Legendary radio commentator Paul Harvey ended his daily report with a final story introduced by the tease “Now for the rest of the story.”
Last Tuesday, the U.S. Census Bureau announced that median household income increased 5.2% in 2015 to $56,516—the first increase in inflation adjusted income since the start of the downturn in 2007.
The Bureau also noted that the U.S. poverty rate decreased to 13.5% in 2015, down from 14.8% in 2014 and those lacking health insurance coverage shrank to 9.1% from a high of almost 16% in 2007. According to the Center for Budget and Policy Priorities, that’s the first time all three have improved in 20 years which it attributes to a lower unemployment rate (5.3% vs. 6.2% in 2014) representing an increase of 3.3 million in the workforce. That’s the story, but here’s the rest of the story.
Indeed, the news is positive, but the rest of the story illuminates cautionary signals for health industry watchers:
Household income: Inflation adjusted income is at its 10 year high, but in 1999, most Americans had higher income ($57,909) than today. Household income is increasing because adults are working longer hours and multiple jobs to make ends meet. Prices for necessities are eating away at income growth: in the same timeframe, food costs increased more than 5%, education costs were up 7% and out of pocket costs for healthcare up 8%. The only major category where households got a break was fuel costs—down 15%. But gas prices are inching back up to pre-2013 highs, putting increased pressure on household discretionary spending. And last month, per the Department of Labor, medical costs overall increased 1%–the largest monthly increase since February, 1984. The bottom line: income may be up, but costs of living are going up faster pinching household budgets, and health costs are THE major contributor.
Poverty: At 13.5%, the poverty rate ($24,000 for a family of four) is the lowest it’s been since 2008 when it reached 13.2%. It remains disproportionately high for blacks (24.1%) and Hispanics (21.4%). 43.1 million Americans live in poverty. And this does not include 26.6 million who are dependent on Social Security to stay just above the poverty line and 4.6 million who depend on food stamps to make ends meet (per the Economic Policy Institute). Per the Census Bureau, out of pocket medical spending pushed 11.2 million below the poverty line last year: many of these had insurance coverage. The fact remains that one in four American households depends on public health programs and hospital emergency rooms for their healthcare. And a third, those on Medicare and Medicaid, have coverage through insurance that pay providers less than what it cost to deliver their services. The net effect is this: 55% of the population pays nothing or less than what is costs to deliver healthcare services they use and their numbers are growing. The health industry’s margins for growth and innovation is largely born by the rest, and their numbers are shrinking.
Health insurance: Per the Census Bureau, the uninsured rate fell to 9.1% in 2015, down from 10.4% in 2014 when the Obamacare exchanges and Medicaid expansion began. But 29 million were without insurance last year, compared to 33 million in 2014, and more significantly, growing numbers of those with private coverage through their employers have high deductible plans requiring monthly premiums of $600 or more for a policy that kicks in after an annual deductible of $5000 out of pocket is paid. But there’s insurance and there’s insurance. A high deductible plan is problematic for middle America. In theory, its rationale makes sense: it forces individuals and households to closely watch their healthcare spending. In practice, it’s a reason middle and lower middle income households delay preventive care or skimp on medications because those are out of pocket expenses that compete with food, housing, day care and utilities bills. For those with employer-sponsored coverage, wages have increased at one-third the clip of their insurance premiums in recent years. And fewer companies are offering coverage at all. The good news is that more have access to insurance; the rest of the story is that private insurance coverage is becoming unaffordable and those that can are paying for much more out of pocket.
The Census Bureau’s report is encouraging but there’s more to the story. It’s good news overall but sobering for healthcare: health costs are increasing faster and disproportionately hurting middle America. As fuel costs climb back to historic levels and drug costs continue their double digit soaring, middle America will be hit hardest. The policy implications are clear:
- The role of insurance: There will be a robust discussion about the fundamental structure of the health insurance industry: should health insurance cover every incident—from the smallest abrasion to the most expensive, or be structured as auto insurance to cover only collision damage?
- The role of the federal government: since healthcare is 30% of the total federal budget and its biggest single expense, should it use its muscle more deliberately to address the system’s flaws around variable quality, high costs, and uneven access. Is health reform 2.0 on the horizon? And how might the Affordable Care Act be fixed?
- The responsibility of individuals: the health system is premised on a view that individuals are users of the health system, dependent on providers to diagnose, treat and dispense their care. Is system dependency sustainable? Is a model in which individuals navigate their own care and cost in our future?
The noise about Secretary Clinton’s bout with pneumonia and the Donald’s admission that President Obama was born in Hawaii drowned out the Census Bureau news last week. It’s an important story, and even more important is the rest of that story.
For the past two weeks, I’ve chronicled the EpiPen firestorm that has brought unwanted attention to its manufacturer, Mylan. The latest company news widely circulated in business media is this: the compensation for its five top executives for the last five years was a combined total of $292.1 million outpacing rivals several times its size including Johnson & Johnson, Pfizer Inc., Bristol-Myers Squibb Co. and Eli Lilly & Co. Of the 22 companies Mylan named in its 2016 proxy as its preferred peer group for pay purposes—some of them much larger than itself—none paid their top managers more than Mylan over the same five years, the analysis showed. Is the company’s board and its compensation committee accountable?
“The role of insurance.”
Do we have any reliable aggregate data pertaining to the relative NHE proportion of health “insurance” expenditure that is not “insurance” (in the true actuarial/risk sense of the word) but is simply nil-value-adding 3rd party intermediated “pre-payment”?