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TheEffectsofRisingHealthCareCostsonMiddle-ClassEconomicSecurityHarrietKomisarGeorgetownUniversityACKNOWLEDGMENTSAttherequestofCEOBarryRand,theAARPPublicPolicyInstitute(PPI)conductedayear-long,multi-disciplinaryexplorationofthewell-beingofAmerica'smiddleclasswithafocusonprospectsforfinanciallysecureretirement.
TheMiddleClassSecurityProjectoffersinsight,analysis,andanagendaforpolicymakerstoconsider.
Theprojectteamincluded:SusanC.
Reinhard,SeniorVicePresident,ProjectLeadDonaldRedfoot,SeniorStrategicPolicyAdvisor,ProjectTeamCoordinatorRichardDeutsch,CommunicationsandOutreachDirectorElizabethCostle,DirectorConsumerandStateAffairsEnidKassner,DirectorIndependentLivingandLongTermCareGaryKoenig,DirectorEconomicsLinaWalker,DirectorHealthClaireNoel-Miller,SeniorStrategicPolicyAdvisorN.
LeeRucker,SeniorStrategicPolicyAdvisorLoriTrawinski,SeniorStrategicPolicyAdvisorMikkiWaid,SeniorStrategicPolicyAdvisorDianeWelsh,ProjectSpecialistTheMiddleClassProjectTeamwouldliketothankDebraWhitman,AARP'sExecutiveVicePresidentforPolicy,StrategyandInternationalAffairs,forherguidance,expertiseandcontributionstothesuccessofthisinitiative.
AARP'SMIDDLECLASSSECURITYPROJECTwww.
aarp.
org/securityThefollowingreportswereconductedorcommissionedbyAARP'sPublicPolicyInstituteaspartoftheMiddleClassSecurityProject:BuildingLifetimeMiddle-ClassSecurityDonaldL.
Redfoot,AARPPublicPolicyInstituteSusanC.
Reinhard,SVPandDirector,AARPPublicPolicyInstituteDebraWhitman,EVPforPolicy,StrategyandInternationalAffairs,AARPWhatAretheRetirementProspectsofMiddle-ClassAmericansBarbaraButrica,UrbanInstituteMikkiWaid,AARPPublicPolicyInstituteAssetsandDebtacrossGenerations:TheMiddle-ClassBalanceSheet1989–2010LoriA.
Trawinski,AARPPublicPolicyInstituteTrackingtheDecline:Middle-ClassSecurityinthe2000sTatjanaMeschede,IASPResearchDirector,BrandeisUniversityLauraSullivan,IASPResearchAssociate,BrandeisUniversityDonaldL.
Redfoot,AARPPublicPolicyInstituteEnidKassner,AARPPublicPolicyInstituteTheElusiveMiddleinAmerica—WhatHasHappenedtoMiddle-ClassIncomeGaryKoenig,AARPPublicPolicyInstituteIntheRed:OlderAmericansandCreditCardDebtAmyTraub,DēmosTheEffectsofRisingHealthCareCostsonMiddle-ClassEconomicSecurityHarrietKomisar,GeorgetownUniversityTheLossofHousingAffordabilityThreatensFinancialStabilityforOlderMiddle-ClassAdultsRodneyHarrell,AARPPublicPolicyInstituteShannonGuzman,AARPPublicPolicyInstituteHowOlderAmericansAreDealingwithNewEconomicRealitiesTresaUndem,LakeResearchPartnersSeealso:VideoPortraitsofMiddle-ClassAmericansatwww.
aarp.
org/securityTheEffectsofRisingHealthCareCostsonMiddle-ClassEconomicSecurityHarrietKomisarGeorgetownUniversityAARP'sPublicPolicyInstituteinformsandstimulatespublicdebateontheissueswefaceasweage.
Throughresearch,analysis,anddialoguewiththenation'sleadingexperts,PPIpromotesdevelopmentofsound,creativepoliciestoaddressourcommonneedforeconomicsecurity,healthcare,andqualityoflife.
Theviewsexpressedhereinareforinformation,debate,anddiscussion,anddonotnecessarilyrepresentofficialpoliciesofAARP.
InsightontheIssues#74January20132013,AARPReprintingwithpermissiononlyAARPPublicPolicyInstitute601EStreet,NW,Washington,DC20049http://www.
aarp.
org/ppiTableofContentsExecutiveSummary.
1Introduction31.
Healthcareexpensesareamajorandexpandingshareofmiddle-classhouseholds'budgets.
42.
Agrowingshareofmiddle-incomehouseholdsareexperiencinghighburdensfromhealthcareexpenses43.
Oneinfivepeopleareinfamiliesthathaveproblemspayingmedicalbills.
54.
Healthinsurancepremiumsmorethandoubledoverthepastdecade.
75.
Risingpremiumscontributedtoariseintheproportionofpeoplewithouthealthinsurance,puttingmoremiddle-classfamiliesatriskofunaffordablemedicalbills.
86.
Adramaticincreaseinhigh-deductiblehealthplansmeansmoreinsuredfamiliesfacetheriskofhighmedicalbills107.
Risinghealthcarecostshaveslowedgrowthinmiddle-classwages.
128.
Health-relatedexpensesabsorbalarge,andgrowing,shareofincomesforpeopleage65andolder.
149.
Expensesforlong-termservicesandsupportsareamajorrisktoeconomicsecurityinretirementformiddle-classfamilies.
1610.
Familycaregivingaffectstheeconomicsecurityoffamiliesincomplexways.
18Conclusion.
19ListofTablesTable1.
HealthCareSpendingofMiddle-IncomeHouseholdsofAllAgesGrewbyMorethan50Percentbetween2001and2011.
5Table2.
Out-of-Pocket(OOP)HealthCareExpensesTakeUpaSizableShareoftheIncomesofMostPeopleOverAge6515ListofFiguresFigure1.
MoreThanOne-FifthofMiddle-IncomePeopleunderAge65HaveaHighBurdenfromHealthCareExpenses6Figure2.
PremiumsforEmployer-SponsoredHealthInsuranceDoubledbetween2001and20117Figure3.
TheProportionofMiddle-IncomeAdultswithoutInsuranceIncreasedDuringthePastDecade.
9Figure4.
MedianInflation-AdjustedWagesofFull-timeWorkersHaveNotChangedOverthePastDecade.
12TheEffectsofRisingHealthCareCostsonMiddle-ClassEconomicSecurity1EXECUTIVESUMMARYHealthcarecosts,includingcostsforlong-termservicesandsupports,areagrowingburdenformiddle-classfamiliesacrossallagegroups.
Wageshavenotkeptupwithincreasesinhealthcarecosts,andmoremiddle-classfamiliesarestrugglingtocopewithhigherhealthinsurancepremiumsandhigherout-of-pocketexpenseswhentheyhaveanillness.
Risinghealthcarecostsarecrowdingoutotherimportantprioritiesforworkers,suchassavingfortheirownretirementorfortheirchildren'scollegeeducation.
Employershaverespondedtohigherhealthcarecostsbyscalingbackwageincreases,shiftingcostincreasestotheiremployees,orchangingthetypeofinsurancetheyoffer.
Ifthesetrendscontinue,manypeoplewhohadbeenmiddle-classthroughouttheirworkingyearswillbeatriskofnothavingenoughfinancialresourcestomaintainamiddle-classlifestyleduringtheirretirementyears.
Increasedout-of-pocketcoststoMedicarebeneficiariesandtheoftencatastrophiccostsoflong-termservicesandsupportsaremajorthreatstomiddle-classsecurityforretireesandfamilymembers,whooftenendupincaregivingroles.
KeyFindingsThisreportdocumentstheimpactofrisinghealthcareandlong-termservicesandsupportscostsformiddle-classworkersandretirees.
Somekeyfindingsareasfollows:NationalhealthcarespendingintheUnitedStatesaveraged$8,402perpersonin2010—72percenthigherthanadecadeearlierwhenitwas$4,878,andnearlytriplethe1990levelof$2,854.
Healthcarespendinghasbeengrowingfasterthaninflationandtheoveralleconomy.
Between2000and2010,healthcarespendingperpersongrewatanaveragerateof5.
6percentperyear,outpacinginflation(2.
4percentperyear)andthegrowthingrossdomesticproductperperson(2.
9percentperyear).
Overthepastdecade,theaverageamountthatmiddle-incomehouseholdsspentonhealthcareincreasedby51percent—nearlydoublethegrowthintheirincomes(30percent)andthreetimestherateofgrowthintheirspendingforallotherproductsandservices.
Withrisinghealthcarecosts,morepeopleunder65areburdenedwithhighhealthcarespending.
In2009,21percentofmiddle-incomepeopleunder65reportedspendingmorethan10percentoftheirincomesonhealthcareexpenses,comparedto15percentin2001.
Oneinfivepeopleareinfamiliesthathaveproblemspayingmedicalbills.
Manyofthesefamilieshaveexperiencedseriousfinancialstress,suchasproblemspayingforothernecessities(e.
g.
,food,clothing,andhousing)ormedicallyrelatedbankruptcy.
Healthinsurancepremiumsforemployer-sponsoredinsurancenearlydoubledoverthepastdecade,withtotalpremiums(employer'sandworker'sshares)increasingfromanaverageof$7,601peryearin2001to$15,073in2011forfamilycoverage.
Risingpremiumscontributedtoariseintheproportionofpeoplewithouthealthinsurance.
TheEffectsofRisingHealthCareCostsonMiddle-ClassEconomicSecurity2Employershaverespondedtorisinghealthcarecostsbyshiftingmorehealthinsurancecoststoemployees,offeringhigh-deductiblehealthplanswithlowerpremiumsbuthighercostsharing,andlimitingwagegrowth.
Health-relatedexpensesabsorbalargeshareofincomesforpeopleage65andolder,andthatshareisprojectedtogrowovertime.
Theshareofhouseholdincomespentonhealthcareexpensesisprojectedtoreach18percentforfutureretirees,comparedto8percentfortoday'sretirees.
Expensesforlong-termservicesandsupports(LTSS)areamajorrisktoeconomicsecurityinretirementformiddle-classfamilies,sincesuchexpensesarenotcoveredbyMedicareandfewpeoplehaveprivateinsurancetocoversuchcosts.
FamilycaregiversprovidingunpaidassistancetofamilymembersneedingLTSSdosoatacosttotheirowneconomicsecurity.
Ofthosewhoworkedwhilecaregiving,two-thirdsmadesomeadjustmentstotheiremploymentandoneintenquitajobortookearlyretirement—issuesthatespeciallyaffectthefuturefinancialsecurityofwomen,whoaremostoftentheprimarycaregivers.
TheEffectsofRisingHealthCareCostsonMiddle-ClassEconomicSecurity3INTRODUCTIONRisinghealthcarecostsanddeclininghealthinsurancecoveragearejeopardizingthehealthandfinancialsecurityofincreasingnumbersofmiddle-classfamilies.
AreportfortheWhiteHouseMiddleClassTaskForcenoted,"Extramedicalbillsorhigherfamilyexpensesforchildcareoreldercarecaneasilymakeamiddleclasslifestyleunattainable.
"Asthatreportnotes,risinghealthcarecostsareanimportantpartofalargerpicturewherethecostsforbasicneedsofmiddle-classfamiliesarerisingfasterthantheirincomes:"Mostimportant,pricesofthreebigexpenditureitems—housing,healthcare,andcollege—havegoneupfasterthanincomes.
Thesefactorsmakeattainingamiddleclasslifestylehardertodaythanitwastwodecadesago.
"1Thisreportexaminestheresearchonrecenttrendsinhealthcareandinsurancecostsandhowtheyarecontributingtothefinancialstressandinsecurityexperiencedbymiddle-classAmericanhouseholdsduringtheirworkingandretirementyears.
Thefocusofthebriefisontrendsaffectingmiddle-classeconomicsecurityduringthepastdecade,manyofwhichareacontinuationoflongerhistoricaltrends.
NationalhealthcarespendingintheUnitedStatesaveraged$8,402perpersonin2010,72percenthigherthanadecadeearlier,whenitwas$4,878,andnearlytriplethe1990levelof$2,854.
2Between2000and2010,healthcarespendingperpersongrewatanaveragerateof5.
6percentperyear,outpacinginflation(2.
4percentperyear3)andthegrowthingrossdomesticproduct(GDP)perperson(2.
9percentperyear4)—andcontinuingadecades-longtrendofthehealthsectorexpandingasashareoftheeconomy.
In2009and2010,healthcarespendingrepresented17.
9%ofGDP—morethanone-sixthofthevalueofallgoodsandservicesproducedintheU.
S.
economy—upfrom13.
8percentin2000andnearlydoubleitsshareof9.
2percentin1980.
5Theserisinghealthcarecostsaffectmiddle-classhouseholdsinseveralways.
Notonlydohouseholdsfacethedirectcostsofescalatinghealthinsurancepremiumsandout-of-pocketexpensesforservices,butrisinghealthcostshavealsocontributedtodeclinesinprivatehealthinsuranceenrollment,totheincreasingriskofincurringhighout-of-pocketexpenses,andtothestagnationofwagesformiddle-classhouseholds.
Forbothworking-ageandretirement-agemiddle-classhouseholds,risinghealthcareexpensesaretakingupagrowingshareoffinancialresources,leavinglessforotherpriorities.
1U.
S.
DepartmentofCommerce,MiddleClassinAmerica,January2010,p.
1,http://www.
commerce.
gov/news/fact-sheets/2010/01/25/middle-class-america-task-force-report-pdf.

2AnneB.
Martinetal.
,GrowthinUSHealthSpendingRemainedSlowin2010;HealthShareofGrossDomesticProductwasUnchangedfrom2009,HealthAffairs31(1)(2012):208–19.
3BasedontheConsumerPriceIndex(forallurbanconsumers,allitems)asreportedintheEconomicReportofthePresident,2012,TableB-60,http://www.
gpo.
gov/fdsys/pkg/ERP-2012/pdf/ERP-2012-table60.
pdf.
4KaiserFamilyFoundation,HealthCareCosts:APrimer,May2012,http://www.
kff.
org/insurance/upload/7670-03.
pdf.
5Martinetal.
,2012.
TheEffectsofRisingHealthCareCostsonMiddle-ClassEconomicSecurity41.
Healthcareexpensesareamajorandexpandingshareofmiddle-classhouseholds'budgetsHealthcareexpenses—consistingofinsurancepremiumsandout-of-pocketexpenditures—areamajorbudgetitemformostmiddle-classhouseholds.
Inthisbrief,theterm"middleclass"referstohouseholdsinamiddlepartoftheincomedistribution.
6Theresearchstudiescitedinthisreportemployvaryingapproachestodefiningincomegroups,andthereforethefindingspresentedinthisbriefarebasedonvaryingdefinitionsofmiddle-incomehouseholds.
7AlthoughamajorityofAmericansconsiderthemselvestobemiddleclasseveniftheirincomesaresignificantlylowerorhigherthanthemiddle,analysisoftheexperiencesofamiddle-incomegroupprovidesareasonableapproximationof"middle-class"experiences.
Nationalsurveydataonconsumerspendingdocumentthegrowthinhouseholdspendingformiddle-incomehouseholds.
Overthepastdecade,theaverageamounthouseholdsinthemiddleincomequintilespentonhealthcareincreasedby51percent(from$2,199in2001to$3,319in2011)(seetable1).
8Healthspendinggrewevenmoreforhouseholdsinthefourthquintile,risingby60percentoverthedecade.
Theseratesofincreasewerenearlydoublethegrowthinhouseholdaverageincome(30percent)forthesemiddle-classfamiliesandmorethanthreetimestherateofgrowthforallotherspendingonproductsandservices.
Incontrasttohealthcare,middle-classhouseholds'spendingonallotherproductsandservicesgrewby16percent(fourthquintile)to17percent(middlequintile)overthedecade(notshown).
92.
Agrowingshareofmiddle-incomehouseholdsareexperiencinghighburdensfromhealthcareexpensesAshealthcarespendinghasincreased,moremiddle-incomefamiliesofallagesarefacinghigherlevelsofhealthcareexpenses.
In2009,nearlyone-fifth(19percent)ofpeopleunderage65wereinfamiliesthatexperiencedahighburdenofhealthcare6BrianW.
Cashell,WhoArethe"MiddleClass"CongressionalResearchService,28September2009.
7Examplesincludeanalysesofthemiddleone-thirdoftheincomedistributionandthemiddleandfourthincomequintiles(fromthe40thpercentiletothe80thpercentileoftheincomedistribution).
Otherresearchusestheratioofincometothefederalpovertythreshold(FPL)forthehousehold'ssize;usingthisapproach,analystsoftenfocusonpeoplewithincomesbetween200percentand399percentofFPL(e.
g.
,about$36,000to$72,000forafamilyofthreein2011).
In2011,33percentofpeoplehadincomebetween200percentand399percentofFPL;34percenthadincomeoflessthan200percentofFPL;and33percenthadincomeof400percentormoreofFPL.
Forpopulationwithincomebelow200percentofpoverty:CarmenDeNavas-Walt,BernadetteD.
Proctor,andJessicaC.
Smith,Income,Poverty,andHealthInsuranceCoverageintheUnitedStates:2011,U.
S.
CensusBureau,CurrentPopulationReports,P60-243(Washington,DC:U.
S.
GovernmentPrintingOffice,2012),http://www.
census.
gov/prod/2012pubs/p60-243.
pdf.
Forpopulationwithincomeof400percentormoreofFPL:KaiserFamilyFoundation,statehealthfacts.
org,DistributionofTotalPopulationbyFederalPovertyLevel,U.
S.
,2011,http://www.
statehealthfacts.
org/comparebar.
jspind=9&cat=1.
8Healthcareexpensesintable1aredirectout-of-pocketpaymentsforinsurancepremiumsandservices.
Itisbeyondthescopeofthisbrieftoexaminetheindirecteffectsofpubliclyfinancedhealthcareprogramsonthetaxesofmiddle-incomehouseholds.
Forarecentstudyofdirectandindirecthealthcarecoststhatincludesestimatedtaxes,seeDavidAuerbachandArthurL.
Kellerman,"ADecadeofHealthCareCostGrowthHasWipedOutRealIncomeGainsforanAverageUSFamily,"HealthAffairs30(9):1–7.
9BasedondatafromBureauofLaborStatistics,U.
S.
DepartmentofLabor,ConsumerExpenditureSurvey,2001and2011,http://www.
bls.
gov/cex/#tables.
TheEffectsofRisingHealthCareCostsonMiddle-ClassEconomicSecurity5spending,definedasspendingmorethan10percentofbefore-taxfamilyincomeonhealthcareservicesandinsurancepremiums.
10Incomparison,in2001,14percentofpeopleunderage65wereinfamilieswithahighburdenofhealthspending.
11(Healthcareexpenseburdensforpeopleage65andolderarediscussedinsection8.
)Theproportionofpeoplewithhighburdenvariesamongincomegroups.
Althoughagreatershareoflower-incomefamilieshavehighburdens,middle-incomeandhigher-incomefamiliesexperiencedsteeperincreasesinthepastdecadeintheproportionsofpeoplewithhighhealthcareburdens.
Theproportionofpeopleunderage65inmiddle-incomefamilies(withincomebetween200percentand399percentofthefederalpovertylevel,orFPL)thatexperiencedhighburdensfromhealthcareexpensesincreasedbymorethanone-third,from15percentin2001to21percentin2009(seefigure1).
3.
OneinfivepeopleareinfamiliesthathaveproblemspayingmedicalbillsAsignificantillnessorinjurycanleadtosizablemedicalbillsforpeoplewhoareuninsuredandforpeoplewhohavehealthinsurancebutincurhighdeductibleorotheruncoveredexpenses.
Inthefirsthalfof2011,one-thirdofpeople(ofallages)wereinafamilyexperiencingafinancialburdenfrommedicalcare,includingfamiliesthathadproblemspayingmedicalbills(20percent)orarecurrentlypayingbillsovertime.
12Oneintenpeopleareinafamilywithmedicalbillsitcannotpayatall.
10PeterJ.
Cunningham,"DespitetheRecession'sEffectsonIncomesandJobs,TheShareofPeoplewithHighMedicalCostswasMostlyUnchanged,"HealthAffairs(2012):doi:10.
1377/hlthaff.
2012.
0148.
11PeterJ.
Cunningham,"TheGrowingFinancialBurdenofHealthCare:NationalandStateTrends,2001–2006,"HealthAffairs(2010).
12RobinA.
Cohenetal.
,FinancialBurdenofMedicalCare:EarlyReleaseofEstimatesfromtheNationalHealthInterviewSurvey,January-June2011,NationalCenterforHealthStatistics,March2012,http://www.
cdc.
gov/nchs/data/nhis/earlyrelease/financial_burden_of_medical_care_032012.
pdf.