Inflation eats decade’s worth of salary increases
The 10 years leading up to the passage of the Patient Protection and Affordable Care Act saw rising healthcare costs consume workers’ salary increases and more of the nation’s debt, according to new research. And early indications suggest the pattern could continue.
Nearly all income gains for the average American family from 1999 to 2009 were consumed by medical inflation, according to a study released last week by RAND Corp. researchers. The study—published in September’s Health Affairs— found that the annual income of the average American family of four increased 30% to $99,000 in 2009 from $76,000 in 1999. But nearly all that increased income was consumed by higher healthcare costs, according to the study.
The study concluded that the average family would have had $545 more each month in disposable income by 2009 if medical inflation had matched general inflation. But the monthly increase was reduced to $95 because of increases in health insurance premiums, out-of-pocket health spending and taxes for healthcare.
Even the relatively small increases in income in that time frame were because of tax-rate cuts, the study found, which also exacerbated deficit spending to cover the cost of the federal government’s healthcare programs.
Controlling overall increases in medical inflation was one of the stated goals of the 2010 federal healthcare law, but early indications suggest that may not happen.
“It’s gotten to the point where employers can’t absorb the cost increases and are passing more of them along,” said Mark Olson, a senior consulting actuary at Towers Watson. The consulting firm last month released a survey indicating employers will continue to shift health insurance costs to employees through increased insurance premiums, in addition to raising employee copayments, deductibles and coinsurance.
Those increased employee insurance costs, he said, are somewhat fueled by early provisions of the healthcare law, such as mandated expansion of insurance access for employees’ children up to age 26, coverage of preventive services with no enrollee cost-sharing and prohibition on lifetime coverage limits. Whether the law will slow the rise of healthcare costs remains unclear.
David Auerbach and Arthur Kellermann, the authors of the RAND research, noted that the healthcare law’s effort to curb healthcare cost growth by limiting federal health spending to no more than 1 percentage point above gross domestic product wasn’t binding.
Supporters and opponents of the federal law noted that the studies reinforce previously identified medical inflation trends. The law’s backers maintain that it will eventually reduce inflation through new models of payment and delivery, the availability of affordable insurance coverage in state exchanges and other provisions. Other healthcare observers are less optimistic about future cost trends.
Robert Zirkelbach, spokesman for America’s Health Insurance Plans, said in an interview that the law will accelerate such increases in the cost of medical coverage because its provisions do not address the underlying medical inflation that drives insurance rates (See story, p. 6).