What Health Care Costs

August 16, 2009 by · 2 Comments
Filed under: Proposed Legislation 

In light of reports of a recent rising clamor to not enact comprehensive Health Care Reform, in our last post we noted that the total U.S. health care expenses for 2008 was $2.4 trillion or, if written out: $2,400,000,000,000. In an attempt to contextualize that number we noted that to count to 2.4 trillion would take 228,000 years; and that if we piled thousand dollar bills $2.4 trillion would rise 151,200 miles into the air (significantly more than half the distance to the moon) or more than 6 times around the circumference of the earth at the equator.

We also noted that:

If, for the sake of even numbers a family is four people and a house costs $250,000, then $2.4 trillion would be enough to buy 9,600,000 houses, or  a house for every single family in New York City, Los Angeles, Chicago, Houston, Philadelphia, Phoenix, San Francisco, Baltimore, Boston, Denver, Milwaukee, Seattle, Atlanta, Cleveland, Miami, Omaha, Raleigh, Oakland, Kansas City, Mo., Tulsa, Portland, Or., Albuquerque, San Antonio, San Diego, Dallas, Detroit, Indianapolis, Jacksonville, Memphis, Virginia Beach, Honolulu, Tulsa, Minneapolis, Arlington, Tx, and Washington, D.C. combined. That’s only one year of health care expenses.

And that

$2.4 trillion is 4.3 times the amount spent on defense; 17% of the GDP and that the number–if we do nothing–is expected to rise to $4.3 trillion by 2016– close to double the incomprehensible $2.4 trillion we spent last year in a mere 7 years and enough thousand dollar bills stacked atop each other to get us to the moon.

Today we take a little closer look at that $2.4 trillion in the life of the economy at large and people at home.

$2.4 trillion equals $7,900 per person. Although this chart below from Kaiser Health only goes up to 2007, look closely at the rising percentage of health care expenses to Gross Domestic Product. GDP (as per the Dogs of the Dow), “is defined as the value of all goods and services produced within the geographic territory of an economy in a given interval, such as a year.” Roughly speaking, that’s the value of everything we make or do. We’re at 17% of GDP for 2008. That’s one out of every six dollars. In 1970 it was 7.2%; about one out of every 14 dollars.

Again, 2008′s percentage is roughly 17%; the Centers for Medicare and Medicaid Services (CMS) projects that health spending will be a little more than 20% of GDP  by 2018.

According to Kaiser, “Over the last four decades, the average growth in health spending has exceeded the growth of the economy as a whole by between 1.3 and 3.0 percentage points. Since 1970, health care spending has grown at an average annual rate of 9.6 percent or 2.4 percentage points faster than nominal GDP.”

In looking at dollar amounts over time, one may, and should, consider inflation– as a rising tide lifts all boats, so to speak– and an expense of $1.00 in 1970 is equivalent, because of inflation, to an expense of $5.55 in 2009. One must account for that.  But in considering expenses relative to GDP over time the rate of inflation is less significant as it is, in a sense, already factored in–as we are speaking in terms of percentage of the whole of all we make or do from one year to the next. The whole is the whole, regardless. From one in fourteen to one in six is, to say the least, significant.

But having said that, it may be worth taking a quick look at inflation, wages and the cost of health insurance premiums over the last 10 years– if you receive your health benefits through your employer, the chart below should make it clearer where the bulk of that raise you thought you had coming went.

cumulative-changes-in-health-insurance-premiums-inflation-and-workers-earnings-1999-2008

According to National Coalition on Health Care the annual premium for an employer health plan covering a family of four in 2008 averaged nearly $12,700. The annual premium for single coverage averaged over $4,700. That’s over $1000 per month ($1058) for the family of four; nine dollars shy of $400 per month for an individual. The average 30 year fixed mortgage rate for this week is 5.29%. For the sake of even numbers, if a house costs $250,000, the monthly mortgage payment on that house would, at 5.29%, be $1387. Which is to say that the average cost of health insurance for a family of four in 2008 was a scant $329 less than the monthly mortgage for a house. For renters, according to the Census Bureau’s most recent report, the median monthly housing cost– rent, utilities: gas, electric, water, and garbage– was $755 per month.

Importantly, the insurance premiums above: $1058 and $391, do not include co-pays and deductibles– an expense increasingly borne by consumers of health care. And in 2009 both the premiums and the employee contributions rose significantly.

In a post a few months back we noted that HealthCare Finance News reported that according to the Milliman Medical Index (MMI) the average medical bill for a typical family of four covered by an employer-sponsored preferred provider organization (PPO) program rose 7.4 percent from 2008 to 2009. In actual dollars:

The total 2009 medical bill for a typical American family of four is $16,771, compared with the 2008 figure of $15,609. The $1,162 increase is the highest measured by the MMI since the 2006 increase of $1,168, when cost trends were at 9.6 percent.

The MMI found that employers are expected to pay $9,9947, or 5.4 percent more than in 2008, while employees are expected to contribute $4,004 toward their health costs, an increase of 14.7 percent, and pay $2,820 in out-of-pocket expenses, an increase of 5.4 percent.

As we pointed out then, one should note that the employers’ contribution is nearly $10,000 per year, or $833.33 per month. Together, with employee premium contributions and out-of-pocket for deductibles, co-pays and the like– the actual total is $16,771 or $1397.59 per month. Which is to say that the average expense for medical for a family of four is now greater than the $1387 per month it would cost them in mortgage for that $250,000 house.

It is also worth mentioning, as we have before,  that in 2008  Ronald A. Williams, the CEO of Aetna, received $24,300,112 in total compensation. That’s $467,309.85 PER WEEK.

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Medical Expense for a Family of Four Rises

May 21, 2009 by · 1 Comment
Filed under: Uncategorized 

Yesterday we took a look at Health Insurance CEO pay, and noted that Mr. Ronald Williams of Aetna made $467,309.85 per week in 2008, while Ms. Braly of Wellpoint was left to make ends meet on $189,311.76 per week, and Mr. Hemsley of United Health was forced to manage on  $62,327.73 per week (though one might hope that Mr. Hemsley had the presence of mind to put a little something away the year prior when he had made $253,164.02 per week).

Today we take a brief look at how the other half lives. HealthCare Finance News reports that according to the Milliman Medical Index (MMI) the average medical bill for a typical family of four covered by an employer-sponsored preferred provider organization (PPO) program rose 7.4 percent from 2008 to 2009. In actual dollars:

The total 2009 medical bill for a typical American family of four is $16,771, compared with the 2008 figure of $15,609. The $1,162 increase is the highest measured by the MMI since the 2006 increase of $1,168, when cost trends were at 9.6 percent.

The MMI found that employers are expected to pay $9,9947, or 5.4 percent more than in 2008, while employees are expected to contribute $4,004 toward their health costs, an increase of 14.7 percent, and pay $2,820 in out-of-pocket expenses, an increase of 5.4 percent.

According to Health and Human Services: “The estimated median income for a four-person family living in the United States is $70,354 for FFY 2009″ (slightly more than Mr. Hemsley’s weekly paycheck). According to the MMI, of that $70,000, nearly $7,000 in employee wage goes to healthcare expense. That’s 10 per cent or $583.33 per month. That’s more than enough to make the payment on a brand new Cadillac.

In addition, one should also note that the employers’ contribution is nearly $10,000 per year, or $833.33 per month. Together, the actual total is $16,771 or $1397.59 per month. Which is to say that the average expense for medical for a family of four is $1400.00 per month. According to the Census Bureau, the average price of a house in the U.S. in March of 2009 was $201,400.00.

According to CNNMoney.com the current average for a 30 year fixed rate mortgage is 5.24% but rates are “all over the map.” We’ll use 7%. The monthly mortgage payment on $201,400 for a 30 year fixed rate at 7% is $1339.92. The average monthly medical expense amounts to $1397.59.

That’s a house. The average monthly medical expense for a family of four amounts to a house, maybe not one that Mr. Williams, Ms. Braly or Mr. Hemsley would live in, but a house nonetheless. Oh, and there’s still $57.67 left over– enough to catch the earlybird special at the Family Buffet.

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