Medical expenses make income inequality even worse

January 22nd, 2018

The distribution of income in the United States is the among the most unequal in the world, second only to Chile among the high-income OECD countries. In 2013, Americans in the highest income quintile made $253,000 on average, nearly five times the average income of those in the middle quintile and 16 times the average income of those in the lowest quintile.

Supporters of single payer health care have argued that making health care a public good would help reduce economic inequality in the United States. This raises the question of whether medical expenses contribute to inequality, or whether the burden of medical costs are equally shared among income groups. Last week, researchers and clinicians Andrea Christopher, David Himmelstein, Steffie Woolhandler, and Danny McCormick published a study in the American Journal of Public Health that answers this question. 

Including medical expenses made income inequality worse, reducing the median income of the poorest decile by almost 50%.

Christopher et al. used the US Current Population Survey to compare income inequality including and not including household medical outlays (the amount households paid on health insurance premiums and out-of-pocket costs). They found that including medical expenses made income inequality worse, reducing the median income of the poorest decile by almost 50%, compared to a 2.7% decrease in income for the top 10% earners. In 2014, medical expenses also pushed 7 million near-poor individuals below the poverty line. 

If medical expenses increase inequality than surely the Affordable Care Act, which extended health insurance coverage to nearly 20 million more people, would have helped. Well, yes and no. The researchers found that medical expenses raised inequality less in 2014 (after the ACA went into effect) than in previous years, but the positive effect was minimal. This may be because the ACA had only been in effect for a year, so the study didn’t capture more recent increases in coverage. Or perhaps the benefit of increased coverage through the Medicaid expansion was offset by the premiums others had to pay under the individual mandate.

Why didn’t Obamacare reduce income inequality more significantly?

The larger problem is that cost-sharing is extremely high, even for those with insurance. There’s even a term for people who have insurance but still have high exposure to health care costs – underinsured. A recent Commonwealth Fund report found that 28% of working-age adults with health insurance spent more than 10% of their income on health care in 2016. Among those with individual or marketplace plans, 44% were underinsured. 

The model for our next health system has to be based on not only getting everyone covered, but doing it in a way that reduces the burden of health care costs on patients, so no one has to worry about falling into poverty because of medical expenses. 

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