Living on the Edge: Health Care Expenses Strain Family Budgets

Loss of Job or Health Insurance, Serious Illness Would Push Many over Financial Edge

News Release
Dec. 18, 2008

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON, DC—Financial pressures on families from medical bills increase sharply when out-of-pocket spending for medical care exceeds 2.5 percent of family income, according to a new national study by the Center for Studying Health System Change (HSC).

Previous HSC research has shown that about one in five Americans under age 65 lived in families with problems paying medical bills in 2007, a sizeable increase from one in seven Americans in 2003. While attention has focused on the affordability of health insurance premiums, there has been less emphasis and research on affordability of out-of-pocket medical expenses, such as deductibles and copayments.

The groundbreaking new HSC study found that financial strain from medical bills increases significantly when out-of-pocket medical spending exceeds 2.5 percent of family income. One in three families (33%) reported medical bill problems when out-of-pocket medical spending was between 2.5 percent and 5 percent of family income, compared with 15 percent of families spending less than 2.5 percent of family income, the study found.

Moreover, low-income families and people in poor health experience financial pressures at even lower levels of spending, largely because they have already accumulated large medical debts they are unable to pay off, the study found.

"As health care costs continue to rise rapidly amid a sharp economic downturn, out-of-pocket medical expenses are straining family budgets, leaving even insured families with little cushion to weather unexpected illnesses or injuries," said Peter J. Cunningham, Ph.D., HSC senior fellow and coauthor of the study with Carolyn Miller, an HSC consultant, and Alwyn Cassil, HSC public affairs director.

Based on HSC’s 2007 Health Tracking Household Survey, a nationally representative survey with information on 14,500 people under age 65, the study’s findings are detailed in a new HSC Research Brief—Living on the Edge: Health Care Expenses Strain Family Budgets—available here. The study also included in-depth interviews conducted in September 2008 with 20 survey respondents who reported problems paying medical bills when they took part in the 2007 survey.

The in-depth interviews indicated that medical bill problems result from a variety of situations, including out-of-pocket spending for treatment not covered by insurance; medical services needed during times when the family was uninsured; and the accumulation of regular ongoing, out-of-pocket medical expenses for insured people with chronic medical conditions.

For example, a 51-year-old divorced mother of two in Massachusetts was covered through her employer, and her children were covered through their father’s employer. Yet, out-of-pocket medical expenses and dental and vision care-not covered by insurance-for her and her children often push her close to the financial edge. She works several part-time jobs to cover her costs and struggles financially:

"Did it (medical debt) put me in the position of losing my house? No, because it wasn’t thousands and thousands and thousands of dollars. But it definitely put me in a dicey position, and had I been really sick, then we would have been in real trouble. And I think a lot of people are in that same boat. We’re all one broken leg, one bad fall or one case of pneumonia away from the house of cards completely falling down."

Other key study findings include:

• About one-third (31.3%) of low-income people, those with family income below 200 percent of poverty, or $41,300 for a family of four in 2007, reported medical bill problems at the lowest levels of out-of-pocket spending-less than 2.5 percent of family income-compared with 16.2 percent for moderate-income families (200-400% of poverty) and 8 percent for higher-income families.
• About one-third of people in fair or poor health had problems with medical bills at the lowest level of spending-less than 2.5 percent of income-compared with 12.7 percent of people in good or excellent health. Higher proportions of people in fair or poor health have medical bill problems at all levels of out-of-pocket spending compared with people in good health. Similarly, people with chronic conditions are more likely to have medical bill problems at all levels of out-of-pocket spending compared with people without chronic conditions.
• Most people who reported problems paying medical bills had relatively modest levels of out-of-pocket spending. The 2007 survey data show that about 40 percent of people with medical bill problems had out-of-pocket expenditures of $500 or less in the previous year, and 59 percent had out-of-pocket expenditures of $1,000 or less. Less than 10 percent of those with medical bill problems had out-of-pocket expenditures of $5,000 or more.
• About half of those with medical bill problems spent 2.5 percent or less of family income on out-of-pocket medical expenses, and more than two-thirds spent 5 percent or less. Only about 10 percent of those with medical bill problems had extremely high levels of out-of-pocket spending-20 percent or more of family income.

Support for this research was provided by the Blue Shield of California Foundation. The HSC 2007 Health Tracking Household Survey used for the analysis was sponsored by the Robert Wood Johnson Foundation.

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.