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The Effects Of Health Insurance Status On Consumer Spending

Geoffrey D. Paulin and Wolf D. Weber


Note: This work is substantially abridged. For a complete version, see Monthly Labor Review, March 1995, pp. 34-54. The views expressed herein are those of the authors and do not reflect the policies of the Bureau of Labor Statistics (BLS) or the views of other BLS staff members.

In 1993, the nation's health care costs rose to $884.2 billion, up 7.8 percent from 1992. As a share of Gross Domestic Product (GDP), this accounted for 13.9 percent (HHS 1994, p.1) compared to 5.9 percent of GDP in 1965 (NCHS 1993, p. 161), the year in which the federal government initiated Medicare and Medicaid.

As health care costs and usage rose, much of the burden of funding health care shifted to business and government. The business share of health services and supplies grew from 16 percent in 1965 to 28 percent in 1981, and remained fairly stable thereafter (Cowan and McDonnell 1993, p. 229). The federal government's share, however, continued to grow (12.2 percent average yearly increase for 1989-1993), and in 1993 comprised 31.7 percent of the national health care bill (HHS 1994, table 1).

Consumer expenditures for health insurance premiums also have increased recently, probably due, in part, to the shifting of premium costs from employer to employee. The Consumer Expenditure Interview Survey (CE) shows that the percentage of families reporting health insurance expenditures has risen steadily from 55 percent in 1988 to 61 percent in 1993. The CE also shows that premiums have increased from 39 percent of the average family's health care spending in 1988 to 45 percent in 1993. In actual dollars, average premium spending rose 69 percent over this period.

Jacobs and Shipp (1993) show that as a share of current consumption, out-of-pocket health care expenditures peaked at 6.7 percent in 1960-61, declined to 5.4 percent in 1972-73, and rose to 5.7 percent in 1988-89. In 1993, it was 6.9 percent.

Rising health care prices, increased usage, changing demographics, and perennial concerns about government fiscal austerity continually spark debates over health care funding. Households, which have avoided much of the burden of the increase in health care expenditures, are likely to pay a larger share in the future. It is therefore important to examine household expenditure patterns to assess the effect that a transfer of health care costs to consumers may have.