Timothy Noah

Occupy Lenox Hill Hospital!


Maybe some of Occupy Wall Street's (bottom) 99 percent should peel off from Wall Street and occupy Lenox Hill Hospital instead. The September issue of Health Affairs, a peer-reviewed journal about health care policy and economics, has an interesting article ($12.95 fee for non-subscribers) about health care inflation by David Auerbach and Arthur L. Kellermann, both of the RAND Institute. Auerbach and Kellermann show that between 1999 and 2009 the typical family of four with employer-based health insurance blew a huge amount of its earnings increase on health care.

Before we begin, a few caveats are in order. The typical family of four with employer-based health insurance is not the same as the typical family of four. It's better-off. Between 1999 and 2009 the typical family of four (i.e., one whose income is at the median) saw its income decline, after inflation, from $63,897 to $61,080 in constant dollars, even before health spending came into the picture. Maybe this family had employer-sponsored health insurance and maybe it didn't. The typical family of four with employer-based health insurance (i.e., one whose income is at the median for families that have such insurance) saw its income increase, after inflation, very slightly during the same period, from not quite $98,000 to $99,000 in constant dollars. (The disparity between the two groups is somewhat exaggerated because Auerbach and Kellermann include the value of health insurance benefits as income in the $99,000 income figure, whereas I do not in my $61,080 income figure.) 

Okay, you're a typical family of four with employer-based health insurance. Between 1999 and 2009 you saw your income increase by 30 percent. That's $23,000. Yet you don't feel $23,000 richer. That's because inflation ate up all but 1 percent of your raise. Average prices rose 29 percent. But a very large part of that inflation--43 percent--was medical inflation.

Your health insurance premium (including the part of the premium paid by your boss) more than doubled. Your out-of-pocket spending increased by 78 percent. Your deductible quadrupled, and your copays tripled or quadrupled. In 1999 you probably didn't have to pay anything if you had employer-sponsored health insurance and you went to the emergency room. By 2009 you likely had to pay $100. 

What about taxes? Auerbach and Kellermann included these in figuring what you paid for health care. You paid 28 percent more in taxes for government-sponsored health care in 2009 than in 1999. After inflation, that was actually a slight decrease. A bargain! Only not really. During this period government spending on health care increased 140 percent at the federal level and 76 percent at the state level. That's more than four times and more than double the general inflation rate, and it was paid for mostly by running up the budget deficit. Had the government made you pay for these programs in real time you wouldn't have an extra $23,000 at all. The portion of your income that didn't pay for health care would be lower than it was in 1999. And that's in actual, not inflation-adjusted dollars. Factor in inflation and it would be a lot less.

Now let's assume an alternative universe in which medical inflation exceeded the general rate of inflation by only one percentage point (as occurred during the 1990s) between 1999 and 2009. Had that occurred, you would have (not factoring in inflation) about $2800 more per year. Had the government made you pay for its health-related spending in real time, you would have (again, not factoring in inflation) about $420 more to spend each year on non-medical items than you had in 1999. Factor in the general rate of inflation and it's more like $326 more per year. Though it would really be more than that because lowering medical inflation to GDP-plus-one-percent would lower substantially the general rate of inflation between 1999 and 2009.

Bottom line: The part of the economy that isn't being gobbled up by finance is being gobbled up by health care. Health care probably contributes a lot more to the common weal than finance. People lived in 2009 who would have died in 1999 (though overall life expectancy increased only half as fast in the U.S. as in the other OECD countries). But if you're part of the 99 percent and you feel like you're falling behind even though you're lucky enough to have employer-sponsored health insurance, out-of-control health costs are part of the reason why.

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