Health Policy$ense

What Does It Mean To Make Health Care “Affordable”?

New brief explores the concept through different lenses

Health care “affordability” is a top concern for most Americans, but it means different things to different people. Affordability can be examined as an economic concept, a policy threshold, or through the decisions made by individuals and families. As part of Penn LDI's research partnership with the non-profit organization United States of Care, we have developed a brief that explores the concept of affordability through these different lenses, and outlines key issues for policymakers to consider as they try to tackle this pressing problem. It is the first in a series that will examine the cost burden of health care in the United States.

From 2007 to 2016, the average health insurance premium for private employees in the U.S. rose 55 percent, while median incomes only increased by 18 percent. Consumers are also having to pay more up front for their health care: in 2017, approximately 43 percent of all workers under age 65 were enrolled in a high-deductible health plan, compared to 15 percent in 2007. Given these statistics, it’s not surprising that in a recent Kaiser Family Foundation poll, the largest share of voters (30 percent) ranked health care as their top issue in the upcoming midterm elections. And voters across all parties (27 percent of independents, 23 percent of Republicans, and 22 percent of Democrats) pointed to health care costs – including prescription drug prices – as their top health care issue.

Yet affordability is not synonymous with high or low costs -- it is a construct that involves both a qualitative ability and willingness to pay for something. And the distinctions among health care costs, health insurance costs, and out-of-pocket expenses are often blurred, further confusing the discourse and diminishing the opportunity for a meaningful discussion about affordability.

Our new brief reviews a range of measures that capture the cost burden of health care for individuals and families with different forms of coverage, in different financial circumstances, and with different health concerns. As an economic concept, affordability can be defined normatively (what people should be able to afford, given a certain income level), behaviorally (what most people in similar financial circumstances buy), or budgetarily (how much “room in the budget” people have for necessities).

As a kitchen-table issue for individuals and families, affordability translates into cost barriers to needed care, delayed or skipped care, or high levels of medical debt. As a policy threshold, the Affordable Care Act (ACA) set somewhat arbitrary limits on annual out-of-pocket-costs (in 2019, $7,900 for an individual and $15,800 for a family), and to determine eligibility for ACA subsidies, defined affordable employee contributions to employer-sponsored coverage as 9.5 percent of income.

By any of these measures, many Americans are experiencing significant problems due to health care costs, whether through high deductibles that discourage them from seeking health care, uninsurance or gaps in insurance benefits, or the erosion of wages due to higher health insurance premiums. So what can be done about it?

There is near unanimity in the goal of affordable health care, but little agreement on effective policies to achieve it. Tackling health care affordability presents a significant opportunity for bipartisanship. But to transform this aspiration into a policy aim, policymakers will need to consider key issues that we highlight in our brief, including: the cost of care versus the cost of insurance, how to fairly distribute costs, consumers’ most salient affordability concerns, the root causes of financial barriers to care, and the differential impact of various policies on stakeholders.

Through Penn LDI’s partnership with United States of Care, we hope to inform the policy debate about health care affordability with research evidence, and strengthen the ties between the academic and policy communities. You can learn more about our partnership here.