This USA Today article by Laura Ungar and Jayne O’Donnell is well worth reading. In a nutshell, it’s all about rising deductibles, and the impact they have on consumers’ ability to pay for health care. The facts are sobering: wages have been flat for decades, with the inflation adjusted average hourly wage only increasing by about $1.50 over the last fifty years (from $19.18/hour in 1964 to $20.67/hour today). And yet health care spending is 17% of our GDP now, versus just 5% in 1960.
For years – since long before the ACA came on the scene – employers have been gradually shifting healthcare costs to employees, and employers’ healthcare expenses have been growing too. Ungar and O’Donnell include charts and graphs that provide plenty of visuals to illustrate the increasing deductibles – and also the sad reality of how those higher deductibles translate into skipped healthcare for many Americans.
The ACA caps out-of-pocket exposure at $6,600 for an individual in 2015, yet the average American has less than $6,000 in savings. To be clear, the caps that the ACA instituted are far better than plans of the past, which often had much higher maximum out-of-pocket costs, in addition to sometimes providing no coverage at all for services that are now considered essential health benefits (maternity care, mental health, and prescription drugs, I’m looking at you…). But when a serious medical condition can result in bills that outstrip the average person’s savings, it’s still a tough load to bear.
Towards the end of the article, there’s discussion about “smart deductibles” that certainly merits additional discussion. I’ve seen this idea in other places too – basically the concept is that deductibles are reduced – or even waived – in emergencies or in the case of treatment to manage chronic conditions that would turn into much more costly situations if left untreated.
But there’s also an admission that we’re not likely to see a reversal in deductible trends anytime soon. Although the majority of non-elderly Americans get their health insurance through employer plans, our clients are in the individual market, and we’ve watched their plan selections over the 13 years we’ve been in this industry. Long before the ACA, the plans most frequently selected by our clients were the ones with $2,500 individual deductibles. These days, it’s more like $4,000, although people who qualify for cost sharing reductions in the exchange end up with lower average deductibles. In short, people who buy their own health insurance have long been used to the fact that the main way to keep premiums somewhat affordable is to have a relatively high deductible. Employers face the same conundrum, and most employers pay a good chunk of their employees’ premiums too. So although employees are paying more for their coverage and also facing higher deductibles, the employers’ portion of healthcare costs is rising too.
At the end of the day, we can’t lose sight of the fact that healthcare is 17% of our GDP. Until we can do something about that (most other countries are far more efficient at this than we are), we’re not going to get away from the fact that healthcare is going to eat up a significant portion of family budgets.
Vermont aimed high over the last few years, striving to provide very high quality universal coverage to the state’s residents. But last month, they pulled the plug on the single payer venture, citing insurmountable cost issues (their total tax revenue for all of the state’s programs is currently $2.7 billion, and they were going to need to increase that by $2.5 billion to provide single-payer universal healthcare).
So we can either pay high premiums and high deductibles, or we can pay high taxes. One way or the other, as long as healthcare spending remains such a huge chunk of our GDP, healthcare is going to be very costly for employers, households, and the government. Even though healthcare inflation has slowed recently, we’re still spending way too much per person on healthcare.
For the average American, that means that healthcare probably needs to be a significant line item in the budget for the foreseeable future. If you qualify for premium subsidies in the exchange – and especially if you qualify for cost-sharing reduction subsidies on silver plans – you’ll get a hand with some of the healthcare burden. But if not, it’s probably unrealistic to assume that your own healthcare expenses will be insignificant, given that healthcare is nearly a fifth of the nation’s GDP.
For our own family, health insurance – just the premiums, as we haven’t actually used our coverage for anything other than preventive care since Jay’s knee surgeries in 2008 – is our third largest monthly expense, after our mortgage and groceries. And it will almost certainly eclipse our mortgage within the next few years, since we’ll have to give up our grandmothered plan in 2016 and switch to a plan with a lower out-of-pocket maximum (ours is too high to be ACA-compliant). This is a reality that we have to plan for, whether we like it or not.
Of course we’d love to see a scenario where healthcare spending started decreasing in the US, bringing us more in line with what other developed countries pay. We’d love to see premiums and deductibles heading down – and it would certainly be nice if wages could start to grow and move past where they were half a century ago. But I’m not holding my breath.
There are no easy answers here. Household budgets are tight – especially given the economic climate over the last several years. People don’t have extra money to set aside for medical expenses without cutting from somewhere else. But the unfortunate reality is that as a country, we probably need to start making the painful choices necessary to cut the budget in other areas in order to account for a line item that is forcing itself to be somewhere near the top in terms of total expenses – even if we don’t want it to be.
As an avenue for allowing people to save for future healthcare expenses, HSAs are certainly beneficial, for people who are able to fund them. HSAs tend to factor heavily into most Conservative reform platforms, although often the call is for removing the contribution caps on HSAs – which really doesn’t help anyone except the wealthy (since only the wealthy are able to afford to fund HSAs in excess of the current contribution caps).
But I could absolutely get behind an initiative to allow anyone to fund an HSA, regardless of what type of health insurance they have. Currently, you have to have an HSA-qualified high deductible health plan (HDHP) in order to fund an HSA. As the USA Today article points out, $1000 individual deductibles on employer-sponsored plans used to be rare, and now they’re pretty normal. The minimum deductible for an HDHP is $1,300 for an individual this year. Since average deductibles are closing in on that point anyway, why not just do away with the specific plan requirement, and allow anyone to save pre-tax funds to cover future medical expenses? Allowing people to save in an HSA (which can be rolled over to the next year if you don’t use it) and deduct it on their taxes might make Americans more likely to be able to set aside a financial cushion for those inevitable medical bills.
Another strategy that could help Americans who are facing ever-increasing premiums and out-of-pocket costs would be to make those expenses tax-deductible for everyone. Currently, employer-sponsored health insurance is deductible for businesses and provided tax-free for employees. But people who buy their own health insurance can only deduct the premiums if they are self-employed. If you work for a small business that doesn’t offer group health insurance and you buy your own coverage, you have to use after-tax funds to pay for your coverage. If you itemize your deductions, you can deduct total healthcare expenses (including premiums and out-of-pocket costs) that exceed 10% of your AGI. So if your AGI is $60,000 for the year and your total medical expenses are $8,000, you can only deduct $2,000 of that. Allowing people to fully deduct health insurance premiums and medical expenses on the front page of the 1040 would be helpful for people who are facing daunting medical bills and health insurance premiums (obviously you can’t double dip… if you’re using HSA funds to pay for medical expenses, you wouldn’t be able to deduct them twice).
To be clear, the ACA is a huge step in the right direction. Low and middle-income families are eligible for financial assistance with their health insurance premiums and out-of-pocket costs, and in most states, 2014 was the first time that people could obtain individual health insurance regardless of medical history. Having a pre-existing condition is no longer a barrier to obtaining coverage, and if you’re struggling financially, you no longer have to go without coverage because you can’t afford it.
Here in Colorado, a single individual with an income up to $16,104 can qualify for Medicaid, with no premiums and very low out-of-pocket costs. A person with an income up to $29,175 can get premium subsidies as well as cost-sharing subsidies (on silver plans) that make health insurance and healthcare much more affordable than they would otherwise be. And a person with an income up to $46,680 can qualify for premium subsidies that limit the cost of the benchmark plan to no more than 9.56% of their income. These are all great improvements over our old system, which basically left people high and dry if they were sick or poor. But healthcare costs are still burdensome for many Americans, and this is an issue that isn’t going to go away as long as our overall healthcare spending remains so high. The tax code changes I’ve proposed with regards to HSAs and allowing pre-tax dollars to be spent on premiums and medical expenses would be a good start though.