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Out-of-Pocket Costs - a Growing Concern for Citizens

While understanding the overall system of spending in the U.S. is integral to a full understanding of our nation’s health care crisis, what often concerns us as average citizens most – primarily because of the real effects we experience - is the out-of-pocket expenses we incur in paying for health care. According to a June 2007 public opinion tracking poll by the Kaiser Family Foundation, out-of-pocket expenses were the number one issue of concern that citizens wanted to hear upcoming 2008 presidential candidates address.[1]

The concerns of citizens are real - a study in early 2005 by Harvard researchers found that “50 percent of all bankruptcy fillings were partly the result of medical expenses,” which means that “every 30 seconds in the United States someone files for bankruptcy in the aftermath of a serious health problem.”[2] In fact, the Commonwealth Fund’s National Scorecard on Health Care shows that among five countries, the US ranks the highest in terms of percent of population that did not access health care because of costs (see Figure 1).[3] To understand how these out-of-pocket expenditures are distributed to an average individual with health care spending, take a look at Figure 2 – a visual that points to the large role of administration fees and prescription drug costs to average individuals.

Figure 1: Access Problems Because of Costs in Five Countries – Total & By Income (2004)

Source: “Why not the Best? Results from a National Scorecard on U.S. Health System Performance,” The Commonwealth Fund Commission on a High Performance Health System,Sept. 2006: p. 26, 24 July 2007

<http://www.commonwealthfund.org/usr_doc/Commission_whynotthebest_951.pdf?section=4039>.

Figure 2: Distribution of Out-of-Pocket Spending for Average Person with Spending (All People, 2003)

Source: “Distribution of Out-of-Pocket Spending for Health Care Services,” Kasier Family Foundation, May 2006,

25 Jan. 2007 <http://www.kff.org/insurance/snapshot/chcm050206oth.cfm>.

Businesses also incur a large portion of rising health care costs in the premiums they pay for employees. In 2006, the average premium charged by health insurers to employers offering a health care plan for a family of four averaged $11,500 – a cost that is a significant burden for small employers who often cannot afford to – or opt not to – offer employment based insurance leaving many individuals uninsured or reliant on their own earnings and savings to get private coverage.[4]

While costs to individuals in terms of calculated out-of-pocket expenditures and real income lost to private insurance and medical costs are evident, what remains hidden is the fact that public spending too is derived straight from the pockets of citizens through taxes. In essence, then, individuals who pay for private insurance are actually disproportionately carrying the cost of both their own insurance and public health insurance programs.

Inefficiency in spending distribution, augmented by the fact that access to healthcare is itself constrained by high costs, lead us to the conclusion that major reforms to the current system are necessary in order to insure any real change in terms of constraining spending and costs and subsequently ensuring greater coverage.