Healthcare Affordability–The Parts of Personal Healthcare Spending

In the United States, personal healthcare spending is made up of three parts:

  1. Health insurance premiums
  2. Out-of-pocket costs for covered healthcare service
  3. Out-of-pocket costs for non-covered healthcare services

personal healthcare spending partsThese three personal healthcare spending parts added together make up the individual American’s TOTAL outlay for personal healthcare spending.  When our government talks about healthcare affordability, ALL three parts of personal healthcare spending needs to be considered.  When government bureaucrats in charge of specific programs (like Medicare) look at out-of-control healthcare spending, they only “see”  the costs from health insurance premiums (the first part above).

The amount of money Americans have to spend for each of these three personal healthcare spending parts depends on which insurance group one belongs to. Let’s look at how these personal healthcare spending parts measure up for three groups of Americans; namely, (1) individual Americans who get their health insurance in the Healthcare Exchange (also called the Marketplace), (2) employees of companies that provide employer-sponsored health insurance, and (3) people who receive Medicare as their primary source of healthcare insurance.

Health Insurance Premiums

The prices for the first part of personal healthcare spending (premiums) reflect both benefits provided and risk pool makeup.

Healthcare Exchange Coverage

For individual Americans (non-group insurance market) who get their health insurance on the Healthcare Exchange (about 13 million in 2016), premiums are allowed to vary under Obamacare (PPACA)  based on age of the insured—a 64 year old will pay roughly three times as much as a 21 year old pays (less in some states that have better consumer protections). New York and Vermont do not permit any use of age as a factor when determining the health insurance rates. The only other factor that will increase premiums is if the insured is a cigarette smoker.

For 2017, the average lowest monthly premium costs for current non-smoking Health Exchange enrollees are $366 (bronze), $433 (silver), $538 (gold), and $674 (platinum). The Healthcare Exchange plans are grouped by how “good” the insurance product is (platinum is best and bronze is the worst).  For a 27 year old, 2017 premiums for the second-lowest silver plan range from a low of $219/month in NH to a high of $760/month in AK (the average is $302 for 39 states). For a family of four (one 40-year-old adult, one 38-year-old adult, and two children under the age of 21), 2017 premiums for the second-lowest silver plan range from a low of $792/month in NH to a high of $2750/month in AK (average $1090 for 39 states. This information is summarized in the table below.

personal healthcare spending premiums ExchangeEmployer-Sponsored Coverage

Unlike Healthcare Exchange coverage, employer-sponsored coverage does not discriminate by the age of the insured—all employees pay the same premium (unless the employee is a smoker).  Average monthly premium for employer-sponsored individual coverage in 2016 was $536 with the employee paying $94.  For family coverage, the monthly premiums are $1511 with a $440 employee cost share. To reduce health insurance premium costs, most employers today offer the cheaper High-Deductible Health Plans with a savings option (HDHP/SOs). It should be noted that employees pay health insurance premiums pre-tax (i.e., the taxpayer subsidizes the employee’s premiums).  The average, covered workers contribute 18% of the premium for single coverage and 30% of the premium for family coverage.

In the table below, total monthly premium costs and the average employee contributions are shown for the HDHP-SO plan and for the average for all types of plans combined.

personal healthcare spending premiums employer insurance

Medicare

Unlike Healthcare Exchange and employer-sponsored insurance plans, Medicare health insurance is divided up into three parts—hospitalization (Part A), medical (Part B), and prescription drug (Part D). Most Medicare beneficiaries are not required to pay the Part A (hospitalization) premium because they (or their spouse) contributed to the Medicare trust fund for the required number of years while working. If you do not qualify for premium-free Part A , then your unsubsidized premium cost would be $413 per month for 2017. The unsubsidized Part B premium is $262 for beneficiaries aged 65 and over for 2017.

Subsidized Medicare Part B premiums vary by income of enrollee and other factors.The lowest premium is $109 per month for beneficiaries who have their premiums automatically deducted from their monthly Social Security checks, were enrolled before 2015, and make less than $85,000 per year. ($170,000 for joint filers).  Making up 70% of all Medicare beneficiaries, increases in Part B premiums are held down by the hold-harmless provision in the law.  For people who enroll in 2017, the monthly Part B premium will be $134. The Medicare monthly premium costs for original Medicare (Parts A and B) and for Part D are summarized below.

personal healthcare spending premiums MedicareI have not included the private Part C (Medicare Advantage) premium costs in the table above because they vary widely across the country. Medicare Advantage plans are the private alternative to original Medicare that is administered by the government. In addition to the paying the Part B premiums shown in the table above, the Medicare Advantage enrollee would pay an additional health (some $0 premiums plans available) and drug premiums.

When comparing premiums between the three groups above, it should be noted that the benefits provided will not be exactly the same.  You will notice that some group premiums are more highly subsidized (by employers and/or taxpayers) than others.

Out-of-Pocket Costs for Covered Healthcare Benefits

The second part of personal healthcare spending is out-of-pocket costs for covered healthcare benefits.  It will vary from person to person in any given year and takes the form of deductibles, copayments, and coinsurance payments. People who use more healthcare services and products (i.e., sick people) will have higher out-of-pocket costs.  This form of personal healthcare spending is designed to make the individual American take on the financial burden of getting sick rather than sharing it with others in the insurance plan.  In other words, this part of personal healthcare spending financially punishes the individual for being sick.

All of the health insurance plans described above (except original Medicare) define a ceiling for out-of-pocket costs. This ceiling is called the plan’s Maximum Out-of-Pocket (MOOP) and represents the maximum amount a person would have to spend for IN-NETWORK healthcare benefits as defined by the insurance plan before the plan starts paying 100% of your costs. This limit does not count premiums and out-of-network cost-sharing, or non-covered healthcare services and products. These ceilings are supposed to keep Americans from becoming bankrupt if they get sick.

In the table below, I have summarized the maximum out-of-pocket costs that are defined for the groups given above for 2017. I have included the MOOP costs for Medicare Advantage plans because our government does not define one for original Medicare. Medicare Advantage beneficiaries have two maximum out-of-pocket costs—one for health and one for drug spending. Original Medicare beneficiaries have unlimited liability for health spending and a maximum out-of-pocket for drug spending. Is a person on original Medicare only likely to suffer financial bankruptcy because of the high cost of drugs?

personal healthcare spending MOOPThese maximum out-of-pocket costs are adjusted yearly by our government as healthcare costs increase.

Original Medicare beneficiaries who are not dual eligibles (Medicaid beneficiaries too) often insure against high out-of-pocket healthcare expenses by purchasing supplemental Medigap insurance. For these Medicare beneficiaries, the out-of-pocket costs described above are replaced with the cost of Medigap premiums.

Out-of-pocket Costs for Non-Covered Healthcare Services & Products

I call last part of personal healthcare spending ” the healthcare spending dumping ground because our government does not care or even acknowledge it.  Of the three personal healthcare spending parts, this one is largely hidden and never discussed.  Our government does not define a maximum out-of-pocket for this category, yet the expenses within this category can add up for the individual American. I cannot put a dollar amount on this category of spending because no one measures it and it varies widely from person-to-person.  Some of the healthcare services and products that fall in this part of personal healthcare spending are shown below.

personal healthcare spending non-covered healthcare

The healthcare services and products lumped in this part of personal healthcare spending fall in both essential and non-essential healthcare categories. One of the major reasons that essential healthcare services and products end up in the list above is simply because the government wants to keep health insurance premiums lower.   In the essential category, I would include basic adult dental care (i.e., more than one cleaning and exam per year); eye examinations and prescription eyeglasses; and hearing exams and hearing aids. Medicare will pay for an eye exam if you have diabetes or are at high risk for glaucoma. For everyone else, the evaluation of your risk of glaucoma requires you shouldering the full cost.  Each one of these essential healthcare products and services improve quality of life, reduce accidents, and generally prevent more costly health care down the road.

Out-of-network healthcare services & products is a minefield that individual Americans need to constantly step around for cost containment.  As insurance networks get smaller and smaller, the chance of incurring out-of-network health care increases.

All over-the-counter drugs fall in this category and the average household spends several hundred dollars a year for them. Many over-the-counter drugs (like aspirin, NSAIDs, antacids, and cough syrup) eliminate the need for more costly doctor visits, prescription drug needs, and worse. When a prescription drug becomes an over-the-counter medication, it loses its insurance-covered status (where the insurance company shares the cost) and ends up in this part of personal healthcare spending (where only the consumer is responsible for paying).  I find this ironic given the fact that many prescription drugs should be in this part of personal healthcare spending because their cost effectiveness is so low and better value alternatives exist.

This part of personal healthcare spending also increases when covered benefits are limited by the insurance companies.  For example, a plan can cover a fixed number of chiropractic treatments for injury and not cover chiropractic treatments that maintain health (and relieve pain).  If you require more treatments in the former case and your doctor is not able to convince the insurance company that you need them, then you will have to pay for even them yourself or do without.

Personal Healthcare Spending– the Big Picture

No discussion of healthcare affordability is complete without consideration of ALL three parts of personal healthcare spending given above.  For everyone, except the poorest Americans, government policy does not take into account the second and third categories of personal healthcare affordability and therefore does not govern with the interests of the individual American in mind.

With little effort to reform structural problems within our healthcare system, government and employers have resorted to tactics that keep health insurance premiums down, but increase the burden of sickness onto individual Americans (out-of-pocket costs). In total, personal healthcare affordability has not been improved. This is poor government healthcare policy and only serves to pass more of the financial burden of healthcare onto the individual sick American.

Sources

Health Plan Choice and Premiums in the 2017 Health Insurance Marketplace, U.S. Department of Health & Human Services, Oct 24, 2016
2016 Employer Health Benefits Survey, Kaiser Family Foundation, Sept. 14, 2016

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