Health Care Inflation
This graph is from Milliman, courtesy of Uwe Reinhardt, who provides this commentary:
The estimated average cost of health spending from all sources for a typical privately insured American family more than doubled in the last decade, to $19,393 in 2011 from $8,414 in 2001. Over the decade, the index exhibited an average compound annual growth rate — widely known in the trade as C.A.G.R. — of 8.8 percent, although, in recent years, that rate has ranged between 7 and 8 percent.
Despite that recent abatement, the growth rate is still more than twice the rate at which total average employee compensation has grown, for all but the top executives among private employers. In recent years, the growth in employee compensation has hovered beneath 3 percent.
In other words, health care is chewing up employees’ paychecks like Pac-Man in the famous arcade game. And there is considerable empirical evidence that the employer’s ostensible contribution to the employee’s health-insurance premiums actually comes out of the employee’s take-home pay.
Most health economists recognize the perverse incentives of third-party payment on the price of medical goods and services. Arguably the only way to makes this bad situation even worse is to divorce the purchase of insurance coverage from the consumer (i.e. the patient). Families do not even realize they bear the cost of employer coverage — much less how much that cost is. The average family uses nowhere near $20,000 worth of medical care in a given year. Of course, most medical costs are concentrated among the desperately ill. I believe if families really understood they are coughing up nearly $20,000 each year in per-tax income for the drug plan and a few doctor’s visits, they would demand control over the funds rather than cede them to employers and insurers.
The graph shows average spending; but would a graph of the distribution of spending be more of a bell curve?
Not to be picky, but these are costs for a certain kind of third party payer plan. From the Milliman paper:
“As medical costs have continued to increase, more employers have turned to consumer-driven designs such as high-deductible health plans paired with health savings accounts (HSAs) or health reimbursement accounts (HRSa). These plans are gaining traction, as they are often less expensive for the employer than the PPO designs tracked buy the MMI…”
Milliman does not present data series on HSA. Thus, we do not know how they would trend over a decade, even if at any point in time total sp[ending, including out of pocket spending, may be lower than spending under PPO coverage, with all proper adjustments for demographics and health status.