How Much Does the Average Consumer Spend on Health Care?
While it is very difficult to determine how much the average consumer spends on health care, the US Department of Labor evaluates how we spend the consumer dollar each year.
“The level of spending on healthcare continued to rise, from $2,853 in 2007 to $3,126 in 2009, largely due to the increase in the health insurance sub-component.”
That same Department of Labor report found that in 2009, health care accounted for 6.37 percent of the average consumer’s dollar, and health insurance accounted for 7.3 percent of the average employee’s total compensation.
- Based on Department of Labor statistics, we are paying a greater share of our income for our health insurance premiums than we are paying for our medical needs.
What is the average individual’s annual risk of a hospital admission? The US Department of Health and Human Services, in its report as to the average cost of a hospital admission, points out the following risk statistics:
- In any year, most people do not need to be admitted to hospital—but those who do require hospital care face very high costs. Insurance is most economically valuable in the case of just such costly, but relatively rare and unexpected events.
To put the figures above into context, the annual risk of a single hospitalization for an uninsured person is about two thirds as great as the annual risk that a driver will be in an automobile crash (3% versus 4.59%), and about 10 times as great as the annual risk of a residential fire (3% versus 0.3%).
The report further goes on to explain that “the average bill for a single hospitalization is about two and a half times the average economic loss (lost wages, medical care and other out of pocket expenditures) associated with an automobile crash ($22,200 versus $8,552) and roughly equivalent to the average cost of property damage due to a residential fire ($22,200 versus $20,679).”
While these statistics have been normalized, the realization is quite clear: the average American is at a 3 percent risk of incurring a $22,000 medical bill. A consulting company, Milliman, produced their annual research report on trends in health care in May 2011. Their report, The Milliman Medical Index, determines the average amount paid by a family of four for health insurance and health care. They do this by studying provider fees, benefits, and average health care use in all fifty states. Milliman also takes health insurance premiums, co-payments, deductibles, and coinsurance premium payments into consideration when defining health care costs. Milliman calls this an MMI cost.
- The current 2011 study finds the MMI cost to insure a family of four is $19,393, an increase of $1,319, or 7.3 percent greater than it was in 2010.
So let’s review the statistics.
- Average American’s risk of major accident or hospitalization: 3 percent
- Average American’s annual out-of-pocket medical costs 6.37 percent of his or her income
- Average American’s annual health insurance premium: an incremental 7.3 percent of his or her income in addition to the annual out-of-pocket medical costs.
- Total average American’s annual health insurance + out-of-pocket costs: 14.3 percent of his or her income
- Average American family of four’s annual health cost, including health insurance premiums: $19,393
- Average cost of a hospitalization: $22,200
Becoming an Educated Health Insurance Consumer
Does it not seem ominous that we as a nation are paying almost $20,000 per year to insure a family of four against a 3 percent risk that they may incur a $22,000 hospital bill? I believe we can reduce most people’s health insurance premiums by 40–50 percent. Profits were up on average 56 percent from 2008 to 2009 in the top five big providers, including WellPoint, United, Humana, UnitedHealth, and Cigna. The first quarter of 2010 shows profits up again 31 percent over the same time period for 2009.
An educated consumer can save money on his or her health insurance premiums.
When you become an Educated Health Insurance Consumer (EHIC), you will be armed with insights to help you make logical and cost-effective choices about health insurance. There are ways to save money on your health insurance premiums today. You simply need to know how and where to find them. As a consumer in the current environment, we have very little information upon which to base our decisions.The following is a list of reforms that would make buying health insurance much easier:
- Full health insurance plans in paper mailed to every consumer, outlining coverage and exclusions;
- Universal common claim forms to reduce administrative waste;
- Published contracted prices;
- Annually published actuarial and risk tables;
- A universal template of policy coverage and explanations that would result in transparency through standardization;
- Optional participation in group health plans; and
- Access to policy educators who will answer questions and explain coverage.