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Health care costs are a slow-rising flood

Rick Newman
·Senior Columnist

Health care costs aren’t drowning the family budget overnight. Instead, they’re creeping upward like a spillover that seems harmless until everything starts to get wet.

New government data shows that total health care spending in 2018 grew by 4.6%, up from 4.2% the year before. That’s lower than GDP growth in 2018, which was 5.4%. But it’s higher than income growth, which was just 3% in 2018. And it’s more than double the overall rate of inflation, which was just 1.9% in 2018.

Another set of data, from the nonprofit Commonwealth Fund, shows that out-of-pocket spending on insurance premiums and deductibles hit 11.5% of median income in 2018, up from 11.3% the year before. Ten years earlier, in 2008, the same measure of out-of-pocket spending was just 7.8%. These numbers confirm what many Americans already know: Health care costs continue to eat more and more of Americans’ disposable income.

Health care costs have been a top voter concern for years, and that won’t change in 2020. Democratic presidential candidates are having a lively debate over how to improve the health care system. Elizabeth Warren and Bernie Sanders are pushing for a single government program, Medicare for all, that would cover everybody and eliminate private insurance—but require trillions in new taxes. Joe Biden, Pete Buttigieg, Amy Klobuchar and most of the other Dems favor more limited reforms, including a new public program, similar to Medicare, for people who can’t find affordable coverage in the private market.

President Trump, by contrast, wants to repeal the 2010 Affordable Care Act, which has extended coverage to about 20 million people who wouldn’t otherwise have it. One improvement Trump is working on is a plan to lower prescription drug costs.

Source: Commonwealth Fund
Source: Commonwealth Fund

The new government data shows that total health spending hit $3.6 trillion in 2018, which was 17.7% of GDP. That’s far higher than in any other advanced nation. Among all high-income countries, health care spending averages just 11.5% of GDP. Coverage rates in the United States are lower, and health outcomes worse, than in most other developed countries. In the U.S. system, 9.4% of Americans still lack coverage.

Part of the 2018 uptick in health spending was the reintroduction of a tax on health insurance Congress repealed for one year in 2017. When it was reimposed, the tax effectively raised insurance premiums by about 3%. The government uses that money to pay for some of the benefits offered under the ACA. Before the one-year repeal, total health spending rose by 4.6% in 2016, the same increase as in 2018.

The Commonwealth Fund data shows that out-of-pocket spending on premiums and deductibles is above 12% of median income in 17 states, mostly in the south. In 2008, there were no states where out-of-pocket spending was that high. In another 25 states, out-of-pocket spending is between 10% and 12% of median income, up from just 7 states in 2008.

With a strong economy and low unemployment, many voters say health care is their top priority. But they’re split on what they want. A majority of voters thinks a single-payer plan such as Medicare for all is a “bad idea,” largely because it would eliminate private insurance more than 170 million Americans rely on. A more limited public option seems more pragmatic, but even that would have a hard time getting through Congress if a majority of Republicans oppose it, as seems likely. At some point, the ever-rising cost of care might wear down resistance to better government options. But it’s not a revolution yet.

Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available. Click here to get Rick’s stories by email.

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