Health Care Costs Could Swamp Family Income

Princeton economist Uwe Reinhardt has calculated that even under the best of national economic circumstances many middle class families would have nearly half of their income given to medical costs under the current system:

Even if the financial markets had not gone into a tailspin and the economy had not slouched toward a prolonged recession, non-elderly Americans in lower-middle-income families – those with family incomes between $20,000 and $60,000 – would have sailed into a perfect storm brewing in health care.

Here's how the meteorology of the perfect storm works:

According to the Milliman Medical Index, th[e] total health spending figure for a typical non-elderly American family of four had reached an average of $15,600 by 2008. It had grown at an average compound growth rate of about 8.6 percent from $11,192 in 2004.

Next assume “a family with an assumed gross wage base of $60,000”*:

If that gross wage base grew by, say, 3 percent per year over the next decade, to $80,600 by 2017, while total family health spending grew by, say, 8 percent per year over the same time frame, to $33,700 by 2017, then about 41 percent of the family’s gross wage base would be taken up by health care alone, before any deductions for taxes or fringe benefits. If the wage base grew by 4 percent, health spending still would absorb about a third of the family gross wage base.

Forty one percent of a family's gross wage base. If that doesn't demythologize someone's free market fantasies about the pragmatic benefit of the current system, then they are a free-market true believer.
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* Gross wage base is basically all of the payroll expenses an employer pays for a person — including salary as well as both the employer and employee’s contributions to health insurance premiums. (link)

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