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So how much do you really spend on health care?

December 17, 2020

Topics: Quote of the Day

By Anne B. Martin, Micah Hartman, David Lassman, Aaron Catlin
Health Affairs, December 16, 2020


US health care spending increased 4.6 percent to reach $3.8 trillion in 2019, similar to the rate of growth of 4.7 percent in 2018. The share of the economy devoted to health care spending was 17.7 percent in 2019 compared with 17.6 percent in 2018. In 2019 faster growth in spending for hospital care, physician and clinical services, and retail purchases of prescription drugs—which together accounted for 61 percent of total national health spending—was offset mainly by expenditures for the net cost of health insurance, which were lower because of the suspension of the health insurance tax in 2019.



By Don McCanne, M.D.

In the earlier years of introducing the single payer model of health care financing to the public through various speeches, forums and the like, it was very common to receive a question from the audience demanding to know what they would have to pay in taxes for government health care because they wanted to compare that with what they were already paying, and, after all, their insurance seemed like a good plan.

When asked what they were currently paying, most either didn’t want to say or weren’t really sure. Those who did answer the question often reported the amount of the insurance premium that was taken from the paycheck of the family’s income source, plus the portion that they would have to pay in deductibles and copayments (or coinsurance if they knew what that was). Some of the more sophisticated audience members added Medicare payroll taxes, even though they were for deferred health care in their retirement years. If you add those up, it might seem like health care costs are more reasonable than a comprehensive government program would cost.

But what were the audience members leaving out? What are some of the relatively hidden expenses of health care?

  • Most are not aware of the exact amount of the employer’s contribution to the employer-sponsored health plans – an amount that is usually much larger than the employee’s payroll deduction for the plan. Also, of great importance, most economists agree that the employer’s contribution is actually paid by the employee in the form of forgone wage or salary increases, though many do not realize that.
  • The funding of Medicare is complex. The Medicare Hospital Insurance Trust Fund is funded not only through payroll taxes but also through income taxes paid on Social Security benefits, interest earned on the trust fund investments (the people’s money), and Medicare Part A premiums from people who aren’t eligible for premium-free Part A. The Supplementary Medical Insurance Trust Fund is funded by general funds authorized by Congress (our taxes), premiums for Medicare Part B (medical insurance) and premiums for Medicare Part D (drug coverage), and other sources such as interest on the trust fund investments. Those receiving Medicare services also have to pay deductibles and coinsurance, although that might be covered by another plan for which premiums must be paid either directly or indirectly. The option of private Medicare Advantage plans adds further complexity to the calculations. So it is difficult for each person to determine exactly what they are paying for Medicare.
  • Without going into detail, Medicaid is funded by both federal and state taxes, which we pay even though the benefits go only to low-income individuals.
  • One of the larger funding sources is the tax expenditure that we pay for the deductions received by employers (actually, by extension, the employees) for the employer contribution to employer-sponsored health plans. Actually this is a relatively cruel policy in that these taxpayer subsidies to employer-sponsored plans are inversely related to income – higher-income individuals receive much higher taxpayer support than do lower-income individuals.
  • Government employees on the federal, state, and local levels tend to have a major portion of their health plan premiums paid by the government, which, of course, means paid by us the taxpayers.
  • Whenever you purchase products or services, included in the price is overhead expenses and that includes employer-sponsored health plans. That is not only for the original producer of the products or services, but it is also for all of the intermediaries such as shippers, retailers, employees of business insurers and endless other employees that support the production and distribution of products and services that we receive. Of course, some of this is double-counting health spending already listed, but it is important to understand the flow of money into our health care system.
  • The complexity of health care costs creates a tremendous amount of expensive administrative excesses for which we all end up paying. Again, some of this may be double-counted, but it is particularly important to understand that much of this waste would be recoverable with the enactment and implementation of a single payer Medicare for All.
  • You can likely think of other sources of health care spending that should be included here.

The Milliman Medical Index is an estimate of the health care costs for a hypothetical family of four covered by an average employer-sponsored preferred provider organization (PPO) plan. For 2020, that amount is $28,653. Keep in mind that America’s workforce and their young families are a relatively healthy sector of the U.S. population. For other sectors, the cost may be significantly greater.

So how much do we really pay for health care? According to the current release from the CMS Office of the Actuary, our national health expenditures for 2019 were $3.8 trillion. With a 2019 U.S. population of 328.2 million, that is an average expenditure of $11,578 per person.

For a family of four that would be about $46,000, considerably more than the $28,000 estimate by the Milliman Medical Index. But that shows how difficult it is to break down the cost for each individual or family who would want to compare what they believe they are spending with the cost for each individual in a Medicare for All program.

Many studies have been done of what the cost of a single payer would be and how that would compare to what we are currently spending. Very roughly the average cost for most of us would be about 5 percent less than what we are spending (median 3.5 percent by the Cai et al study). Only the very wealthy would pay more but not near enough to be detectable by a change in their lifestyles.

So how much are you, as an individual, spending on health care now? As you can see it is so complex that it would be almost impossible to estimate. So we have to settle with averages. So how much will you spend in taxes to pay for single payer Medicare for All? That also will vary for each individual, but we can say that it will be equitable and affordable since the financing will be through progressive taxes based on each individual’s ability to pay.

People worry about the taxes but if they just focus on the fact that the taxes will be fair and affordable, then they can celebrate knowing that they will have quality health care of their own choosing whenever and wherever they need it, for life! Nothing else on the horizon promises that.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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