Health Care Costs Are Killing the Middle Class

Any solution to the health care crisis in the United States must focus in part of slowing the soaring costs of health care and health insurance. Americans spend more on health insurance than in any other advance economy and the cost are rising faster than in any other advanced nation. The consequence is that the middle class is suffering an ever tightening financial squeeze as costs go up and more and more employers shift cost to employees. "Medicare for All" does nothing to lower much less slow soaring costs as a column in the Washington Post points out.  Rather, it merely shifts how skyrocketing costs are paid without addressing the underlying problem.  Obviously, one thing that needs to be done is to end the gouging of patients by the pharmaceutical industry.  Another is to end the empire building of hospital systems that focuses more on a monopoly game against other providers than on the delivery of medical services to patients.  Here are column excerpts:

The idea that most middle-class Americans have been treading water economically is conventional wisdom. It is already playing a role in the 2020 campaign, as the Democratic presidential candidates propose policies (Medicare-for-all, free college tuition at state schools, subsidies for child care, to mention a few) intended to relieve the financial stress on millions of middle-income families.

But the conventional wisdom is wrong — or at least misleading. Although the squeeze is not a myth, it’s highly localized: uncontrolled medical spending. This is crowding out other spending, from wages to defense budgets. If we don’t stabilize health costs (and there is little sign that we will), we should expect the squeeze to continue indefinitely. Income inequality would also probably worsen.

We now have a new study from economist Richard Burkhauser of Cornell University that illuminates health care’s peculiar role. . . . . In recent decades, the median income of U.S. households has grown slowly, stagnated or declined. In 2018, according to the Census Bureau, the median household income was $63,179; in 1999, it was $61,526.

But wait: The official figures don’t count health insurance, whether private or public (employer-paid insurance, Medicare and Medicaid — federal health coverage for the elderly and poor).

The simplest definition included labor income: wages, salaries, farm income and self-employment. Defined this way — and adjusted for inflation — median income has dropped 21 percent from 1970 to 2016. This explains why so many Americans feel squeezed.

However, that’s not the end of the story. A broader definition of income includes all labor income, interest and dividend payments, Social Security, other government transfers and — most important — the value of private and public health insurance. Under this definition, median income rose 68 percent from 1970 to 2016. By this definition — and reflecting the impact of health insurance — typical households have enjoyed a slow increase in living standards over nearly half a century. 

Which definition of income to believe? Why, both, of course.

We have the worst of both worlds. We don’t count health insurance as a form of earnings that would improve median income. . . . . because health spending is concentrated among a relatively small proportion of people. In 2016, the top 5 percent of patients accounted for half of all medical spending, according to data from the Kaiser Family Foundation. By contrast, the lowest 50 percent of spenders accounted for only 3 percent of total spending.

Sanders’s approach is self-defeating and ultimately undesirable. It makes us hostage to explosive health spending. We can’t control what we refuse to control. Almost any systematic effort to curb spending is subject to attack as cruel or immoral, despite the obvious reality that not all health spending is of the same value.

In the early 1960s, before Medicare and Medicaid, which were enacted in 1965, health spending was about 2 percent of federal outlays. Now it is nearly one-third, at $1.3 trillion.

Corporations compound the pressures on take-home pay as frustrated companies shift more health costs back on their employees through higher premiums and deductibles. This, too, intensifies the middle-class “squeeze.”

Total health spending is now about 18 percent of the economy (gross domestic product), about twice the level of many advanced societies.

The effects are felt keenly by middle-income Americans and the poor, because the high cost of modern medicine consumes more of their incomes. We have created a monster, inspired by good intentions, that is slowly and menacingly taking charge of our future.