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Small Business Employee Benefits and HR Blog

The Cost of Healthcare in America

Rising health insurance premiums and out-of-pocket expenses are having a The Cost of Healthcare in Americaconsiderable impact on Americans. In 2012, the Kaiser Family Foundation found that increasing costs led roughly half of American families to cut back on medical care in the previous 12 months. Of those surveyed, one-third used home remedies and over-the-counter medication in lieu of an office visit, another third skipped dental care altogether and 28 percent postponed needed treatment. Since early prevention and detection is always preferable, such decisions to forego necessary services can lead to negative consequences healthwise and financially. The following provides clarity on American healthcare expenditures and highlights the need to find solutions to these soaring costs.

Average Healthcare Costs

How much does an average American pay for private health insurance and out-of-pocket healthcare expenses? It depends. Healthcare spending depends on a variety of factors, including age, race, ethnicity, and whether a person suffers from a chronic condition. For example, while those over age 55 constitute just 25 percent of the population, they account for over 50 percent of the total healthcare spending in the United States.

Studies of averages and trends are useful in considering the bigger picture. A 2015 Employer Health Benefits Survey by the Kaiser Family Foundation found that employer-sponsored family healthcare insurance premiums cost $17,545 annually, and the average worker contributed $1,071 for single coverage and $4,955 for family coverage per year. From 2014 to 2015, the rate of health insurance premiums rose 4 percent while workers’ wages increased by only 1.9 percent.

Most workers who have employer-sponsored coverage have other out-of-pocket costs as well. Eighty-one percent have an annual deductible for single coverage (in contrast, only 55 percent of healthcare plans had a deductible in 2005). While the average deductible for single coverage is $1,318, the size of a worker’s deductible varies by firm size ($1,836 for those in small firms and $1,105 for those in large firms). From 2006 to 2015, the average deductible rose from $303 to $1,077. At any rate, these numbers do not accurately represent total out-of-pocket costs because some individuals will not reach their deductible, and others will far exceed theirs.

In addition to the monthly premium contribution and annual deductibles, nearly 68 percent of workers must make a copayment for their office visits. Each in-network office visit costs the worker an average of $24 for primary care and $37 for specialty care.

Hospital admissions are also to be considered. Of all covered workers who have met their general deductibles, 65 percent have a coinsurance and 14 percent have a copayment for hospital admissions. Workers pay an average of $308 per hospital admission copay, and those with coinsurance pay a rate of 19 percent.

Medicare Costs

According to an Urban Institute 2012 report, a worker who earned average wages in 2010 paid only $61,000 in lifetime contributions to the Medicare program but will receive more in lifetime Medicare benefits than what she paid into the program.

In 2010, a 65-year-old senior who earned average wages could expect to receive lifetime Medicare benefits of $180,000 if he was a single male and $207,000 if she was a single female. The difference between males and females arises from the disparity in lifespans—women live an average of five years longer. Medicare covers approximately 80 percent of all medical expenses, so seniors are responsible for the remaining 20 percent.

Expected Retiree Healthcare Costs

Depending on the retiree’s age, health condition, and expected lifetime, estimated future healthcare needs vary but are predicted to amount to approximately $146,000 for an individual who’s 65 years old and has an expected lifetime of 20 years. This includes any costs not paid by Medicare. If the individual lives until she is 90 years old, she will need $220,600 for healthcare costs, and if the retiree is suffering from a chronic condition, such as cancer, expected healthcare costs will undoubtedly surpass $300,000.

Conclusion

A study in 2004 found that per capita lifetime healthcare expenses are $361,200 for females and $268,700 for males. In the five years between 2010 and 2015, monthly premiums rose 24 percent and deductibles rose 67 percent, while wages increased by a mere 10 percent. These numbers underscore the need for Americans to find ways to decrease healthcare costs. While there are no easy solutions, purchasing individual health insurance is one way in which individuals can take control and minimize their total costs.

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