—
Household expenditures on health care

—_
Household expenditures on health insurance as a

expenditures as a percentage of total percentage of total household expenditures on
household expenditures, by household health care by household characteristics, 1980
characteristics, 1980 and 1992 and 1990
[in percent] {in percent)
Characteristic 1980 1992 | Change Characteristic 1980 1992 Change
All consumer units .... 25.7 36.4 10.7
All consumer units 42 50 08
Annual household expenditure levels
Annual household expenditure levels
Less than $15,000 317 36.1 44
Loss than $13,000 57 7 $15,000 to $30,000 .. 268 304 | 128
3s " Greater than $30,000 219 33.8 11.9
40.1 11.4
5A 7A 20 384 122
39 47 8 355 a0
38 48 8 37.2 10.4
47 5.4 7 34.3 12.7
37 42 5
92.8 46.1 138
35 a8 +4 25.2 358 10.6
43 52
Family type
No childrer 26.9 34.7 78
44 53 9 Single parent 26.0 34.9 89
a4 42 14 ‘Two parent .. 246 38.8 142
43 50 7
Age of household head .....
Younger than 25... 27.0 32.3 5.3
ee vet 08 25-34 .. 279 40.1 12.2
441 49 ‘8 228 36.3 13.5
46 53 7 25.6 35.1 95
57 74 17 26.4 35.5 a1
Nore: Households with heads ages 65 and older are excluded. Note: Households with heads ages 65 and older are excluded.
Source: Authors’ tabulations, Source: Authors’ tabulations.

household health-care dollars going toward point- of-service
expenses fell by 9.2 percentage points. Over the same period,
spending on insurance increased by 10.7 percentage points.

There are two competing explanations for this rise in in-
surance spending: households are either paying more for the
same insurance coverage or they are purchasing more insur-
ance to cover point-of-service expenses. If the former were
true, however, we would expect a uniform decline in all
noninsurance spending categories rather than a decline con-
centrated in one category. Furthermore, within the category
of insurance spending, we see a large increase in spending on
HMOs." By enrolling in HMOs, households are, in effect, pre-
paying copayments and deductibles for physicians’ services.
Thus, it appears that over the 1980's and early 1990's, house-
holds purchased more insurance coverage to protect against
higher point-of-service medical expenses.

Next, we examine how spending on each of the four com-
ponents of health care vary across groups within the popula-
tion. First, consider spending on insurance as presented in
table 3. The share of health budgets going to insurance for
households with annual total spending less than $15,000 rose

by 4.4 percentage points, and shares for the middle-spending
households increased by 12.6 percentage points, while high-
spending households, rose by 11.9 percentage points. In all
regions of the United States, insurance occupied a greater
share of family budgets in 1980 than in 1992, accounting for
more than a third of health budgets by 1992. In general, the
share of health budgets devoted to insurance rose by more
than 10 percentage points across race, family type, and all
age groups except those families headed by individuals un-
der age 25.

Table 4 shows how point-of-service payments to physi-
cians and hospitals differed across groups within the popula-
tion. While point-of-service payments’ share of total health
care spending declined slightly for wealthier households, it
dropped considerably for middle and low spending house-
holds. In fact, in 1980, households with expenditures in ex-
cess of $30,000 per year spent a smaller portion of their health
dollars on point-of-service payments than other expenditure
groups, but by 1992, they became the highest spending group.

Point-of-service spending as a share of health care spend-
ing dropped considerably more in rural areas and in the urban

Monthly Labor Review December 1995 39



Trends in heatth care

5 We classify nonelderly households as those headed by someone less
than 65 years old. The share of government medical spending going to the
elderly in table 1 is computed, using National Income and Product Accounts
data on medicare spending — spending on medicaid for the elderly and spend-
ing on medical care for retired military personnel are not included in the
table, because they cannot be discerned in the National Accounts.

© From the Consumer Expenditure Survey, the out-of-pocket health care
budget share including elderly households rises from 5.3 percent in 1980 to
65 percent in 1992. It is important to note that the denominator used in chart
1 — total consumption — differs from the denominator in chart 2, which is
total expenditures. The differences are attributable to National Accounts
imputations for the household sector which cannot be reproduced using sur-
vey data. See the appendix for details.

7 The budget shares in table | use consumption across all age groups as
the denominator. We convert these to nonelderly budget shares by dividing
through by the share of expenditures (from the Consumer Expenditure Sur-
vey) accounted for by nonelderly households, which was 86.5 percent in
1980, and 84.1 percent in 1992.

“We use family expenditures rather than family income to distinguish
between richer and poorer households because the subset of families (from
the Consumer Expenditure Survey) with “complete” income measures is not
representative of the whole population. Census does not impute missing in-
come items on the Consumer Expenditure Survey, as it does with the Cur-
rent Population Survey (cps) and other income-oriented surveys.

* The reason that early retirement and higher health costs are related is
that employers are more likely to provide insurance for current workers than
for nonelderly (early) retirees. So, it is likely a retired person has to pay for
their own insurance, and therefore bear higher costs,

"© Thomas Burke and Rita Jain document the growth of health mainte-
nance organizations between 1979 and 1989 using data from the Bureau of
Labor Statistics annual survey of employer benefits. See Thomas Burke,
and Rita Jain, “Trends in employer-provided health care benefits,” Monthly
Labor Review, February, 1991, pp. 24-30.

" Out-of-pocket spending on prescription drugs remained stable, despite
the fact that the price of prescription drugs rose faster than the overall rate of
medical inflation during the 1980's ). One explanation for this apparent para-
dox involves the use of bulk rate, mail order prescription drug services and
insurance plans which encourage individuals to purchase generic equiva-

Tents to brand name drugs. Cathy Baker and Natalie Kramer note that the
number of subscribers covered by plans with such incentives increased from
3 percent in 1985 to 14 percent in 1989. Thus, consumers are not paying for
higher drug costs directly from their pockets, but indirectly through product
substitution and less convenient access to medication. See Cathy Baker and
Natalie Kramer, “Employer-sponsored prescription drug benefits, Monthly
Labor Review, February 1991, pp. 31-35.

The supplemental files available after 1988 are from the EXPN tapes,
which record the inventory of health insurance policies a consumer unit has
while in the survey, whether a premium payment is made or not. Prior to
1988, all we can observe is spending on health insurance itself, which is an
imperfect indicator of coverage.

‘The text tabulations in this section are the authors’ tabulations, using the
Consumer Expenditure Survey,

Winterbottom, “Trends in Health Insurance.” 1993; and Levit, ‘Olin,
and Letsch, “American's Health Insurance Coverage,” 1992.

"4 If any member of a consumer unit has employer-sponsored health in-
surance, we consider the family to have employer-sponsored coverage even
if other members are uninsured or have public coverage.

45 This does not mean that the number of people lacking insurance was
constant, though individual-level analysis over this period shows only mod-
est changes. See, for example, Winterbottom, “Trends in Health Insurance,”
1993; and Levit, Olin, and Letsch, “American’s Health Insurance, 1992.

° Research on actual usage of medical care by the uninsured shows in-
teresting pattems. For example, the uninsured score lower on self-reported
health questions that are known to be good predictors of future health status
and medical needs, according to 1987 data from the National Medical Ex-
penditure Survey, See Peter Franks, Carolyn M. Clancy, Marthe R. Gold,
and Paul A. Nutting, “Health Insurance and Subjective Health Status: Data
from the 1987 National Medical Expenditure Survey,” American Journal of
Public Health, vol. 83, no. 9, 1993.

Using the Rand Health Insurance Experiment data set, Susan M. Marquis
and Elien R, Harrison confirm the lower self-reported health scores for the
uninsured, but go on to show that the uninsured use less medical services
even after being provided with access. See Susan M. Marquis, and Ellen R.
Harrison, “Health Status and Health Care Use of Uninsured Workers,” Health
Benefits and the Workforce (U.S. Department of Labor, Pension and Welfare
Benefits Administration, 1992).

APPENDIX: Estimating household-level expenditures on health care

The most comprehensive data set for studying out-of-pocket health
care spending is the National Medical Expenditure Survey (National
Survey, for short). Unfortunately, this survey is conducted only ev-
ery 10 years, and the latest one is for 1987. To develop our house-
hold-level spending estimates, we use data from the ongoing Con-
sumer Expenditure Survey. In 1987, the average out-of-pocket health
expenditure per household reported in the Consumer Expenditure
Survey was slightly lower than the average reported in the National
Survey.' Amy Taylor and Jessica Banthin examine changes in spend-
ing between 1977 and 1987 using the 1977 and 1987 National Sur-
vey. For the Consumer Expenditure Survey, approximately 5,000
households are interviewed each quarter and asked to recall their
spending over a 3-month period. The survey bases spending analy-
sis on the “consumer unit” instead of the more commonly refer-
enced “household,” as in the Current Population Survey or decen-
nial census. The difference is minor — a household can have more
than one consumer unit if the individuals do not pool resources in
any significant way. In this article, we refer to consumer units as
“households” for ease of exposition.

Each household can participate in the survey for up to four inter-
views, and, in general, about 75 percent complete all four quarters.
We do not exploit the longitudinal aspect of the survey because ex-

44 Monthly Labor Review December 1995

cluding households that do not complete the interviews introduces
significant attrition bias.

Our total expenditure measure differs slightly from the published
Consumer Expenditure measure because we exclude contributions
to pensions plans (which we classify as savings) and Social Secu-
tity (which we classify as taxes) There are also important differ-
ences between our (and any survey-based) measure of expenditures
and the National Income and Product Accounts concept of “con-
sumption” referenced in the article. National Accounts consump-
tion includes many imputed categories that cannot be measured in
surveys, such as the rental value of owned housing and the value of
bank services obtained when consumers forego interest earnings to
get free checking. And while categories such as employer- and gov-
ernment-provided medical care can, in principle, be measured in the
survey, they are not. Our measure of expenditure can be thought of
as a “cash-basis” consumption value, which is not an optimal indi-
cator of economic well-being, but the best measure available at the
household level. Barry Bosworth, Gary Burtless, and John Sabelhaus
provide a detailed appendix which shows how the “cash-basis” ex-
penditure measure corresponds with National Accounts-based con-
sumption. They also show that these measures tracked closely over
time.

|


Household expenditures on hospitals and

physicians as a percentage of total household
expenditures on health care by household
characteristics, 1980 and 1990
{tn percent)
Characteristic 1980 1992 | Change
All consumer units 30.1 209 02
‘Annual household expenditure levels
Less than $18,000 302 197 | -105
$15,000 to $30,000 . 31.3 19.7 “116
Greater than $30,000 274 22.68 48
30.2 164 | 13.8
277 22.7 5.0
26.5 215 5.0
31.2 23.4 -78
31.6 194 | 122
31.1 153 | -158
29.3 21.3 8.0
27.3 19.8 75
32.2 22.3 9.9
314 21.9 9.2
36.6 28.7 79
34.0 26.0 8.0
296 20.0 96
28.3 18.4 389
24.9 194 | -155
Nore: Households with heads ages 65 and older are excluded.
Source: Authors’ tabulations.

Household expenditures on prescription drugs as

@ percentage of total household expenditures on
heatth care, by household characteristics
On percent)
Characteristic 1960 1992 | Change
All consumer units... ~ | 104 10.8 40
Annual household expenditure levels
Less than $15,000 5 146 34
{$15,000 to $30,000 10.2 10.9 7
Greater than $30,000 10.0 92 -8
Region ..
Rural . 1.8 15.1 33
Urban Northeast .. 98 92 0.6
10.4 10.9 05
1.0 11.0 0
83 a3 0
ng 11.0 0.3
10.3 10.8 05
14 13.4 24
Single parent 92 10.3 14
Two parent .. 99 at 1.8
‘Age ot household head
Younger than 26 .. a7 95 8
25-34 .. 82 7 -5
35-44 . 86 90 ry
45-54 .. N2 12.7 15
55-64 | 136 14.2 8
Nore: Households with heads ages 65 and older are excluded.
‘Source: Authors’ tabulations.

wealthier households devoted a larger share of their health
care dollars to supportive care than other households. While
the share devoted to supportive care declined for high and
middle spending households, households with expenditures
below $15,000 per year actually spent a higher proportion of
their health care dollars on supportive care in 1992 than in
1980. Of the total out-of-pocket health care spending, the
share of supportive care declined across all regions. While
blacks spent a lower proportion of their health budgets on
supportive care than nonblacks in both years, the gap
narrowed over time. The share of health spending devoted to
supportive care was relatively stable across family types. Fi-
nally, the youngest heads of households devoted a larger share
of their health care dollars to supportive care in 1992 than in
1980, while the oldest households devoted slightly less.

Effects of insurance coverage

Differences in health insurance coverage, also affect the level
and composition of out-of-pocket health expenditures. Prior
to 1988, however, the Consumer Expenditure Survey pro-

vided very limited information on insurance status. In this
section, we use supplemental data from the survey, available
after 1988 to look at how the levels and composition of health
spending vary with coverage status.'?

The following tabulation shows, the distribution of con-
sumer units by insurance coverage status for 1988 and 1992,
Consistent with other studies", we observe a decline in em-
ployer-provided insurance coverage from 66.8 percent to 63.8
percent of families over the 5-year period.'* This decline is
offset by an increase in the share of the population with pub-
licly-provided insurance (medicaid and medicare) from 6.9
percent to 9.5 percent. The fraction of consumer units lack-
ing insurance was stable at 16.5 percent:'*

Insurance status 1988 1992

All consumer units.... 100.0 100.0
Private coverage 76.6 74.0
Employer-provided 66.8 63.8
Other private 98 10.2
Public coverage 69 9.5
No coverage... 16.5 16.5

Monthly Labor Review December 1995 41



Trends in health care

West than it did in other areas. And while the point-of-service
share of health spending by blacks and nonblacks was roughly
equal in 1980, it dropped more for blacks than nonblacks.
Families without children spent a higher percentage of their
health care dollars on point-of service-expenses than families
with children, but the share declined over the 12-year period.
Families with younger heads of households tend to spend a
greater proportion of their health care dollars on point-of-ser-
vice care than families with older heads; however, point of
service spending’s share fell among all age groups.

Spending on prescription drugs as a proportion of total
health care spending remained remarkably stable between
1980 and 1992,'' however, there are some interesting differ-
ences in the spending patterns across different demographic
groups. As table 5 shows, families spending less than $15,000
a year devoted 11.5 percent of their health care dollars to pre-
scription drugs in 1980; by 1992, they were spending 14.6
percent on medication. In contrast, among “well-to-do” fami-
lies, only 10 percent of their health care expenditures went to
pay for prescription drugs in 1980, and the share dropped to
9.2 percent by 1992.

Families living in rural areas and families living in the ur-
ban West devote very different shares of their budgets to pre-
scription drugs. In 1992, families in rural areas devoted 15.1
percent of their health care dollars to medication, while the

share paid by families in the urban West was 8.3 percent.

There are, however, few differences by race. The share of
health spending devoted to medication fell slightly for blacks,
reaching 11.0 percent in 1992. Spending by nonblacks
climbed slightly, reaching 10.8 percent in 1992. Smaller fami-
lies, specifically, those with no children paid 13.4 percent of
their health care dollars to cover the cost of drugs in 1992,
compared with 8.1 percent of the health care budget for larger
families consisting of two-parent families. This represents a
small rise for families without children and a small decline
for two-parent families.

Households headed by older individuals spent substantially
more on prescription drugs than younger households. Indeed,
families with heads of households under age 45 spent less
than 10 percent of their health care dollars on medication,
while families with heads between the ages of 45 and 54 spent
12.7 percent. Families headed by individuals ages 55 to 64
devoted 14.2 percent of their health budgets to prescription
drugs.

Together, health insurance, point-of-service payments for
physicians and hospitals, and prescription drugs account for
about 70 percent of out-of-pocket medical expenditures. The
balance is for dental, eye, and other supportive care. The share
of out-of-pocket spending devoted to supportive care declined
slightly between 1980 and 1992. As table 6 illustrates,

Composition of out-of-pocket health care spending, 1980 and 1992

Point of service

SOURCE: Urban Institute tabulations, using the Consumer Expenditure Survey.

Point of service

40 Monthly Labor Review December 1995



Insurance, hospitals, and
physicians as a share of total

—_
Out-of-pocket spending for health care as a

i share of total household expenditures, 1992
expenditures
Coverage status 1988 1992 sect insur Total household —
jecith insurance status 15,

Private coverage .. 15 1.6 Less than § to wee en
Employer-provided 14 1.6 $18,000 | $30,000 :
Other private . 1.6 18 AN nit 64 64 40

Public coverage 8 5 consumer unis an

No coverage oa 11 Private coverage .. 88 68 42

All consumer units... 14 15 ores nn ; 2 $3 $2

Nevertheless, families with private sector coverage devote —_| puniic coverage .. 28 14 13

a larger portion of their total expenditures to supplemental

. A en 0 27 20

care than the uninsured (1.6 percent, versus 1.1 percent in No coverage 5

1992). Public coverage is more generous than private plans, Nore: Households with heads ages 65 and older are excluded.

therefore, it is not surprising that individuals with public cov- Source: Authors’ tabulations.

erage spent only 0.5 percent of their total budgets on supple-
mental care.

Some of the differences in health expenditure patterns
across insurance-coverage groups reflect differences in fam-
ily budgets. In table 7, we show the distribution of families
across three total-expenditure groups by insurance-coverage
status in 1992. About half the families with total expendi-
tures below the $15,000 per year mark have either public or
no insurance. That fraction falls to less than 10 percent for
families with total expenditures above $30,000 per year. The
fraction of each income group obtaining their own private
insurance is about 10 percent.

Finally, the differences in out-of-pocket spending by in-
surance coverage status are not simply a function of family
resources. Within any given insurance-coverage group, bud-
get shares for out-of-pocket health care spending decline
smoothly as total expenditures rise. But after controlling for
overall expenditures, budget shares for out-of-pocket health
care can vary significantly across insurance-coverage groups.
(See table 8.) Overall, families with private coverage devoted
more than twice as much of their total budgets to health care
as the uninsured across all three expenditure groups. This ra-
tio varies from 3.0 for the lowest expenditure group to 2.1 for
the highest.

Footnotes

WHILE HEALTH CARE SPENDING has taken up an increasing
share of the family budgets of nonelderly households, our
analysis suggests that the increase, from 4.2 to 5.0 percent
between 1980 and 1992, is rather modest. The significant
growth in medical spending was in large part paid for by em-
ployers and government, and consumers may not be associat-
ing the falling wages and rising taxes needed to cover those
outlays with rising health care prices. In addition, the in-
creased out-of-pocket spending that families experienced di-
rectly was in the form of higher insurance premiums, rather
than increased point-of-service outlays.

Because the direct impact of increases in health care spend-
ing may not be evident to consumers, our findings on out-of-
pocket health care spending across groups within the popula-
tion are an incomplete description of the distributional effect
of rising health care costs. Thus, we need to assess the impact
of rising health care costs on wages and taxes across the popu-
lation to complete the distributional analysis. However, simi-
larities in health-care budget composition across groups in
the population suggest that the impact was fairly uniform, in
the sense that no obvious crowding of other expenditures
seems evident. oO

AcKNowLEDOMENT: The research was funded by a grant from the Robert
Wood Johnson Foundation, The authors received many helpful comments
from Linda Blumberg, John Holahan, Janemarie Mulvey, Len Nichols, Cori
Uccello, and Sheila Zedlewski. They gratefully acknowledge the capable
research assistance provided by Amy-Ellen Duke and Keith Watson.

! Colin Winterbottom, “Trends in Health Insurance Coverage: 1988-
1991,” Discussion paper (Washington, The Urban Institute, 1993), and
Katherine R. Levit, Gary L. Olin, and Suzanne W. Letsch, “American's
Health Insurance Coverage, 1980-91,” Health Care Financing Review, vol.
14, no. 1, 1992,

2-The National Medical Expenditure Surveys also provide detailed data
on health spending, however, the most recent data currently available reflect
spending from 1987. In addition, this survey is not taken annually; no data
were collected between 1977 and 1987. A discussion of the merits and limi-
tations of the National Income and Products Accounts, Consumer Expendi-
ture Survey, and the data appear in the appendix.

2 The values in chart { reflect only the budgetary outlays for medical care
provided by the Federal Government. Tax-subsidies for employer-provided
health insurance are not counted as part of government costs.

Winterbottom, “Trends in Health Insurance.”

Monthly Labor Review December 1995 43



Trends in Health Care

Gregory Acs and
John Sabelhaus

Gregory Acs and John
Sabethaus ore senior
fesearch associates at
The Urban Institute,
Washington, DC.
Opinions of the authors
do not necessarily
feflect the views of The
Urban Institute or its
sponsors.

Trends in out-of-pocket spending
on health care, 1980-92

For the most part, employers, government, and households
all shared in the increased burden of rising medical spending;
each share grew proportionately between 1980 and 1990,

but during 1990-92, government's share increased rapidly,
while households’ out-of-pocket component dipped

hroughout the 1980’s, the medical com-

ponent of the Consumer Price Index rose

at twice the rate of inflation. Rising prices
have caused some employers to reduce employer-
sponsored insurance coverage,' and increased the
pressure of medicaid and medicare spending on
the federal budget. One would also expect that
these rising prices would have a large, direct im-
pact on family budgets because families would
have to pay more for insurance, prescription
drugs, hospital stays, and visits to the doctor out
of their own pockets, and thus, have less money
to spend on other goods and services.

This article uses aggregate data from the Na-
tional Income and Product Accounts (National
Accounts hereinafter) and family level data from
the Consumer Expenditure Surveys to measure
the growth in out-of-pocket health care expendi-
tures between 1980 and 1992. We also explore
how the composition of family health spend-
ing has changed during this period and how
this spending varies across different types of
families.

The share of personal consumption devoted
to medical care, which includes all spending by,
or on behalf of households, rose from 11.9 per-
cent to 17.0 percent between 1980 and 1992, ac-
cording to data from the National Accounts.
However, direct out-of-pocket spending accounts
for only one-third of all health related spending,
and families only absorbed about one-third of the
increase in health care costs through direct out-
of-pocket spending. Consequently, the observ-

able impact on household budgets was modest.
Most of the growth in health care costs was ab-
sorbed through higher budgetary outlays by gov-
ernment and increased labor costs for businesses.
In effect, the large increase in health care costs
during the last decade has been “hidden” in in-
creased taxes, lower wages, and higher prices for
other goods.

Data from the Consumer Expenditure Survey
show similar patterns of out-of-pocket health
spending to those observed in the National Ac-
counts between 1980 and 1992. Focusing on
nonelderly households, we find that spending on
health care and health insurance grew from an
average of 4.2 percent of total household expen-
ditures in 1980 to 5.0 percent in 1992. The data
also indicate that increased payments for insur-
ance (both conventional and health maintenance
organizations-HMO-arrangements) account for
virtually all of the growth in out-of-pocket spend-
ing by households.

Consumer expenditure data also allow us to
examine the trends in out-of-pocket spending
across several groups in the population and to
look closely at changes in the way families spend
their money on health care. The modest increase
in out-of-pocket health spending between 1980
and 1992 is observed for every group we con-
sider: the change in budget shares for out-of-
pocket health care ranged from —0.3 percentage
points to 2.0 percentage points across income,
region, race, family composition, and age groups.
Also, the increased share of health budgets de-

Monthly Labor Review December 1995 35



Our out-of-pocket measure includes spending on insurance as
well as direct payments for medical services. The out-of-pocket
medical expenditures in the survey are collected in two pieces.
Households are asked to inventory their health insurance policies at
the first interview, then record payments made on the policies in all
subsequent quarters. In the second interview, they are also asked
about payments for medical care made out-of-pocket, and any reim-
bursements received from insurance companies for payments made
in the past. The reimbursements are collected by service category,
and negative values are recorded in the data set. This procedure
causes problems with estimates, because the timing of expenditures
and reimbursements across interviews is not perfect. We address
this by bottom-coding the level of expenditure for any category at
zero, which raises aggregate health spending by a few percentage
points each year.

Footnotes to the appendix

* Daniel Walden, Richard Miller, and Steven Cohen, “Comparison of
Out-of-Pocket Expenditure Estimates from the 1987 National Medical
Expenditure Survey and the Consumer Expenditure Survey.” Paper pre-
sented ( San Diego, ca , Allied Social Science Association annual meeting,
1993).

2 Amy Taylor and Jessica Banthin, “Changes in Out-of-Pocket Expendi-
tures for Personal Health Services: 1977 and 1987.” AHicer Pub. No. 94-
0065 National Medical Expenditure Survey Research Findings 21 (Rockville,
Mp, Agency for Health Care Policy and Research, Public Health Service).

2 Barry Bosworth, Gary Burtless, and John Sabelhaus, “The Decline in
Saving: Some Microeconomic Evidence,” Brookings Papers on Economic
Activity, January 1991.

Where are you publishing your research?

The Monthly Labor Review will consider for publication studies of the labor force,
labor-management relations, business conditions, industry productivity, compensa-
tion, occupational safety and health, demographic trends, and other economic devel-
opments. Papers should be factual and analytical, not polemical in tone. Potential
articles should be submitted to: Editor-in-Chief, Monthly Labor Review, Bureau of
Labor Statistics, Washington, Dc 20212-0001.

Monthly Labor Review December 1995 45



Trends in health care

As the next tabulation shows, families who buy their own
private insurance spent a greater share of their budgets on
health care than families with employer-sponsored insurance
or public coverage—6.9 percent in 1988, rising to 7.6 percent
by 1992:

Share of budget for health care

Insurance status 1988 1992
All consumer unit: 43 5.0
Private coverage 48 5.5
Employer-provi 45 5.2
Other private ..... 6.9 16
Public coverage 3.4 2.0
No coverage 24 2.6

Families with employer-sponsored insurance, in turn, spent
a greater share of their family budgets on health care than
families with public coverage in both years. Of course, pub-
licly covered households spent a lower share of their budgets
on health care because they did not buy insurance or make
any contributions to employer plans. Further, many support-
ive services, such as eye care, are covered by medicaid, but
are not included in most private sector insurance plans.

is|o\{-x-aj Household expenditures on supportive care as G
percentage of total household expenditures on
health care by household characteristics, 1980
and 1992
{ln percent]
Characteristic 1980 1992 | Change
Consumer units ... 338 319 19
Annual household expenditure levels
Less than $15,000. 266 29.6 3.0
$15,000 to $30,000 a7 30.0 7
40.7 34.4 +63
28.4 -9
93.0 +66
32.1 3.5
28.4 26
38.0 -5
25.3 276 23
35.2 32.1 3.1
‘No children 34.7 921 -2.6
Single parent 32.6 32.5 -1
Two parent .. 34.4 312 “32
‘Age of household head
277 29.5 1.8
29.9 262 37
39.0 347 43
34,9 33.8 A
36.1 30.9 a2
Note: Households with heads ages 65 and older are excluded.
Source: Authors’ tabulations.

42 Monthly Labor Review December 1995

roe Insurance coverage status by total household

expenditures, 1992
Total household expenditures—
Heath insurance status [oo $16,000 More thon
_ . $15,000 | ¢26 900 $30,000
‘All consumer units 100.0 100.0 100.0
Private coverage 524 814 a4
Employer-provid 41.0 72.0 81.8
Other private 114 a4 93
Public coverage 19.9 49 25
No coverage...... 27.7 13.7 64
Nore: Households with heads ages 65 and older are excluded.
Source: Authors’ tabulations,

The uninsured devoted a significantly lower portion of their
total budgets to health care, compared with individuals who
have private sector coverage. That the uninsured spend less
than those with private coverage can be interpreted in two
ways: those without insurance may be healthier, and hence,
choose to forego medicine or use less medical care; or they
may be more willing to rely on uncompensated care in the
event of an emergency.'®

Differences in the amount of money spent on health care,
by insurance-coverage status are also interesting. It may be
the case that the uninsured obtain the same level of basic
medical care, but pay for services typically covered by insur-
ance at the point-of-service, rather than through third-parties.
However, this is not the case. As the following tabulation
shows, the sum of insurance payments and point-of-service
payments for physicians and hospitals is much lower for
the uninsured than for the insured. In 1992, those with private
coverage devoted 3.3 percent of their total budgets to insur-
ance and point-of service-expenses while the uninsured de-
voted only 1.1 percent of their total expenditures to these items.

Insurance, hospitals, and
physicians as a share of total

expenditures
Coverage status 1988 1992
All consumer units 25 29
Private coverage 28 33
Employer-provided 2.6 31
Other private 46 5.0
Public coverage 19 1.0

No coverage . il il

The following tabulation shows that uninsured families
spent almost as much on supplemental items (such as eye
care, dental services, and medical equipment) as they did on
Ppoint-of-service expenses:



Trends in health care

health care than other households. Between 1980 and 1992,
out-of-pocket health spending as a proportion of all spending
rose from 5.7 percent to 6.4 percent for poorer households,
from 5.0 percent to 6.1 percent for households spending be-
tween $15,000 and $30,000 a year, and from 3.3 percent to
4.0 percent for households spending more than $30,000
annually.

Trends in health care spending as a share of total house-
hold expenditures also varies across different parts of the
United States. The share of household budgets devoted to
health insurance and health care increased from 5.1 percent
to7.1 percent for families living in rural areas, while the share
increased slightly throughout the urban areas. By 1992, fami-
lies in the urban West devoted the smallest share of their ex-
penditures to health care (4.2 percent) while families in the
urban South devoted the highest proportion (5.4 percent).

Black families consistently spent a lower share of their
budgets on health care than nonblack families. The ratio of
health care spending to all expenditures for nonblack families
rose from 4.3 percent to 5.2 percent between 1980 and 1992.
Among black families, the ratio remained at 3.5 percent.

The trends in out-of-pocket spending on health are similar
across family types. Single-parent families consistently de-
voted a smaller proportion of their budgets to health care than
other families, with the proportion rising from 3.1 to 4.2 per-

cent between 1980 and 1992. This may reflect the relatively
high medicaid enrollment for this population. Households
without children spent relatively more on health care than
those with children and their out-of-pocket spending on health
care as a proportion of all expenditures grew from 4.4 per-
cent to 5.3 percent.

Households headed by individuals under age 25 actually
spent less on health care as a percentage of all their expendi-
tures in 1992 than in £980. Health care spending fell from 2.8
percent to 2.5 percent of all spending for this group. Health
care expenditures as a share of all spending increased for other
families that had higher spending proportions and older heads
of households. Between 1980 and 1992, families headed by
individuals ages 55-64 increased the share of their budgets
devoted to health care from 5.7 percent to 7.4 percent. Part of
the rise for this age group may be attributable to the increas-
ing incidence of early retirement during the 1980's.’

Chart 3 shows how the composition of out-of-pocket health
care spending changed between 1980 and 1992. We divide
spending into four categories: (1) commercial insurance plus
payments to HMOs; (2) point-of-service payments to doctors
and hospitals; (3) prescription drugs; and (4) supplemental
care payments to dentists, opticians, and so forth. While the
budget shares for prescription drugs and supplemental care
remained fairly stable over the 12-year interval, the share of

Nonelderly out-of-pocket heaith care spending as a share of total expenditures, 1960-02

Percent of total Percent of total
‘expenditures expenditures:
6 6

1980
‘SOURCE: Urban Institute tabulations, using the Consumer Expenditure Survey.

38 Monthly Labor Review December 1995



ployer-provided health care rose from 3.6 percent of con-
sumption in 1980 to 5.2 percent in 1992. The residual out-of-
pocket health care paid for out of household budgets rose from
4.1 percent of consumption in 1980 to 5.2 percent by 1992.
Each of the three components grew proportionately between
1980 and 1990, but between 1990 and 1992, government’s
share increased rapidly while the out-of-pocket component
dipped. This coincides with expansions in the medicaid pro-
gram.*

The household-level consumer expenditure data also al-
low us to further divide government and out-of-pocket shares
into spending by, and for the elderly and nonelderly popula-
tions.’ As table 1 shows, government spending on the elderly
as a percentage of all health spending grew from 17.2 percent
to 18.7 percent between 1980 and 1992, while spending on
the nonelderly grew from 17.8 percent to 20.2 percent. In prin-
ciple, government spending on the nonelderly should repre-
sent a larger share of total health spending during economic
downturns, because more people receive public assistance at
those times. Between 1990 and 1992, when the economy ex-
perienced the 1990-91 recession, medicaid coverage ex-
panded. As a result, the out-of-pocket share of total spending
fell slightly between 1990 and 1992.

We use the Consumer Expenditure Survey to examine
trends in out-of-pocket spending among nonelderly house-
holds, because most of them have private insurance, while
elderly households generally receive insurance through medi-
care coverage. Chart 2 shows that the overall growth in the
share of family budgets going to health expenditures is al-
most identical to the growth indicated from National Ac-
counts data (the out-of pocket component in chart 1), rising
from 4.2 percent to 5.0 percent between 1980 and 1992,
though there is some divergence in the patterns of growth
over the 12-year period.° Virtually all of the growth in house-
hold budgets allocated to health care has been in the form of
insurance payments, which we define to include both tradi-
tional commercial health insurance and fees for HMOs.

Together, data from the National Accounts and Consumer
Expenditure Survey provide unique insights into health care
spending trends between 1980 and 1992. For example, by
comparing the noninsurance component of out-of-pocket
spending from consumer expenditures in chart 2 with the sum
of all nonelderly health care spending from the National Ac-
counts in table 1, we can derive the fraction of health care
payments made directly to service providers and for medi-
cine and medical equipment, by nonelderly households.’

Notably, the fraction of costs paid at point of service fell
from 28.7 percent in 1980 to 21.1 percent by 1992. About
half of the decrease is attributable to increased medical out-
lays by employers and government, while the other half is
attributable to the shift within out-of-pocket health budgets
away from direct payments and towards insurance. The data

EEEEE Acsreocte medical spending by source of
funding for elderly and nonelderly groups,
selected years

[in percent]

Characteristic 1980 1985 | 1990 | 1992

100.0 100.0 | 100.0 | 100.0

30.1 20.4 20.4 30.3

35.0 33.8 33.9 39.0

17.2 19.2 18.0 187

17.8 146 15.8 20.2

34.9 96.8 37.1 30.8

11.0 11.3 12.0 10.8

23.9 25.5 25.4 202
Source: The authors’ tabulations, using the National Income and Prod-
uct Accounts. The allocation of out-of-pocket expenditures between elderly

and noneiderty is based on Consumer Expenditure Surveys.

suggest that households facing higher costs at the point of
service eventually purchased more insurance to offset these
higher point-of-service fees.

In sum, the aggregate National Accounts data indicate that
spending on health care in the United States grew dramati-
cally between 1980 and 1992. The impact of this rapid growth,
however, was spread fairly evenly across the three principle
payers: individuals, employers, and the Federal Government.
In recent years, the government’s share of total spending has
grown faster than the other components, further mitigating
the immediate pressure on family budgets. But behind the
small average growth, we might expect to find significantly
increased burdens for particularly vulnerable groups in the
population, particularly those unable to obtain health insur-
ance. The Consumer Expenditure Survey allows us to inves-
tigate these distributional issues by analyzing health care
spending across various groups within the population.

Spending across demographic groups

Aggregate data show that escalating health care costs only
had a modest impact on household budgets—government and
business bore the lion’s share of the increase, and individual
households shifted their spending away from direct fee for
service purchases to insurance. In this section, we investigate
the extent to which these aggregate trends persist across de-
mographic groups, by income, region, race, family composi-
tion, and age.

Table 2 presents trends in overall out-of-pocket spending
for different segments of the population. First, consider health
care’s share of spending out of total expenditures for low,
medium, and high spending households.’ Not surprisingly,
poorer households devote a larger share of their budgets to

Monthly Labor Review December 1995 37



Trends in health care

voted to insurance premiums is pervasive across groups,
though there are interesting differences in both levels and
trends. The increase in spending on traditional health insur-
ance and HMOs was offset by a decline in the share of health
budgets paid directly to hospitals and physicians. Consumers
reacted to rising health care prices by purchasing “more” in-
surance, in the sense that the share of health spending attrib-
utable to copayments and deductibles for hospitals and phy-
sicians actually fell from 30.1 percent to 20.9 percent between
1980 and 1992.

Finally, we combine the basic interview data from the
Consumer Expenditure Survey with supplemental files on
health insurance (available after 1988) to study how out-of-
pocket spending varies by type of insurance coverage. We
find that the uninsured spend a much smaller fraction of their
total budgets on health care than the privately insured prima-
rily because they spend no money on insurance. Indeed, the
fraction of uninsured family budgets going towards support-
ive care (eye, dental, and medical equipment) is not very dif-
ferent from that of the insured population.

Spending trends

We examine trends in aggregate spending using data from
the National Accounts and the Consumer Expenditure Sur-

vey because they provide fairly consistent information
throughout the 1980’s and early 1990’s.? These data show
that spending on health care is consuming an increasingly
larger share of total spending in the United States, confirmed
by the fact that growth in the medical sector has outpaced all
of the aggregate income or output measures in the National
Accounts. We assess the impact of rising health care costs by
measuring the change in medical spending as a share of per-
sonal consumption because this ratio clearly shows how
health spending offsets other types of expenditures. In the
National Accounts data, the share of consumption devoted to
health care rose from 11.9 percent in 1980 to 17.0 percent in
1992.

We divide health care spending into three components:
Federal Government spending (largely medicaid and medi-
care), business spending on employer-provided insurance,
and direct spending by individuals and families (out-of-pocket
spending, which we define to include insurance premiums
paid by households). For the most part, employers, govern-
ment, and households all shared in the increased burden of
rising medical spending. This diffusion across the three prin-
cipal payers softens the direct impact on each group. Thus,
the direct effect on family budgets appears to be modest. Chart
1 shows that government-provided health care rose from 4.1
percent of consumption in 1980 to 6.6 percent by 1992.> Em-

(lire Medical spending as a share of total consumption by compnent of medical spending,
1980-92
Percent of total Percent of total
samen sme
web @ Outof pockst die

1982 1904

1986 1988 1900 1902,

‘SOURCE: Urban Institute tabulations, using the National Income and Product Accounts.

36 Monthly Labor Review December 1995