Consumer Financial Risk

Consumers must factor health care expenses including premiums, deductibles, and other out-of-pocket payments into individual or household spending decisions and may forgo other needs in order to pay for health care. Indeed, the burden of health care expenses is a concern that Americans most often express about the future of the health care system. Thus, a critical dimension in evaluating proposed health policy changes is how the change will affect the affordability of health care services relative to household income and the cost of other goods.

Defining Affordable Health Care	Current Level of Consumer Financial Risk
Health Care Spending Compared with Spending on Other Goods and Services	References

Defining Affordable Health Care Save to My Compare

Health care spending clearly affects families' ability to make ends meet. In 2007, according to the nationally representative Community Tracking Study, slightly more than 19 percent of families indicated that they had problems paying medical bills. Problems occurred more frequently among uninsured families; however, families with insurance also reported problems.

The proportion of respondents reporting problems in the Community Tracking Study is slightly below that found in a June 2009 survey conducted by the Henry J. Kaiser Family Foundation. During the interviews for the 2009 survey, 26 percent of respondents said that they or a family member had trouble paying a medical bill during the past year (Kaiser, 2009).

Complicating our ability to understand the financial risk that health spending can pose is the variation in metrics and methods used to describe levels of risk. Some studies draw on large public surveys containing information on income, demographics, assets, insurance status and type, health needs, and behaviors in order to determine what proportion of a household's income goes toward health care spending. Other studies depict financial risk in terms of the effect—real or perceived—that health spending has on use of health care services or on medically induced debt.

For example, health care spending has been described as unaffordable in the following ways, among others:

Shen and McFeeters (2006) characterize out–of–pocket (OOP) health spending (excluding premiums) as unaffordable if it represented more than 5 percent of family income, as does Cunningham (2009).
Blumberg et al. (2007) propose using a flexible standard based on the proportion of income spent on health care by currently privately insured individuals.
Waters, Anderson, and Mays (2004) define households as lacking financial protection from health expenses if their out-of-pocket expenses, excluding premiums, exceed $2,000 per family member per year or 10 percent of family income, or if spending, including premiums, exceeds 40 percent of income.
Another approach calculated the share of "discretionary" spending consumed by health care expenditures, including premiums (Bernard, Banthin, and Encinosa, 2006).
Some authors have considered health spending unaffordable if family income minus health spending is below the federal poverty level or some variant of that level (Bundorf and Pauly, 2006).

The discussion below draws from literature reflecting many of these definitions.

Current Level of Consumer Financial Risk Save to My Compare

Figure 1 charts the percentage of household health spending from 1987 through 2007:

In 2007, households spent just over $660 billion on health care. Of that,
- $267 billion, or around 40 percent of household spending went toward OOP payments, including copayments, deductibles, and services not covered by insurance (Centers for Medicare & Medicaid Services [CMS], not dated).
- $239 billion went toward premium payments, both for individual insurance premiums and employee shares of employer sponsored health insurance (CMS, not dated).
- Since 2003, households have spent, on average, approximately 6 percent of their adjusted personal income on health care per year, including premium payments and OOP expenses. This number has been relatively constant since the mid–1980s (CMS, not dated).

Figure 1. Household Health Spending as a Percentage of Personal Income in the United States, 1987—2007

SOURCE: CMS, not dated. Click to Zoom

Aggregate data can mask significant disparities among population subgroups in the proportion of income spent on health care. Figures 2a and 2b show how health care spending varies by age and income level:

The elderly and individuals in low income households devote a much larger share of their income to medical expenses than other groups.
Low income households spend nearly 16 percent of their income on health care; higher income households spend 3 to 5 percent.
Households headed by individuals age 65 and older spend more than 11 percent of their income on health care.
Households headed by individuals under 25 spend just under 3 percent.

Figure 2a. Health Care Spending as a Percentage of Income, by Age, 2007

SOURCE: U.S. Department of Labor, 2007a. NOTE: Spending shown is regardless of insurance status. Click to Zoom

Figure 2b. Health Care Spending as a Percentage of Income, by Income Level, 2007

SOURCE: U.S. Department of Labor, 2007bNOTE: Spending shown is regardless of insurance status. Click to Zoom

Banthin, Cunningham, Bernard (2008) estimated that in 2004 over a quarter—28 percent—of the U.S. population under age 65 lived in families that spent more than 10 percent of family income on health care; as of 2003, over 18 million lived in households that spent more than 20 percent of family income on health care (Banthin and Bernard, 2006). In 2007, Families USA predicted that by 2008, 23 percent of non–elderly persons would live in families that spent more than 10 percent of their pre tax income on health care costs and 7 percent will have spent more than 25 percent of pretax income on health care costs (Families USA, 2007).

The figures above represent spending irrespective of insurance status. However, even for those who have private insurance coverage, the proportion of income spent on health care can be significant.

Blumberg and colleagues (2007) measured the level of health care spending, including premium payments and OOP spending, among individuals and families with private health insurance coverage. They determined that, even among households with insurance, the proportion of income spent on health care can be significant, particularly in lower income groups (see Table 1).

Table 1. Health Care Spending as a Proportion of Income Among Households with Private (Non-Group or Employer Sponsored) Insurance Coverage, 2001—2003

Income Level as a Percentage of Poverty	Percentage of Family Income
Income Level as a Percentage of Poverty	Single non-group coverage	Family non-group coverage	Single employer sponsored insurance *	Family employer sponsored insurance
100-199%	29.3	32.6	9.9	16.2
200-299%	16.6	20.6	5.8	10.0
300-499%	11.5	12.5	3.7	6.9
500% or more	5.7	6.7	2.3	3.8
All	18.1	16.7	4.4	6.7

SOURCE: Adapted from a table in Blumberg et al., 2007.*Excluding the cost of forgone wages.

Health Care Spending Compared with Spending on Other Goods and Services Save to My Compare

One way to determine the impact that health care spending has on household finances is to look at health spending in relation to spending on other necessities such as food, clothing, and housing. Figure 3 shows the components of the essential household spending categories: health care, food, housing, transportation, and clothing. In 2007, housing, transportation, food, and other expenses represented the majority of personal consumption spending, with medical care spending—which includes health insurance, medical services, prescription drugs, and medical supplies—making up about 7 percent (Bureau of Labor Statistics, 2007a). The share of spending devoted to medical care has remained relatively stable since at least 2000.

Figure 3. Components of U.S. Personal Consumption Expenditures, 2007

SOURCE: U.S. Department of Labor, 2007a Click to Zoom

References Save to My Compare

Banthin JS, Bernard DM, "Changes in Financial Burdens for Health Care: National Estimates for the Population Younger Than 65 Years, 1996 to 2003," Journal of the American Medical Society, Vol. 296, No. 22, December 13, 2006, pp. 2712—2719.

Banthin JS, Cunningham P, Bernard DM, "Financial Burden of Health Care, 2001—2004," Health Affairs, Vol. 27, No. 1, January/February 2008, pp. 188—195.

Bernard DM, Banthin JS, Encinosa WE, "Health Care Expenditure Burdens Among Adults with Diabetes in 2001," Medical Care, Vol. 44, No. 3, March 2006, pp. 210—215.

Blumberg LJ, Holahan J, Hadley J, Nordahl K, "Setting a Standard of Affordability for Health Insurance Coverage," Health Affairs, Web Exclusives [Epub, June 4, 2007], Vol. 26, No. 4, July/August 2007, pp. w463—w473.

Bundorf MK, Pauly MV, "Is Health Insurance Affordable for the Uninsured?" Journal of Health Economics, Vol. 25, No. 4, July 2006, pp. 650—673.

Centers for Medicare & Medicaid Services (CMS), Sponsors of Health Care Costs: Businesses, Households, and Governments, 1987—2007, Washington, D.C.: Department of Health & Human Services, Centers for Medicare & Medicaid Services, National Health Expenditure Data, not dated. As of August 3, 2009: http://www.cms.hhs.gov/NationalHealthExpendData/downloads/bhg07.pdf

Cunningham PJ, Trade–Offs Getting Tougher: Problems Paying Medical Bills Increase for US Families 2003—2007, Washington D.C.: Center for Studying Health System Change, Tracking Report #21, September 2008.

Cunningham PJ, Chronic Burdens: The Persistently High Out–of–Pocket Health Care Expenses Faced by Many Americans with Chronic Conditions, Washington D.C: The Commonwealth Fund, Issue Brief, Vol. 63, July 2009.

Families USA, Too Great a Burden: America's Families at Risk, Washington, D.C.: Families USA, Publication No. 07—113 December 10, 2007.

The Henry J. Kaiser Family Foundation (Kaiser), Kaiser Health Tracking Poll: Public Opinion on Health Care Issues, Menlo Park, Calif., June 2009. As of August 3, 2009: http://www.kff.org/kaiserpolls/upload/7925.pdf

Shen Y, McFeeters J, "Out–of–Pocket Health Spending Between Low— and Higher—Income Populations: Who Is at Risk of Having High Expenses and High Burdens?" Medical Care, Vol. 44, No. 3, March 2006, pp. 200—209.

U.S. Department of Labor, "Table 47. Age of Reference Person: Shares of Average Annual Expenditures and Sources of Income," Consumer Expenditure Survey, 2007, Washington, D.C.: U.S. Bureau of Labor Statistics, 2007a. As of August 4, 2009: http://www.bls.gov/cex/2007/share/age.pdf

U.S. Department of Labor, "Table 46. Income Before Taxes: Shares of Average Annual Expenditures and Sources of Income," Consumer Expenditure Survey, 2007, Washington, D.C.: U.S. Bureau of Labor Statistics, 2007b. As of August 4, 2009: http://www.bls.gov/cex/2007/share/income.pdf

Waters, HR, Anderson GF, Mays J, "Measuring Financial Protection in Health in the United States," Health Policy, Vol. 69, No. 3, September 2004, pp. 339—349.

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