WSJ Your Money Briefing - Americans Are Paying More Than They Used to for Healthcare

Episode Date: December 30, 2024

Healthcare spending rose 7.5% in 2023, with Americans paying nearly $5 trillion on everything from prescription drugs to back surgeries. Wall Street Journal reporter Harriet Torry joins host J.R. Whalen to explain why the cost keeps rising and what to expect in 2025. Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

With Uber Reserve, you can book your Uber ride in advance. 90 days in advance. Perfect for all you forward thinkers and planning gurus. Reserve your Uber ride up to 90 days in advance. Uber Reserve. See Uber app for details. Here's your money briefing for Monday, December 30th. I'm JR Whalen for The Wall Street Journal.

Last week, we focused on setting and keeping money goals for the new year. For many people trying to manage their household funds, that's no easy feat when they work in the rising cost of health care. It's a sizable chunk of Americans' budgets. It's less than they spend on things like rent and transport and food, but it's definitely more than other categories that the Labor Department measures, like education, for instance, or entertainment. Wall Street Journal economics reporter Harriet Torry will explain why health care costs keep rising and what we can expect in 2025. After the break. The cost of medical care has risen roughly 40 percent faster than the overall pace of

inflation. Wall Street Journal economics reporter Harriet Torry joins me. Harriet, how does the amount Americans typically spend on healthcare compare to other household expenses? About 8% of American spending goes on healthcare. So that would include the cost of insurance, monthly insurance premiums and so on, and also things that they have to buy for healthcare needs.

Everything from prescription drugs to a nebulizer to a box of band-aids. It's a sizable chunk of Americans' budgets. It's less than they spend on things like rent and transport and food, but it's definitely more than other categories that the Labor Department measures, like education, for instance, or entertainment. What do the numbers look like for Americans

who get health insurance through their job? Most Americans get health insurance through their job? Most Americans get health insurance through their job, about 60% of them. And people usually see the premium as the standout, eye-catching expense. When you look at your paycheck every month, you see the money that's coming out. And if you have your health care through a job, that's about $114 if you're just paying for yourself. And if you're doing a family premium, it's about $525.

That's according to the healthcare nonprofit KFF. Again, those numbers are up considerably about 30% from a decade ago. Are companies picking up any of those higher costs? Yes, they are. Companies have been shouldering a lot of those costs. So the average worker spent about $6,300 on premiums for family coverage. And for employers, the cost was nearly $20,000. Companies are taking on some of that cost,

but ultimately, economists say that really everyone ends up paying because if a company has to spend more money on healthcare premiums, that means there's less money left over to give out raises, for instance, or to spend on development and things like that. We've also seen a jump in costs for things like routine care at hospital outpatient centers. What has driven up those expenses?

There are a few factors contributing to that. One thing that we have seen in that industry is consolidation. We've also just seen a very steep increase in labor costs, much of it because of the healthcare pandemic. The inflation for healthcare does tend to run above overall CPI inflation. That's typical over many years. And that is often due to wage costs, because healthcare is a very labor intensive industry. When you think of the type of work that nurses and doctors do, it's hard to automate. You need someone to give you an IV or patch you up, whatever it might be. So

there are a lot of people who work in healthcare, wages rose quickly in the pandemic, because many people left the profession, there was a lot of people who work in healthcare. Wages rose quickly in the pandemic because many people left the profession. There was a lot of burnout, a lot of turnover, and that is costly for employers. And it just means that overall prices rise to cover those labor costs. How are these rising costs impacting people's ability to manage their finances?

We've seen that there is a very large public debate right now and the killing of a health insurance executive in New York City did really crack open this debate about healthcare costs, the costs of insurance, and people feel a lot of frustration. But when we talk about healthcare costs, we have to be clear that we're talking about many different things. That's part of the frustration. There are so many different ways that you pay for healthcare, whether it's through premiums or deductibles or out of network expenses, co-pays. So when we talk about healthcare spending overall, there isn't one single way to measure

that necessarily. It's a very broad definition and lots of different people are paying lots of different things. We've also seen data showing that overall medical care costs have risen 40% faster than the rate of inflation. Why is that gap so large? There are many different reasons. Labor costs, of course, is one of them. And then also, you might just see a new treatment

or a new technological advance, a new medication that comes out that is expensive, a new type of surgery that is complex and expensive. And these things do sometimes add up to spending on healthcare. Labor costs are a big part of that. But there are many other things that go into healthcare spending, including, as we mentioned, consolidation in various industries, complex health insurance, and so on. All around us, it's a large share of what people spend every month.

What's the outlook for healthcare expenses in 2025? They are expected to keep growing. The report that we got from the government about healthcare spending suggested that the healthcare spending as a share of GDP has not shifted that much, but there have been a lot of distortions because of the pandemic. You know, there was a huge amount of federal funding that came into play during the years of the pandemic, which has largely expired. So it is expected that an aging population,

people getting older and older people tend to have more health complications. And traditional economic drivers are expected to lead to the return of health care accounting for a larger share of GDP. How much is the increase in the expense of medical care attributed to the number of people who are actually making use of medical care. This comes back to the debate and the way that people feel about healthcare spending, that it constantly goes up. But when people talk about healthcare spending, economists say that they're often looking at the price. But really, healthcare depends so much on how much you consume, how much you spend is related to how much you actually need healthcare, the price multiplied by

the quantity of care. It's not just about necessarily what your premium is every month. It's how much health care you end up consuming because of course, that adds a lot more costs and co-pays and deductibles and expenses and so on that makes everything more complex and potentially much more expensive. That's WSJ reporter, Harriet Torry. And that's it for your money briefing. This episode was produced by Ariana Ospirou with supervising producer Melanie Roy.

I'm JR Whalen for The Wall Street Journal. Thanks for listening.