(Bloomberg Businessweek) -- Whatever happens to Obamacare in Washington, the rest of America will be left with a problem it’s had for decades: Health-care spending is growing at an unsustainable rate. Insurance and medical costs are draining the incomes of the middle class—tens of millions of people who earn too much to qualify for government-subsidized coverage, but not so much that they don’t feel the bite of medical bills—and nothing on Congress’s agenda is likely to fix that.
So far, rather than tackle the health-care delivery system directly, Republican policymakers have focused on slashing insurance subsidies and Medicaid, the state and federal program for the poor. The Obamacare replacement proposed by Senate Majority Leader Mitch McConnell would leave 15 million more uninsured next year and 22 million by 2026, according to the nonpartisan Congressional Budget Office, and allow insurers to sell policies that cover fewer benefits and pay for less medical care. Although the chamber narrowly voted to open debate on health legislation on July 25, almost all the proposals making their way to the floor focus squarely on mandates and spending rather than delivery of care.
By refusing to address the fundamental problems with the health-care system, Congress is ignoring the tough question of how to fix it. That has implications for the economy beyond health care. Most Americans under 65 get their health insurance from employers— 177 million in 2015, or 56 percent of the total population. Average premiums for a family plan have increased 31 percent in inflation-adjusted terms since 2006, to $18,000 a year in 2016, according to the Kaiser Family Foundation. Workers typically pay about 30 percent of that premium, with employers picking up the rest. Out-of-whack spending on health care squeezes public budgets and employers’ payroll costs: Health premiums and out-of-pocket costs wiped out most of the real income gains for a median family from 1999 to 2011, according to an analysis published on the blog of the journal Health Affairs in 2013. “We don’t think of it as compensation,” says Darrell Gaskin, a health economist at the Johns Hopkins Bloomberg School of Public Health, but many American workers have been getting their raises in the form of more expensive health insurance, he says.
People who buy their own health plans benefited from Obamacare reforms that stopped insurers from charging sick people more or refusing to cover them at all. But like those on employer plans, they’ve seen their costs go up. That includes families such as that of Amy and Ron Shir. She’s a consultant for antipoverty programs, and he’s a computer programmer. Both are self-employed, and both have chronic medical problems: Amy, 53, has Crohn’s disease, a painful digestive disorder, and Ron, 46, has diabetes. Together the Louisville couple earns about $130,000 a year.
They pay $14,000 a year for an Anthem Inc. policy that also covers their two teenage children. That’s less than they paid before the Affordable Care Act, but they’re also responsible for out-of-pocket costs of $11,000. “My own family has really been treading water,” Amy says. They like working for themselves, but both are seeking full-time jobs, partly because they want more robust health benefits.
Health cost growth did slow during the Great Recession and the following years as millions of Americans lost their jobs, and with them their health coverage. From 2008 to 2013, spending grew at historically low levels after adjusting for inflation and population growth. But even at this lower pace, spending was 0.7 percentage points higher than projected annual gross domestic product growth, according to an analysis by Charles Roehrig, an economist at the Altarum Institute Center for Sustainable Health Spending. Federal actuaries at the Centers for Medicare & Medicaid Services expect per capita health spending to top economic growth by at least 1 percentage point a year for most of the next decade.
Massachusetts enacted a health-care law under then-Governor Mitt Romney in 2006 that became a model for Obamacare. In 2012 the state passed another law setting benchmarks for cost growth, promoting price transparency, and nudging payment systems toward rewarding quality rather than quantity of care. The goal was to keep the total cost of care in line with the growth of Massachusetts’ economy. The state’s health spending rose more slowly than most others’ from 2009 to 2014, but costs have exceeded state targets for the past two years.
Until the country gets a grip on rising health costs, workers will continue to feel the burden. “The U.S. health-care system is growing increasingly out of reach financially, certainly for low-income patients, but also increasingly for middle-income patients,” says Alan Balch, chief executive officer of the Patient Advocate Foundation, which helps patients navigate the medical system and pay for care.
Mark Kemp, a certified financial planner in Harleysville, Pa., sees the costs dragging on clients who want to retire before they qualify for Medicare. “I have a lot of people that have enough money to retire in all areas, except they haven’t looked at their health insurance costs,” he says. Even for families without big medical expenses, health premiums cut take-home pay and their ability to save. “It’s basically robbing their future,” he says.
To contact the author of this story: John Tozzi in New York at jtozzi2@bloomberg.net.
To contact the editor responsible for this story: Jillian Goodman at jgoodman74@bloomberg.net.
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