What Health Care Costs

House atop MUMOK, Vienna, Erwin Wurm; photo by stopmangohome

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.

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.

Last Year’s Health Care Bill Equaled $2.4 Trillion

We heard the Sermon on the Mount and I knew it was too complex
–B. Dylan

Recent events have convinced me that Health Care Reform is simply too complex. I say this without recrimination or acrimony towards our public school system or the entertainment networks which do their best to titilate us with the steady diet of the inane we seemingly require. The debate has quickly turned from the hope of informed dialogue into scare tactics, a quest for political advantage, and talk about “death panels” killing Grandma. Sound bites are emerging and they are not pretty. In fact, if you have an elderly parent or grandparent, now might be a good time to talk to them.

In speaking about Health Care Reform, we necessarily embrace (or run from) the complex; very smart people spend the entirety of their lives working with, and studying the intricacies of, any of the myriad aspects which constitute the Health Care System–and those people often disagree. It is a massive field. Health Care expenditures are said to have reached $2.4 trillion in 2008 and account for roughly 16 to 17% of our GDP. The American Public is being asked to digest the entirety of this massive complexity in a matter of months.

It is not surprising that voices which offer simplistic (even if wildly erroneous) explanations have been given an ear. Most people juggling work or children and expenses and dinner don’t have the time to even make sure their phone bill is correct–never mind the time for a wonkish devotion to the intricacies of the pay mechanisms in health care or the subtleties of the HITECH Act. But Healthcare Reform is of the moment–and one of the few things that seemingly all experts  agree on is that the present system is unsustainable. But there is caution to be had even there. As the debate heats up, there are many newcomers to the fray and a recent Kaiser article describes angry seniors (who vote) descending upon town hall meetings demanding to know about the impact reform would have on Medicare and expressing displeasure at the prospect of a health care overhaul. They’re covered. They want to know, beyond anything else, that they will remain so. And I suppose the key point here is to reiterate, as President Obama has recently done, that yes, they will remain covered.  But another point that must be made is that the health care system is very costly and is long-term unsustainable as as presently constituted. It is also worth noting that it has been estimated that a couple retiring this year, covered only by Medicare, will need $240,000 of their own money to pay for health care expenses during the course of their retirement. That’s a second mortgage on a house. And to quote Professor Nathan Cortez again, “The Less You Change the More it Costs.”

Dylan’s stanza referenced above ends with the following lines:

When you bite off more than you can chew you pay the penalty,
Somebody’s got to tell the tale,
I guess it must be up to me

I’m no Bob Dylan, nor am I hubristic enough to think that I’m capable of telling this tale by myself–but maybe it’s time to take a few steps back and again take a look, in simple  factual terms at the health care system itself–and begin to come to terms concretely with the need to effect change. Comprehensive Health Care Reform is a mouthfull, but if we fail to successfully “chew” it, the cost of Health Care will ultimately choke us.

Health Care expenditures are said to have reached $2.4 trillion in 2008 and account for roughly 16 to 17% of our GDP.

I repeat and emphasize this line from above because it bears repeating. We hear it bandied about, but I firmly believe that a number like $2.4 trillion is incomprehensible–as is “17% of the GDP.”

I need comparisons, and quite frankly, I have nothing to compare a trillion to–never mind 2.4 of them. In a post about the incomprehensibility of the word “billions” a few months back I wrote the following in reference to $825 billion in the stimulus bill :

I hate to admit this, but I really don’t know how much a billion is. I can grasp millions (I can just multiply the value of my house–though the multiplier has grown considerably over the last few years) but billions escape me (considering TARP, that last phrase may be more apt than I am comfortable with). But…

A billion is a thousand million. It is written 1,000,000,000.

I do not find that particularly helpful, but it’s a start.

Years ago, the United States produced $1000 bills; Grover Cleveland graces the front of them and there are said to be a number of them still in existence. It is also said that if you tightly stacked 1 billion dollars in clean crisp thousand dollar bills and piled them-they would rise 63 miles into the air. If you did the same for $825 billion the stack would rise 51,975 miles into the air. Commercial jets generally fly at around 7.7 miles in the air. The circumference of the earth at the equator is roughly 24,901 miles-that’s twice around and then some. And remember, these are thousand dollar bills.

It is estimated that to count from one to a billion would take you 95 years. To count to 825 billion would take you at least 78,375 years. It will not take us nearly as long to spend it.

And by the way, 825 billion is just 175 billion short of a trillion. A trillion is a thousand billion, or a million million, and is written 1,000,000,000,000.

And yes, I find this even less helpful. But my guess is, before the two years are up, we’ll have to figure out what “a trillion” is as well.

That was only a few months ago, we’ve arrived rather quickly at the need to understand $2.4 trillion. That’s $2,400,000,000,000. Again, not particularly helpful, but it’s a start. If we piled those thousand dollar bills again, at 2.4 trillion the stack would rise 151,200 miles into the air. That’s more than 6 times around the circumference of the earth at the equator and well more than half the distance to the moon. And remember, these are thousand dollar bills.

To count to 2.4 trillion would take 228,000 years.

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. This year’s number is expected to exceed that, year after that the same.

A few more facts on Healthcare spending from the National Coalition on Health Care:

National Health Care Spending

• In 2008, health care spending in the United States reached $2.4 trillion, and was projected to reach $3.1 trillion in 2012. Health care spending is projected to reach $4.3 trillion by 2016.
• Health care spending is 4.3 times the amount spent on national defense.
• In 2008, the United States will spend 17 percent of its gross domestic product (GDP) on health care. It is projected that the percentage will reach 20 percent by 2017.
• Although nearly 46 million Americans are uninsured, the United States spends more on health care than other industrialized nations, and those countries provide health insurance to all their citizens.
• Health care spending accounted for 10.9 percent of the GDP in Switzerland, 10.7 percent in Germany, 9.7 percent in Canada and 9.5 percent in France, according to the Organization for Economic Cooperation and Development.

4.3 times the amount spent on defense; 17% of the GDP; $4.3 trillion by 2016– that’s close to double the incomprehensible $2.4 trillion we spent last year in a mere 7 years and enough thousand dollar bills to get us to the moon.