Medical Expense for a Family of Four Rises

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.

Private Insurers Respond to Threats of Lost Profit

photo by yomanimus via Flickr

Reed Abelson of the New York Times reported recently about private health insurance companies’ response to the “bleak economy” and Washington’s most recent attempts to make health insurance affordable and available to greater numbers. Large private insurers, such as Aetna, have developed “2,000- page strategic plan[s]” and are meeting “almost every other working day” in response.  Private insurance companies are said to be feeling threatened by the Democratic Party’s new found dominance.

The NY Times states:

Almost every business in the country is feeling buffeted by the recession. But for health insurance companies, the bleak economy is only part of the problem: the changing of the guard in Washington is an equal if not more dangerous threat. Together, these forces could deal a body blow to a business model that was already teetering.

The bottom line, of course, is the bottom line. And the fear of the “new guard,” is the fear of lost profit. Although many private insurers have experienced declining enrollment and diminished profits over the course of 2008, two of the country’s largest private insurers, Aetna and United Health, were described by the Times as still being “solidly profitable.” It should also be noted, as we reported in a recent post on this blog, that in 2007 Aetna’s CEO, Ronald A. Williams, received total compensation of $23,045,834 . Despite that lofty number, Aetna managed to record a  profit in 2007 of 1.831 Billion.

The NY Times reports:

Both Aetna and UnitedHealth had double-digit declines in earnings last year, but both remain solidly profitable. Aetna earned $1.4 billion, down 24 percent, on sales of $31.6 billion, while UnitedHealth had net earnings of nearly $3 billion, down 36 percent, on revenue of $81.2 billion.

Although profits are declining, attributable in part to rising premiums and customer dissatisfaction in a declining economy, perhaps a greater threat to insurers is present uncertainty. Markets abhor uncertainty. And as the Times states,

As the conversation intensifies in Washington about health care reform, no one knows for sure what role the insurance industry will play in a revamped system.

President Obama, along with the Democratic majorities in Congress, may simply rewrite the rules, forcing insurers to take all comers as customers, including those who previously would have been rejected because of poor health. The government may sharply cut how much it pays insurers to take care of the elderly. And, in what some people say would be a clear step toward a government-run system, there is even discussion about expanding the Medicare program, now limited to the elderly and the disabled, so that anyone could enroll in it.

Although private insurers have made sure to take a seat at the health reform table so as to “influence the debate,” the Times reports that:

Given the current sentiment, the insurers understand that they won’t be able to beat back all efforts at sweeping change, as they did so successfully during the Clinton administration.

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