Earn an average salary? Covering your health spending will take 58.3 workdays

December 23, 2012

We usually think about the growth in health care spending in straight dollars, the number put toward medicine from one year to the next.

Chris Conover has another way of going about it: He recently graphed the number of work days, paid at average wage, necessary to buy an average amount of health care. Right now, the average worker needs to work nearly two months of eight-hour work days - 58.3 days, to be exact - to purchase the average amount of health care spending. Back in 1958, that number stood at 14.8 days.

This is really different, Conover points out, from items like washers and dryers, or music players, where there's been a significant decline in the number of work days. You can see that in the graph below.

It's gotten a whole lot less expensive to buy a washer and dryer, items where technology hasn't really changed and the household appliances are now easier to produce. But even where the technology has increased - this chart, for example, compares iPods against 4-speed automatic record players - there's still a decline in how much one would need to work to purchase the item. 

Health care falls into a similar category to the iPod: it's an area where, unlike washers and dryers, technology has hugely changed over the past five decades. So why is health care different, with the average work days to purchase medical care going up rather than down?

Peter Orszag looked into this issue back in 2008, in testimony he prepared as Congressional Budget Office director. He found that a number of factors played into the fast growth of health care costs, everything from an aging population to administrative costs. The biggest driver, however, appeared to be technology.

"Available empirical estimates suggest that approximately half of all long-term growth in health care spending has been associated with the expanded capabilities of medicine brought about by technological advances," Orszag writes there.

Why would medical prices keep going up, when the price of a music player keeps going down? Conover suggests that it has to do with the way we pay for health care: Most Americans aren't paying their own health care bill. Health insurers, Medicare and Medicaid tend to pick up a big chunk of the tab of health care bills. There's no analogous subsidy for an iPod purchased at Best Buy.

In fact, consumers tend to pay a much smaller part of the health care tab now than they did back in 1958, when Medicare and Medicaid didn't even exist. In 1960, for example, Americans paid for 21 percent of hospital costs out-of-pocket, compared to the 3 percent they paid in 2010.

What evidence we have suggests that Americans don't price-shop for doctors the way they do for consumer appliances. One great example of this came from a survey by the Altarum Institute Center for Consumer Choice in Health Care, which asked people about how they shopped for doctors and dishwashers.

Nearly half, 45.8 percent, said they would would do "detailed research" in shopping for a dishwasher. For doctors, that number was 29 percent. Twice as many Americans said they did no research in choosing a doctor as said they did no research in shopping for a dishwasher. 

Health care is, overall, getting a lot more expensive. But when you ask who pays those 58.3 workdays worth of medical bills, the answer is increasingly not the worker. 

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