Notes on the Wealth Gap: The Role of Health Care

by James A. Bacon

Stagnating incomes for middle Americans are a significant driver of the increasing income and wealth gap with top-earning Americans. Why have middle-class incomes stagnated? There are lots of theories — globalization, automation and (my favorite) rent-seeking by the rich and powerful. But a new report by the Rand Corporation identifies the real culprit: health care.

In “How Does Growth in Health Care Costs Affect the American Family?,” the Rand Corporation depicted the effects of rising health care costs on a median-income married couple with two children covered by employer-sponsored insurance between 1999 and 2009. The main findings: (1) Health care expenditures, including insurance premiums, out-of-pocket expenditures, and taxes devoted to health care, nearly doubled between 1999 and 2009; (2) this increase substantially eroded what an average family had left to spend on everything else, leaving them with only $95 more per month than in 1999; (3) had health care costs tracked the rise in the Consumer Price Index, rather than outpacing it, an average American family would have had an additional $450 per month —more than $5,000 per year — to spend on other priorities.

Total compensation for Americans increased over the decade. The compensation just didn’t make it into peoples’ paychecks. When you consider that the median household income in the U.S. is a little more than $50,000, that $5,000 represents about 10% of the average family’s income. As a percentage of income, the impact on upper-incomes was proportionately smaller.

The inflation in health care costs probably doesn’t explain all of the income gap, but it would seen to explain a lot of it.

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One response to “Notes on the Wealth Gap: The Role of Health Care”

  1. you realize of course that the founding fathers and authors of our Constitution approved of the concept of mandated health care, right?

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