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December 1995, Vol. 118, No. 12
Trends in out-of-pocket spending on health care, 1980-92
Gregory Acs and John Sabelhaus
Throughout the 1980's, the medical component of the Consumer Price Index rose at twice the rate of inflation. Rising prices have caused some employers to reduce employer-sponsored insurance coverage,1 and increased the pressure of Medicaid and Medicare spending on the federal budget. One would also expect that these rising prices would have a large, direct impact on family budgets because families would have to pay more for insurance, prescription drugs, hospital stays, and visits to the doctor out of their own pockets, and thus, have less money to spend on other goods and services.
This article uses aggregate data from the National Income and Product Accounts (National Accounts hereinafter) and family level data from the Consumer Expenditure Surveys to measure the growth in out-of-pocket health care expenditures between 1980 and 1992. We also explore how the composition of family health spending has changed during this period and how this spending varies across different types of families.
The share of personal consumption devoted to medical care, which includes all spending by, or on behalf of households, rose from 11.9 percent to 17.0 percent between 1980 and 1992, according to data from the National Accounts. However, direct out-of-pocket spending accounts for only one-third of all health related spending, and families only absorbed about one-third of the increase in health care costs through direct out-of-pocket spending. Consequently, the observable impact on household budgets was modest. Most of the growth in health care costs was absorbed through higher budgetary outlays by government and increased labor costs for businesses. In effect, the large increase in health care costs during the last decade has been "hidden" in increased taxes, lower wages, and higher prices for other goods.
Data from the Consumer Expenditure Survey show similar patterns of out-of-pocket health spending to those-observed in the National Accounts between 1980 and 1992. Focusing on nonelderly households, we find that spending on health care and health insurance grew from an average of 4.2 percent of total household expenditures in 1980 to 5.0 percent in 1992. The data also indicate that increased payments for insurance (both conventional and health maintenance organizations-HMO-arrangements) account for virtually all of the growth in out-of-pocket spending by households.
This excerpt is from an article published in the December 1995 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 Colin Winterbottom, "Trends in Health Insurance Coverage: 1988-1991," Discussion paper (Washington, The Urban Institute, 1983); and Katherine R. Levit, Gary L Olin, and Suzanne W. Letsch, "American's Health Insurance Coverage, 1980-91," Health Care Financing Review, vol. 15, no. 1, 1992.
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