The Out-of-Pocket Healthcare Expenditures in the United States
Out-of-pocket expenditures for health care products and services in the United States continue to rise and in 2015 represent a significant portion of consumers’ incomes. This is the result of a variety of factors including an aging U.S. population, rising utilization of medical products and services, and ongoing cutbacks to both public (federal and state) and private health coverage. Over the years, U.S. consumers’ annual out-of-pocket health care costs have risen from about $250 per person in 1980 to $1,300 in 2015, with yearly increases of about $40 to $50. Increases for health plan premiums, in particular, have outpaced increases in overall prices and workers’ earnings.
This Kalorama Information report, Out-of-Pocket Spending n the United States, details the trend of consumers purchasing their healthcare with their own cash or credit cards and/or various financing programs. Included in this report’s analysis is the following:
- Total Spending By Consumers
- Proportion That is Cash, Credit Card, HSA and Other Programs
- Co-Pay Spending, 2009-2014 and Projected to 2019
- Premium Spending, 2009-2014 and Projected to 2019
- Direct Healthcare Purchases, 2009-2014 and Projected to 2019
- Elective Spending
- Non-Elective Spending
Direct payments represent payments made from consumers directly to health care providers without reimbursement by insurers. For the uninsured and many underinsured, such payments represent the primary means of funding health care. For those with health care insurance, direct payments supplement plan payments. Initially, direct payments will be made to meet deductible levels; after that, direct payments may be required to meet plan co-payments in the case of plans that do not fund 100% of expenses after deductibles are met. This is the case for a growing number of plans that pay 80% to 90% of expenses after deductibles. Furthermore, many plans also set limits on payments for certain products or services, so that participants must self-fund further expenditures after those limits are met. Thus, direct payments may be made by both uninsured and insured persons. For both groups, however, the size of direct payments for health care continues to rise.
Health care premiums represent fees paid by plan participants to maintain membership in the plan. Unlike co-payments and deductibles, they are not tied directly to receipt of products or services. As the single most important way that health care plans are financed, premiums continue to rise as MCOs attempt to offset their own increasing expenses. In 2013, the most recent year for which data is available, HMO premiums rose by more than 10%, according to Hewitt Associates. Much of this growth is attributed to healthcare price increases in excess of inflation (such as through the utilization of higher-priced technologies) and about one quarter is the result of increased utilization.
Co-payments may be set either at a fixed rate or as a proportion of the cost of each covered product or service. Over the past two decades, co-pays have been rising as MCOs continue to utilize them as a means to both help offset payments to providers and encourage/discourage certain consumer behaviors. For example, co-payments are often set higher on more expensive alternatives (new and/or brand name medicines, utilization of out-of-network providers, innovative procedures, etc.) and lower on less expensive choices (generic and/or lower cost medicines, etc.).
Consumers in the United States utilize a variety of methods to pay for health care products and services. These are required in instances when payment is not made directly from a health care plan directly to the provider. The key payment methods utilized are:
- cash or check;
- credit cards;
- loans and lines of credit;
- flexible spending accounts;
- health savings accounts;
- medical financing.
Consumers from all socioeconomic groups are facing high out-of-pocket expenditures for health care. However, certain groups are more vulnerable to this threat and represent a larger proportion of total such spending. These include:
- the uninsured and underinsured;
- Medicaid recipients;
- disabled persons;
- senior citizens;
- the mentally ill;
- obese persons;
- persons with chronic medical conditions.