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Higher Health Spending Wiped Out Income Gains over Decade

By SHRM Online staff  9/9/2011

Steadily rising U.S. health care costs have exacted a heavy financial toll on American families, leaving them with less disposable income while increasing the federal deficit, according to a study on health care costs published in the September 2011 issue of Health Affairs. From 1999 to 2009, an average American family of four saw its annual income increase from $76,000 to $99,000—but nearly all those income gains were erased by higher health spending, said researchers at the Rand Corp.

Impact of Cost Increases

The typical median-income family of four with employer-based health insurance would have had $545 more to spend per month in 2009 than in 1999 if medical inflation had not exceeded general inflation, the researchers found. But after factoring in actual increases in health insurance premiums, out-of-pocket health spending and taxes for health care, that same family had only $95 more per month in available income. Were it not for reduced tax rates insufficient to cover government spending in 2009, families would have been left $295 in the red every month, the researchers added.

In a related study published in the same issue of Health Affairs, researchers at the Institute of Health Administration at Georgia State University and Georgia Health Policy in Atlanta showed that growth in health care spending is hitting lower-income families the hardest. They estimated that overall national health spending is in effect consuming 22.7 percent of income for families in the lowest income grouping (those with average annual income in 2004 of $13,450) but no more than 16 percent for families in any other income group.

Tele-health as Part of the Solution

Treatment of chronically ill people accounts for nearly four-fifths of U.S health care spending but is hampered by a fragmented delivery system, according to another study in the same issue. Care coordination approaches may help address this, but can face challenges. Stanford University researchers found that a carefully designed and implemented care management tele-health program produced substantial Medicare savings—on the order of $312 to $542 per person per quarter—for a group of chronically ill patients in the Northwest. Such programs, they concluded, offer innovative ways to deal with the financial and clinical issues surrounding chronic care.

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