Health Care Cost Increases May Have Negative Effect on Economy, Labor Department Data Indicate

Increasing health care costs "could be an even bigger factor than gasoline in slowing the American consumer spending machine that drives the economy," according to Labor Department data, the San Francisco Chronicle reports. U.S residents in 2002 spent an average of $2,350 per year, or 4.8% of annual household income, on health care expenses -- up from $1,959 per year, or 4.5% of annual household income, in 1999, according to the Labor Department's consumer expenditures survey.

The survey indicates that the percentage of annual household income spent on health care now exceeds the amount spent on federal taxes and that U.S. residents spent almost twice as much on health care as they did on gasoline in 2002. According to Labor Department data, health care costs consumed 3.8% of annual incomes for workers with advanced degrees, compared with 7.2% for workers who did not complete high school.

Sung Won Sohn, a Wells Fargo economist, said that increasing health care costs are "like a tax," adding, "This health tax falls most heavily on those at the bottom of the spectrum because they have to spend a higher portion of their income to cover these costs." Rakesh Shankar, a health care specialist at consulting firm Economy.com, said, "It's difficult to isolate the impact of health care costs, but what's unmistakable is that it's taking away from (discretionary) spending. The only question is how much."

According to the Chronicle, 2003 data are expected to show continuing increases in health care costs. The 2003 report will be released in November (Abate, San Francisco Chronicle, 9/10).