Academic journal article Monthly Labor Review

The Effects of Health Insurance on Consumer Spending

Academic journal article Monthly Labor Review

The Effects of Health Insurance on Consumer Spending

Article excerpt

Health care expenditures in the United States are consuming an ever increasing portion of gross domestic product (GDP). In 1993, the Nation's health care costs amounted to $884.2 billion, up 7.8 percent from 1992, accounting for 13.9 percent of the GDP.(1) This compares with 5.9 percent in 1965,(2) the year in which the Federal Government initiated two major health care programs--medicare and medicaid.(3)

As reliance on the health care system and the cost of health care have risen, responsibility for funding health care has shifted. In 1965, 50 percent of health services and supplies were paid for by household out-of-pocket spending.(4) By 1993, the amount dropped to 18 percent.(5)

In the late 1960's and early 1970's, much of the direct cost of funding health care shifted to business and government. The prvate business share of health services and supplies grew from 16 percent in 1965 to 28 percent in 1981 and has since remained fairly constant.(6) But the Federal Government's share of health care expenditures continued to grow, increasing on average 12.2 percent a year over the 1989--93 period. In 1993, the Federal Government's share for health care amounted to 31.7 percent of the Nation's health care bill.(7) Rising costs for health care, increased use, changing demographics, and the perennial initiative for fiscal austerity in the Federal Government are continually sparking debate over funding health care. Households, which have avoided much of the direct costs of increasing health care expenditures, are likely to contribute more to fund health care in the future. Such a prospect makes it important to examine household expenditure patterns to establish a reference point for assessing how a transfer of health care costs to consumers may affect families.

This article uses Consumer Expenditure Survey data to analyze expenditures for health care and other items in the consumer budget for four distinct groups: the fully insured, the partially insured, medicaid recipients, and the uninsured.

The demographic characteristics of consumer units are described and compared for each group.(8) Expenditure shares for each group are derived and analyzed. Regression results also are described. Income elasticities are derived from these results and examined. The data show clear differences in consumer spending patterns among groups, depending on insurance coverage; the differences are not limited to health care expenditures alone.

Past trends

Increases in health care expenditures can be sorted by price increases, population increases that lead to greater use of health care, and intensity of use (changes in use or in the type of services and supplies). In the 1960's, the Consumer Price Index (CPI-U) for medical care averaged 2.3 percentage points more per year than the overall Consumer Price Index.(9) The 1989--94 annual average change of the medical care index (7.3 percent) was 3.4 percent higher than the CPI (3.9 percent).

In the 1960--91 period, health care expenditure increases that can be attributed to rising prices averaged 57 percent. Population growth accounted for 10 percent of increased spending on health care, while intensity of use was responsible for the remaining 33 percent.(10)

Federal government-sponsored insurance programs that cover primarily the needs of the elderly (medicare) and the poor (medicaid), made up 70 percent of all public funding for health care in 1993.(11) Although the rate of growth of public expenditures on medicaid has fallen in the past 3 years, the growth rate remains relatively high: it has increased 16 percent per year, on average, between 1991 and 1993.(12)

In 1993, Federal, State, and local governments spent $117.9 billion on the medicaid program.(13) Consumer Expenditure Survey data show that the families that participate in the medicaid program represent about 9 percent of U.S. households. Federal spending for medicare in 1993 totaled $154. …

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