of at least $5,000 reported having a housing problem. A substantial share of people (12 percent) with debt of less than $500 also reported having housing problems that resulted from medical debt.61

 ENDNOTES

1. Families USA calculations based on Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2000 Annual Survey (Washington: Kaiser Family Foundation, 2000) and Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2008 Annual Survey (Washington: Kaiser Family Foundation, September 2008).
2. Ibid.
3. Kaiser Family Foundation, Prescription Drug Trends (Washington: Kaiser Family Foundation, September 2008); Andrea Sisko, Christopher Truffer, Sheila Smith, Sean Keehan, Jonathan Cylus, John A. Poisal, Kent Clemens, and Joseph Lizonitz, “Health Spending Projections through 2018: Recession Effects Add Uncertainty to the Outlook,” Health Affairs Web Exclusive  (February 24, 2009): w346-w357.
4. Families USA calculation based on Centers for Medicare and Medicaid Services, National Health Expenditures Aggregate Amounts and Average Annual Percent Change, by Type of Expenditure: Selected Calendar Years 1960-2007, available online at http:// www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf, accessed on March 12, 2009; Centers for Medicare and Medicaid Services, National Health Expenditure Amounts, and Annual Percent Change by Type of Expenditure: Calendar Years 2003- 2018, available online at http://www.cms.hhs.gov/NationalHealthExpendData/downloads/proj2008.pdf, accessed on March 12, 2009.
5. Ibid.
6. Kaiser Family Foundation, Snapshots: Health Care Costs—How Changes in Medical Technology Affect Health Care Costs (Washington: Kaiser Family Foundation, March 2007). See also: Carlos Angrisano, Diana Farrell, Bob Kocher, Martha Laboissiere, and Sara Parker, Accounting for the Cost of Health Care in the United States (Washington: McKinsey Global Institute, January 2007); Dana Goldman and Elizabeth McGlynn, U.S. Health Care Facts about Cost, Access, and Quality (Santa Monica: RAND Corporation, 2005).
7. Families USA calculations based on Centers for Medicare and Medicaid Services, Personal Health Expenditures Aggregate, Per Capita Amounts, and Percent Distribution by Source of Funds: Selected Calendar Years 1970-2007, available online at http:// www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf, accessed on March 12, 2009; Centers for Medicare and Medicaid Services, Personal Health Care Expenditures: Aggregate and per Capita Amounts, Percent Distribution and Annual Percent Change by Source of Funds: Calendar Years 2003-2018, available online at http://www.cms.hhs.gov/NationalHealthExpendData/ downloads/proj2008.pdf, accessed on March 12, 2009.
8. Ella Hushagen and Cheryl Fish-Parcham, Failing Grades: State Consumer Protections in the Individual Health Insurance Market (Washington: Families USA, June 2008); Cheryl Fish-Parcham, Understanding How Health Insurance Premiums Are Regulated (Washington: Families USA, September 2006).
9. American Medical Association, Competition in Health Insurance: A Comprehensive Study of U.S. Markets, 2008 Update (Chicago: American Medical Association, 2008).
10. Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2008 Annual Survey, op. cit.
11. Lisa Clemens-Cope, Bowen Garrett, and Catherine Hoffman, Changes in Employees’ Health Insurance Coverage, 2001-2005 (Washington: Kaiser Commission on Medicaid and the Uninsured, October 2006).
12. Elaine Ditsler, Peter Fisher, and Colin Gordon, On the Fringe: The Substandard Benefits of Workers in Part-Time, Temporary, and Contract Jobs (New York: The Commonwealth Fund, December 2005).
13. Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2008 Annual Survey, op. cit.
14. According to Families USA calculations of Kaiser/HRET data, between 2000 and 2008, the average employee share of job-based family insurance premiums increased by nearly 103 percent. Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2000 Annual Survey, op. cit., and Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2008 Annual Survey, op. cit.
15. Cathy Schoen, Michelle M. Doty, Sara R. Collins, and Alyssa L. Holmgren, “Insured but Not Protected: How Many Adults Are Underinsured?” Health Affairs Web Exclusive (June 14, 2005): W5-289-W5-302.
16. Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2008 Annual Survey, op. cit.
17. Ibid.
18. James Robinson, “Reinvention of Health Insurance in the Consumer Era,” Journal of the American Medical Association 291, no. 15 (April 21, 2004): 1,880-1,886.
19. 19 Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2008 Annual Survey, op. cit.
20. Government Accountability Office, Consumer-Directed Health Plans: Early Enrollee Experiences with Health Savings Accounts and Eligible Health Plans (Washington: GAO, August 2006); Edwin Park and Robert Greenstein, GAO Study Confirms Health Savings Accounts Primarily Benefit High-Income Individuals (Washington: Center on Budget and Policy Priorities, September 2006).
21. Department of the Treasury, Department of Labor, and Department of Health and Human Services, “Nondiscrimination and Wellness Programs in Health Coverage in the Group Market; Final Rules,” Federal Register 71, no. 239 (December 13, 2006): 75,014-75,055, available online at http://www.dol.gov/ebsa/regs/fedreg/final/2006009557.pdf.
22. Families USA, Reward/Penalty Plans for Wellness: Coming Soon to an Office Near You? (Washington: Families USA, February 2008).
23. Daniel Costello, “Workers Are Told to Shape Up or Pay Up; To Hold Down Medical Costs, Some Firms Are Penalizing Workers Who Are Overweight or Don’t Meet Health Guidelines,” Los Angeles Times, July 29, 2007.
24. Michelle M. Doty, Sara R. Collins, Sheila Rustgi, and Jennifer L. Kriss, Seeing Red: The Growing Burden of Medical Debt Faced by U.S. Families (New York: The Commonwealth Fund, August 2008).
25. Sara R. Collins, Jennifer L. Kriss, Michelle M. Doty, and Sheila D. Rustgi, Losing Ground: How the Loss of Adequate Health Insurance Is Burdening Working Families (New York: The Commonwealth Fund, August 2008).
26. Michelle M. Doty, Sara R. Collins, Sheila, D Rustgi, and Jennifer L. Kriss, op. cit. See also Cathy Schoen, Sara R. Collins, Jennifer L. Kriss, and Michelle M. Doty, “How Many Are Underinsured? Trends among U.S. Adults, 2003 and 2007” Health Affairs Web Exclusive (June 10, 2008): w298-w309.
27. David U. Himmelstein, Elizabeth Warren, Deborah Thorne, and Steffie Woolhander, “Illness and Injury as Contributors to Bankruptcy,” Health Affairs Web Exclusive (February 2, 2005): W5-63-W5-73. See also Sarah R. Collins, Jennifer L. Kriss, Karen
    Davis, Michelle M. Doty, and Alyssa L. Holmgren, Squeezed: Why Rising Exposure to Health Care Costs Threatens the Health and Financial Well-Being of American Families (New York: The Commonwealth Fund, September 2006).
28. Elizabeth Warren, Medical Bankruptcy: Middle Class Families at Risk, Testimony before the U.S. House of Representatives, Judiciary Committee, July 17, 2007.
29. Ibid.
30. David U. Himmelstein, Elizabeth Warren, Deborah Thorne, and Steffie Woolhander, op. cit.
31. Christopher Tarver Robertson, Richard Egelhof, and Michael Hoke, “Get Sick, Get Out: The Medical Causes of Home Mortgage Foreclosures,” Health Matrix 18 (2008): 65-105.
32. Robert W. Seifert, Home Sick: How Medical Debt Undermines Housing Security (Boston: The Access Project, November 2005).
33. Ibid.
34. Sara Collins, Michelle Doty, Jennifer Kriss, and Shelia Rustgi, op. cit.
35. Ibid.
36. Ibid.
37. Catherine Hoffman, Diane Rowland, and Elizabeth Hamel, Medical Debt and Access to Health Care (Washington: Kaiser Commission on Medicaid and the Uninsured, September 2005).
38. Ibid.
39. Jessica Banthin, Peter Cunningham, and Didem Bernard, “Financial Burden of Health Care, 2001-2004,” Health Affairs 27, no. 1 (January/February 2008): 188-195.
40. Michelle M. Doty, Sara R. Collins, Sheila Rustgi, and Jennifer L. Kriss, op. cit.
41. Ibid.
42. Ibid.
43. USA Today, Kaiser Family Foundation, and Harvard School of Public Health, National Survey of Households Affected by Cancer (Washington: Kaiser Family Foundation, November 2006).
44. Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2008 Annual Survey, op. cit.
45. Sara R. Collins, Jennifer L. Kriss, Michelle M. Doty, and Shelia D. Rustgi, op. cit.
46. Ibid.
47. USA Today, Kaiser Family Foundation, and Harvard School of Public Health, op. cit.
48. Catherine Hoffman, Diane Rowland, and Elizabeth Hamel, op. cit.
49. Ibid.
50. Cindy Zeldin and Mark Rukavina, Borrowing to Stay Healthy: How Credit Card Debt Is Related to Medical Expenses (New York: Demos and The Access Project, 2007). See also The Access Project, The Consequences of Medical Debt: Evidence from Three Communities (Boston: The Access Project, February 2003).
51. Michelle M. Doty, Sara R. Collins, Sheila D. Rustgi, and Jennifer L. Kriss, op. cit.
52. Cindy Zeldin and Mark Rukavina, op. cit.
53. Robert Seifert and Mark Rukavina, “Bankruptcy Is the Tip of the Medical-Debt Iceberg,” Health Affairs Web exclusive (February 2006): W89-W92.
54. David U. Himmelstein, Elizabeth Warren, Deborah Thorne, and Steffie Woolhander, op. cit.
55. Elizabeth Warren, op. cit.
56. David U. Himmelstein, Elizabeth Warren, Deborah Thorne, and Steffie Woolhander, op. cit.
57. Robert W. Seifert, op. cit.
58. Barbara Anthony, Medical Debt and Fair Debt Collection Practices by Providers, Testimony of Health Law Advocates, Inc. before the Massachusetts Division of Health Care Finance and Policy, August 22, 2007.
59. Christopher Tarver Robertson, Richard Egelhof, and Michael Hoke, op. cit.
60. Robert W. Seifert, op. cit.
61. Ibid.

METHODOLOGY

To measure the financial burden of health care spending, Families USA asked The Lewin Group to produce national and state-level estimates of the number of people in families whose out-of-pocket health expenses exceed 10 and 25 percent of their pretax income. In these analyses, health expenses included both direct health spending and spending on health insurance premiums.

Direct out-of-pocket spending includes all payments for health services that were not covered by public or private insurance. For people with insurance, this includes payments for services that are not covered by their insurance plan, as well as deductibles and copayments. It also includes bills for health services that patients are unable to pay and that are written off by providers as charity care and/or bad debt. Premiums include the amount of employee contributions for coverage under employer health plans, premiums for individual insurance, and any premiums paid under public health insurance programs such as the Children’s Health Insurance Program (CHIP).

These estimates of the high financial burden of health care were developed using The Lewin Group’s Health Benefits Simulation Model (HBSM). HBSM is a micro-simulation model of the United States health care system. The model is based on the Medical Expenditures Panel Survey (MEPS) data for 2002-2005, which were updated to reflect projections of health spending through 2009. The MEPS provides data on the distribution of health spending by type of service and by source of payment across families of various demographic and economic groups. These data allow for the identification of people in families that spend in excess of various percentages of family income.

The HBSM calculates premium amounts for each policyholder in the MEPS data. Private health insurance premiums are estimated based upon the type of insurance (i.e., large group, small group, and individual market) using the range of rating practices that are permitted in each state. This includes community rating, age rating, and rating bands. Experience rating was based upon reported health expenditures for workers assigned to the model’s “synthetic firms.” We also estimate premiums for self-funded plans based upon the health services utilization for people assigned to each firm.¹

The data used in the HBSM model were updated to 2009 based upon the health spending projections that were developed by the Office of the Actuary of the Center for Medicare and Medicaid Services (CMS). These data provide estimates of the levels of health spending by source of payment, including out-of-pocket expenditures and private health insurance spending for several years, including 2000 through 2009. Other sources were used to estimate the level of charity care, including published hospital data. In addition, the model uses U.S. Census Bureau projections of population and the Bureau of Labor Statistics (BLS) estimates of income growth. Age-specific population counts were controlled to population estimates from the 2008 Current Population Survey (CPS).

Unfortunately, the MEPS is not designed to be disaggregated by state of residence. The HBSM was therefore enhanced with additional data on the demographic and income composition of the population in each state, and with CMS data on health spending by state. This was accomplished by “re-weighting” the MEPS results based on the distribution of people by demographic characteristic, source of insurance, and income level in each state, as reported in the CPS data. Health spending levels were also adjusted to reflect CMS data on differences in health spending levels by state. The re-weighted estimates of health care burden reflect differences in the economic and demographic characteristics of each state’s population, insurance coverage levels, and health spending levels across states.

Family Budget

Families USA used data from the Institute on Taxation and Economic Policy and the U.S. Bureau of Labor Statistics Consumer Expenditure Survey to calculate the budget for a family of four with an annual gross income of $60,000.

• Family Tax Burden
  In order to estimate federal, state, and local taxes for the family presented in the example, we asked the Institute on Taxation and Economic Policy (ITEP) to use its microsimulation tax model to determine the state and local tax burden for the family, which we defined as a two-parent, two-child household that owns its own home and earns $60,000 annually. The ITEP model uses data from government sources, such as the Internal Revenue Service and the U.S. Census Bureau, to calculate, by income, a family’s total tax burden, including federal, state, and local taxes. The model estimates federal and state personal income taxes, sales and excise taxes, corporate income taxes, state and local property taxes, and other state and local taxes. These calculations are similar to those produced by the congressional Joint Committee on Taxation, the U.S. Treasury Department, and the Congressional Budget Office, except that the ITEP model includes state and local taxes and can calculate federal taxes on a state-by-state basis. For our purposes, we asked ITEP to include only direct taxes on people, including federal income and payroll taxes, averages of state and local income taxes, and averages of state and local property taxes on owner-occupied homes and personal property. Nationwide, ITEP estimated the average of these federal, state, and local taxes on our hypothetical family in 2007 to be approximately $11,050 (18.4 percent of income).
  Therefore, the after-tax income of our family is $48,950.
   
• Family Expenses
  We then used data from the BLS Consumer Expenditure Survey (available online at http://www.bls.gov/cex/) to determine our hypothetical family’s spending on household necessities. This survey, which began in 1999, tracks both the major and
  minor components of annual household spending, including food, housing, clothing, and transportation costs.
  
  The BLS Consumer Expenditure Survey lists the average annual expenditures for four-person households by gross income. Because our hypothetical family has a gross income of $60,000, we performed this analysis using two-year data from Table 39 of the 2006-2007 survey for the $50,000-$69,999 income bracket for a family size of four. In order to accurately pinpoint the appropriate level of expenditures for our hypothetical family, we adjusted the data presented in the BLS survey using the following methodology:
  • We used BLS survey data on the $50,000-$69,999 income bracket to calculate
    what percent of total spending an average family allocates to each budget category (e.g. food, housing, and transportation).
  • Since FICA taxes were accounted for in both the ITEP model and the BLS data,
    we subtracted the ITEP estimated FICA amount from the BLS budget data and recalculated the percentages that the family would spend on each budget item.
  • Then, because of the large number of budget items, we collapsed some of the smaller budget categories into larger ones. For example, under the category “Groceries,” we included the spending totals from both the “Food” and “Personal Care Items” categories. More information on our budget categories is available
    upon request.
  • Lastly, we determined our hypothetical family budget by multiplying the family’s after-tax income by the percent of total spending an average family in their income bracket allocates to each of the major budget categories.

 CREDITS
This report was written by:
Kim Bailey, Senior Health Policy Analyst,
Families USA
with assistance from
Laura Parisi, Villers Fellow
Families USA

The following Families USA staff contributed to the
preparation of this report:
Ron Pollack, Executive Director
Kathleen Stoll, Deputy Executive Director and
Director of Health Policy
Peggy Denker, Director of Publications
Ingrid VanTuinen, Senior Editor
Tara Bostock, Editorial Associate
Nancy Magill, Senior Graphic Designer