Burden of healthcare payments is greatest among lower-income Americans

Jan. 30, 2020

Higher-income American households pay the most to finance the nation's healthcare system, but the burden of payments as a share of income is greatest among households with the lowest incomes, according to a new RAND Corporation study published online by the Health Services Research journal.

Households in the bottom fifth of income groups pay an average of 33.9% of their income toward healthcare, while families in the highest-income group pay 16% of their income toward healthcare. The analysis finds that households in the middle three income tiers pay between 19.8% and 23.2% of their income toward healthcare. The analysis considered all payments made by households to support healthcare, including taxes and employer contributions.

“Our findings suggest that health care payments in the United States are even more regressive than suggested by earlier research,” said Katherine G. Carman, lead author of the study and a senior economist at RAND. “As national discussions continue about health reform and health equity, it's important to understand how the current health care system distributes costs and payments.”

In 2015, healthcare spending accounted for nearly 18 percent of the U.S. gross domestic product, a measure of the total value of goods produced and services provided by the nation. Ultimately, all healthcare costs are paid by households, either through insurance premiums or out-of-pocket costs, in addition to employer-paid premiums and taxes or other methods.

RAND researchers analyzed a variety of sources of information to examine the burden that different families face to pay for healthcare, as well as the relationship between who pays for care and who receives care. Researchers combined data from multiple sources collected in 2015, including the Survey of Income and Program Participation, the Medical Expenditure Panel Survey, the Kaiser Family Foundation/Health Research Education Trust Employer Health Benefits Survey, the American Community Survey and the National Health Expenditure Accounts.

Previous research has examined the distribution of healthcare financing, but the new RAND study considers payments made to finance healthcare, the dollar value of benefits received, and the impact on different groups by age, source of insurance and size of income. The study also is the first to consider the burden of health costs among people who are in nursing homes and other institutions, a calculation that led to higher estimates of health spending. The burden is particularly large on low-income people who need long-term care because in order to qualify for public benefits they must first spend most of their savings.

“We think this is a particularly important addition because those in nursing homes are among the most vulnerable in terms not only of their health, but also of the large financial burden that they face,” Carman said.

While out-of-pocket spending, excluding insurance premiums, is the most obvious payment most people make for healthcare, the RAND study found it accounted for just 9.1% of healthcare costs. The vast bulk of healthcare costs are paid through health insurance premiums and taxes. The study found that payments to finance healthcare were $9,393 per person, or 18.7% of average household income.

Examining benefits by type of insurance, researchers found that Americans with Medicare receive the greatest dollar value of healthcare, a result of older people generally using more health care services. Those with Medicaid have the largest dollar value of healthcare received as a percent of income, which corresponds to the lower income and generally poorer health among the group. People with employer-sponsored insurance received the lowest dollar value of healthcare.

Unsurprisingly, those with lower income are much more likely to benefit from redistribution of healthcare payments made by others toward healthcare services. The study found that households in the three lowest-income groups receive more health care services than they pay for through all forms of payments. In the fourth income group, payments and the dollar value of care received are similar. Households in the highest of the five income groups are paying much more into the system than they receive in healthcare services.

RAND Corporation has the story.