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Home Publications Blogs Beat the Press Healthcare Costs and Household Income: Median versus Average

Healthcare Costs and Household Income: Median versus Average

Monday, 19 March 2012 07:01

The Post's Wonkblog had an interesting post about a new study showing that the cost of health insurance for a typical family will be equal to the median family income by 2037, if current trends continue. Unfortunately, the post inaccurately reported that the comparison was with average family income.

Given the growth of inequality in the last three decades this makes a big difference. According to the Census Bureau, median household income in 2010 was 49,445, whereas average income was $67,530. Perhaps more importantly, average income by definition grows in step with the economy whereas median income has been growing slowly as a result of upward redistribution. (The confusion actually is in a chart in the original paper, so Wonkblog can be forgiven for not catching it.)

The story is still an important one, if not quite as dramatic as reported. The vast majority of people in the United States will soon be unable to afford health care if nothing is done to contain costs. This is the second most predictable crisis in history, after the housing bubble, and almost no one is talking about it.

My favorite solution is to take advantage of trade -- every other health care system in the world is more efficient than ours. Unfortunately, the political debate in the United States is dominated by Neanderthal protectionists, at least when it comes to trade measures that could lower the income of doctors and other powerful special interest groups.



Comments (11)Add Comment
cynic v optimist
written by frankenduf, March 19, 2012 8:14
in a sense this is a good thing- when the system buckles from the cost of boomer healthcare and heads towards bankruptcy, we will be forced to adopt single payer- just like when the financial system crashed, we were forced to nationalize the banks- o waiddaminute...
Medical Protectionism Can Be Ended
written by Charley James, March 19, 2012 9:16
By the late 1990s, Ontario faced a critical shortage of physicians. Medical schools kept admissions low and The College of Physicians - which licenses and monitors doctors in the province - made it all but impossible for foreign physicians to become licensed to practice in the province. In effect, a doctor would have to start his education all over again from scratch to become a doctor - even though, say, anatomy is the same regardless of where a student learns about the human body.

When a Liberal government was elected, one of its first orders of business was to pressure the College into reviewing its requirements. As important, the news media turned a spotlight on the crisis and how the College was making it worse. As a result, within two years the governing body rewrote its rules on what parts of a previous education were accepted and the areas in which a foreign-trained doctor had to get up to speed.

Now the crisis has eased markedly, and while medical costs still continue to rise at an unhealthy rate have slowed a bit. More important, people no longer have trouble finding a qualified primary care physician in Ontario.

The US could take a page out of Ontario's book and find a quick way to begin lowering our outrageous medical costs.
written by liberal, March 19, 2012 10:03
frankenduf wrote,
...we will be forced to adopt single payer...

But single payer only addresses the payer/insurance side of the issue. Costs are ballooning not only because of our crazy health insurance system, but also because of our crazy medical system (doctors, hospitals, drug manufacturers, etc).
So when does it stop?
written by Zazooba, March 19, 2012 11:28

Obviously, health care costs cannot continue to exceed the rate of gdp growth forever. At some point, there simply isn't enough money in the whole economy to pay for it.

You are making the point that the unsustainable point comes for many people earlier than that.

So when does the growth in health care costs stop? What stops it? Who finally says they won't pay any more?

Not criticising. Honestly asking.
Real Life
written by ja, March 19, 2012 12:38

I am in my 40's and good health so only see my family doc couple of times a year for check-up and minor things. My health insurance premium is about $15,000 annually which my firm pays more than 90%.

The health cost is totally insane compared to what I have used throughout the years. All other carriers charge about the same.

They use our monies to contribute to politicians who in turnn push their agenda.
written by fuller schmidt, March 19, 2012 12:42
Dean's book Conservative Nannystate lists the steps to be taken to solve the healthcare crisis.
written by urban legend, March 19, 2012 9:41
The median ought to be a lot closer to the average (mean) than that (although necessarily somewhat below it with the slightest inequality). Imagine an extra $12,000 or so in the income of most American families. Imagine the aggregate purchasing power increase (c. $1.2 trillion), and then applying the appropriate multiplier, how much bigger the average (per capita) and the median would be -- and, for that matter, how much better off in absolute terms even the wealthy would be.
Favorite solutions
written by Luke Lea, March 19, 2012 9:44
Well your favorite solution won't solve the problem so find another one.
written by Steve Matheis, March 20, 2012 8:18
Everything you say is true but you're falling into a familiar trap when you talk about "median" versus "average" instead of "mean average" and "median average" (there's also a mode average). This helps keep alive myths about averages in the economic sphere. It would be useful if you made it clear that there are three types of averages and that, in real life, the median is often more useful than the mean because of the Bill Gates walks into a bar problem. The mean net worth of that bars patrons may be a billion dollars each, but if the median is one hundred thousand ($100,000), it probably isn't a good place to try to sell Bentleys.
The median is an average
written by John, March 20, 2012 8:47
Steve Matheis is right, of course: the median is an average value, so's the mean, and so's the mode.

(Of course, Excel gets this wrong too.)
Tearing up the contracts with providers in Massachusetts
written by Cycanna, March 20, 2012 1:46
How to contain costs? Dean is right, we have too few MDs per capita (or per 1000). Sweden, for instance, has almost 50% more. And much lower costs.

I also like the story that Richard Knox told a while ago,
about Gov. Patrick, in Massachusetts, telling the health insurance companies that he wouldn't accept their inflation rates. So they tore up their contracts with the providers, renegotiated, and came back with inflation rates that were far, far more reasonable

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.