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Lower Income Households Spend One-Third of Income on Healthcare

Analysis  |  By Jack O'Brien  
   January 27, 2020

Researchers stated that plans to move towards "more privately paid healthcare" would shift the burden further onto low-income households.

Households in the lowest income tier spent just over 33% of their income on healthcare costs in 2015, according to a RAND Corporation study published in the journal Health Services Research Monday morning.

While households in the highest income tier spent 16% of their income on healthcare, the study found that households in the middle-income tiers spent between 19.8% to 23.2% of their income on healthcare.

Households spent an average of $9,393 per person, or 18.7% of overall income, on healthcare costs, according to the study.

Related: Rising Prices Lead to All-Time High Healthcare Spending 

The findings offer a glimpse into the financial burdens faced by healthcare consumers as policymakers and executives at both payer and provider organizations seek to improve the existing system. 

While leaders have debated different policy changes aimed at improving access to care, they have also examined issues related to affordability and costs faced by healthcare consumers.

The study concluded that proposals to maintain the current healthcare payment dynamics and move towards "tax-financed programs" would shift the financial burden from low-income households to high-income households.

However, researchers stated that plans to move towards "more privately paid healthcare" would shift the burden further onto low-income households.

"Our findings suggest that healthcare payments in the U.S. are even more regressive than suggested by earlier research," Katherine G. Carman, a senior economist at RAND and lead author of the study, said in a statement. "As national discussions continue about health reform and health equity, it’s important to understand how the current healthcare system distributes costs and payments."

Related: Low-Income Households Buy More Fruits, Vegetables Thanks to Financial Incentives

The RAND study describes healthcare financing arrangements that redistribute funds between both low- and high-income groups as well as low and high service users are "opaque."

Researchers stated that having an understanding about the burdens faced by consumers through healthcare costs and redistribution is "essential to promoting a culture of health" and easing that financial challenge.

Notably, out-of-pocket spending only accounted for 9.1% of overall healthcare costs in 2015, the study found, with most of the costs paid through premiums or taxes.

Also, Medicare beneficiaries experienced the greatest return on value, as older patients typically use more healthcare services than other patient populations.

Similarly, Medicaid enrollees had the greatest return on value as a percentage of income, while patients with employer-sponsored healthcare had the lowest return on value.

Related: Premiums and Deductibles Account for 11.5% of Median Income

One of the principal findings in the study is that while the households with the highest incomes pay the most to finance healthcare services, the households with the lowest incomes pay the largest share of their income on healthcare services.

RAND found that households in the five highest income tiers paid more into the healthcare system than they received in services.

However, those in the three lowest income tiers received more healthcare services than they paid for, according to the study.

Related: 13.3M Americans Spent More than 10% of Income on Premiums

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.

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