Out-of-Pocket Spending

The real pain of increasing health care spending tends to fall on Americans in multiple ways.  One is through increased premiums or premium contributions for private, employment-based or individual health plans.  One is through increased taxes to support Medicare and Medicaid.  And one is through increased service cost-sharing, in the form of deductibles, coinsurance and copayments.  In 2015, 11% of health care costs were paid for out-of-pocket and another 17% went to premium cost-sharing.  A JP Morgan Chase report describes out-of-pocket spending.   (JP Morgan Report)   The authors used a sample of 2.3 million Chase customers aged 18 to 64 and examined spending, using credit or debit cards or electronic bill payment, from 2013 to 2016.  Over the study period, out-of-pocket spending rose at an annual rate of 4.3%.  A family spent an average of $714 a year or 1.6% of take-home income, which doesn’t seem unduly burdensome, but look at the segmentation described below.  Out-of-pocket spending was highest for older people, women and as a percent of income, for the lower-income segments.  52% of families had some out-of-pocket spending for a doctor, 44% for a drug, 32% for dental services, 32% for vision services and 27% for a hospital.  Of the total out-of-pocket spending, 22% went to doctors, 21% went to dental and 12% went to hospitals.  Dental out-of-pocket spending likely seems high because many people don’t have dental coverage and dental coverage isn’t particularly comprehensive.

As usual, segmenting spending among the population gives the most insightful data.  As with overall health spending, out-of-pocket spending is highly concentrated among a small percent of people.  The top 10% had half of all out-of-pocket spending.  The next 10% had 21% of out-of-pocket costs.  The bottom 50% had only 6% of out-of-pocket spending.  I don’t know how anyone can look at this data and not think that we can radically change our notions about the value of health insurance, certainly comprehensive health insurance.  Most people don’t need it.  This top 10% of spenders were using 9% of take-home income on health care.  That is a real burden.  Of families who were in the top 10% one year, 48% were in it again the next year.  The patterns uncovered by the analysis also suggest that people do time much of their health care spending, correlating it with surges in income, like an income tax refund or a bonus.  And in general, out-of-spending rose as income grew for the same family.  It is unclear whether this reflects completely elective use of health care or deferral of necessary services because of concern over cost.  There was also extensive geographic variation in out-of-pocket costs.  California, for example, had low spending, but also a high growth rate.  Texas had higher spending, but a lower growth rate.  A lot of interesting data in the report.