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The sticker shock of California’s consumer health care costs in 2020

The coming year will determine whether — or in what form — health reform survives.

The U.S. Supreme Court is expected to rule on reform’s constitutionality before it adjourns in June. If it survives the court challenge, it will at least face a political gauntlet — if not its demise — if the Republicans capture the White House, Congress or both in the 2012 presidential election.

If health reform survives, the U.S. health care landscape will change more in the next decade than it has in the last 50 years. However, health reform is mostly health insurance reform. Its overarching goal was to attempt to ensure affordable access to health insurance and medical care for most Americans. The landscape for employees with health insurance benefits largely remained unaffected.

For California households with employer-sponsored insurance, the larger issue is how high health care costs will be by 2020. Nationally, about 20 cents out of every U.S. dollar will be spent on health care in 2020. National medical inflation consistently has risen two percentage points higher than the consumer price index since the 1960s and there is no indication that will change.

In California, more than 54 percent of businesses offered health insurance to their employees in 2010, slightly more than the national average.

If the state’s current health care cost and household income trends continue at their current rates, here is what 2020 would look like for California workers with a family policy from their employer:

—The average premium would be $23,704, compared to $14,053 in 2010, according to a recent Commonwealth Fund analysis.

—The average employee’s share of that premium would be about $8,000, compared to $3,845 in 2010.

—The average deductible would be about $4,800, compared to $1,942 in 2010.

—The average employee share of the premium and deductible combined would comprise more than 15 percent of California’s projected median household income. A common rule of thumb is that health care costs become a financial burden when out-of-pocket costs reach 10 percent of household income.

The state’s per-capita health care expenditure in 2020 would be $11,719, compared to $6,238 in 2009. That is based on California’s annual medical inflation rate of 4.8 percent since 1991.

The household financial burden is already significant. About 40 percent of Americans had trouble paying medical bills in 2010, up from 34 percent in 2005. More than one-quarter of insured households reported problems with medical debt and nearly six out of 10 adults say they have delayed care because of cost.

The trend is clear for employer health insurance costs. A significant percentage of businesses annually increase the employee share of deductibles, co-payments and premium costs — or cut benefits — to minimize the impact on their bottom lines.

Who can blame them? Nearly 60 percent of an average company’s after-tax profits are spent on corporate health benefits. Starbucks, for example, spends more on health benefits for its workers than it does for wholesale coffee beans.

Most people have only a vague notion of how valuable employer health insurance can be. The median household income for a four-person U.S. family in 2009 was about $70,300. However, the Congressional Budget Office (CBO) estimates the true figure to be $94,900. A footnote on page 65 of a CBO budget forecast said this: “All income is assumed to be from compensation, which includes employment-based health insurance and the employer’s share of payroll taxes.”

Even with employer support, expect health care costs in 2020 to be an even larger household budgetary albatross.

 

Steve Jacob is a veteran health care journalist and author of the new book “Health Care in 2020: Where Uncertain Reform, Bad Habits, Too Few Doctors and Skyrocketing Costs Are Taking Us.” He can be reached at steve@unitedstatesofhealth.com.

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