Call them hidden, direct or discretionary, health care costs are a growing burden on U.S. consumers

Estimates on health spending in the U.S. are under-valued, according to The hidden costs of U.S. health care: Consumer discretionary health care spending, an analysis by Deloitte’s Center for Health Solutions.

Health spending in the U.S. is aggregated in the National Health Expenditure Accounts (NHEA), assembled by the Department of Health and Human Services (DHHS) Centers for Medicare and Medicaid Services (CMS). In 2010, the NHEA calculated that $2.6 trillion were spent on health care based on the categories they “count” for health spending. These line items include:

  • Hospital care
  • Professional services (doctors, ambulatory care, lab services)
  • Dental services
  • Residential and personal care, including school-based clinics, senior centers, ambulance services, etc.
  • Home health
  • Long term care and continuing care retirement communities
  • Prescription drugs
  • Durable medical equipment
  • Other non-durables (esp. retail sales of non-prescription drugs/OTCs and disposable medical supplies).

What’s not included in here, Deloitte argues, are the “hidden” costs of health care that people spend for out of their own household budgets — that is, additional out-of-pocket spending (OOP). The overlooked areas according to Deloitte are most notably caregiving – “supervisory care” – along with spending on other ambulatory care not included in the NHEA, complementary and alternative medicine (CAM – THINK: chiropractic, homeopathy), weight-reducing programs, homes for the elderly not included in the LTC category, CAM products, health publications, and nutrition and supplements (vitamins/minerals/supplements, or VMS for short).

This spending adds an additional $2,898 to each U.S. consumer’s spending on health, Deloitte calculates

The bulk of this spending is on supervisory care: caregiving by family and friends, which is not explicitly accounted for in the NHEA.

The additional categories of discretionary OOP health spending for consumers include nutrition/supplements, CAM practitioner costs, other ambulatory, homes for the elderly, along with smaller amounts on weight loss centers, health publications, and CAM products (separate from Vitamins/Minerals/Supplements).

The fastest-growing line item in these line items are hospital care and retail products and services. While hospital care has fairly inelastic demand since third-party insurance covers most of this cost, consumers are especially exposed to price inflation for retail health products and services like over-the-counter drugs, retail clinics, and VMS, for which consumers cover 85% of costs.

1Health Populi’s Hot Points:  The Metlife Study of Caregiving Costs to Working Caregivers talks about the supervisory care burden on U.S. workers. My take on the study in Health Populi in June 2011 found that,

“Caregiving translates into double jeopardy for older caregivers because they take a double financial hit: just as they’re entering sobering (for some, proverbially last-minute) savings mode  for retirement, they are compelled to lose wages and, ultimately, Social Security benefits which are calculated based on the last years of earnings. The chart shows that women caregivers are more severely impacted than men to the tune of $277,044 on average, which comprises two financial hits: directly, in lost wages forgone in reduced hours working and labor force exits; and, lost Social Security. If private pensions are included at an average of $50K, the total impact on caregiving women would be $324,044. 

“While men and women are equally likely to provide care, MetLife finds that women tend to provide basic care and sons more likely to provide financial assistance. (Basic care in the survey is defined as personal activities such as dressing, feeding and bathing — the Activities of Daily Living). 66% of caregivers are women and 34% men. 57% of caregivers work outside of the home and 43% do not.”

Thus Deloitte is right to call out these supervisory costs: they are essentially a tax on good-minded people doing the right thing for loved ones and paying a kind of tax for that activity.

There is another OOP cost, though, that Deloitte’s study overlooks and that for consumers, is the largest direct cost hitting household budgets: the cost of the premium share for health insurance provided by employers. The Milliman Medical Index found that in 2012, average healthcare costs for a family of four exceeded $20,000 — roughly the cost of a new Kia Sedan. The employee’s share on this was $8,584, roughly 40% of the total.

So when thinking about consumer’s spending on health, this huge number must be brought into the discussion as the base on which other so-called discretionary OOP spending compounds. In the consumer’s eyes, they’re all health care OOP costs.

2 Responses to Call them hidden, direct or discretionary, health care costs are a growing burden on U.S. consumers

  1. Michael Millenson December 28, 2012 at 11:28 pm #

    An excellent compilation and analysis, Jane. This, BTW, is but one reason my Kellogg School of Management David Dranove and I disputed a well-publicized Health Affairs article by single-payer advocates asserting that medical costs were the major cause of bankruptcy and that single-payer was a solution. (See: http://content.healthaffairs.org/content/25/2/w93.short)

    Alas, many of the costs related to disease are ones that no health insurance policy will cover (i.e., caregivers) or are related to the illness but not a direct illness cost (i.e., losing a job because you can’t get someone to take care of your kids). The other, hidden costs noted above are, of course, very important to bring to light.

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