Why Health Care Will Take A Much Bigger Bite Out Of Your Wallet

[This post first appeared at on April 11, 2013]

I suspect most people would say, if asked, that individuals have been paying an increasing share of the cost of health care. They are thinking about the steadily rising premium cost-share percentages, deductibles, co-pays, and co-insurance that have been imposed on people with private health insurance over the last 20 years: once upon a time employers simply provided health care, now you get nicked and clipped five different ways as you leave the doctor or pharmacy.

Out-of-pocket personal health care spend per capita in constant dollars (red line), and out-of-pocket as a % of total personal health care spend (blue line). Source:


As the chart shows, the amount the average American spends out-of-pocket on health care (red line) has increased about 2.5x over the last 50 years, measured in constant dollars*. It leveled off in the last five years, however, probably due to the drop in health care spending brought on by the 2008 recession.

The share of health care costs** paid out-of-pocket (blue line) is a totally different story. It has dropped dramatically, from about 50% in the early 1960s to about 14% today: health care changed from a personal/family responsibility to an entitlement. The second graph shows that expanded government payments combined with growth of private insurance drove the out-of-pocket share for individuals down. Put another way, the amount of health care cost paid by individuals increased only 2.5x over the last 50 years, while the cost of health care rose 10x, because the share of that cost paid by individuals decreased by three-quarters.

Components of total personal health care spend (constant 2010 dollars). Source:

Government support for health care is about to tick up again. The full implementation of the [sic] Affordable Care Act (“ACA”) in 2014 will expand Medicaid dramatically, and the share of health care costs paid by individuals will drop again, probably for the last time.

Why? Government is out of money. That’s why we have a budget crisis in the U.S. and many European countries are teetering on the brink of insolvency. Corporations (the main payers for private insurance) have reached the limit of what they can pay for health care, too.

In the next decade, the health care buck will stop with individuals because there is no one else to pay. Individuals will no longer be shielded from health care cost increases as they have been for the last 50 years. Costs born by individuals will probably increase 10%+ per year: the combined effect of health care costs increases which have averaged 2%-5% per year in constant dollars (4%-8% in dollars of the day) plus an extra kicker due to individuals paying an increasing share of costs. Health care will take a big bite out of the average American wallet.

Or, just maybe, we will find a way to wring the excess out of the U.S. health care system. The U.S. spends over 50% more on health care, as a percent of GDP, than peer countries. Bringing that ratio in line with peers would flatten the cost curve for decades. Putting individuals in the line of fire, rather than sheltering them behind the federal budget, may be just what we need to drive reform. As they say in the energy business, “The solution to high prices … is high prices.”


*Constant dollars = current prices adjusted to remove the effect of inflation using the U.S. GDP price index, with 2010 = 1.00.

**Personal health care expenditure. Source: U.S. DHHS Center for Medicare & Medicaid Services, National Health Statistics.


September 26 2014
by Shravan Singh

Healthcare is every individual’s right whether budget allows or not.


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