Tax-Funded Healthcare Expenditures in the U.S. Examined

Do taxpayers shoulder a greater burden for healthcare in the U.S. than we generally assume?

Debates over health care funding in the U.S. have flourished for decades, and arguments inevitably arise over how much of the health care bill should be picked up by government. Looking no farther in the past than the passage of the Affordable Care Act by Congress in 2010, with its debate over single payor government programs versus mandatory purchase of private insurance policies, we can see the extent to which the debate can be dominated by the question of how big government’s role should be. However, as with most policy debates, the devil is in the detail, and any current policy discussion over this question should at least be able to agree on the amount of funding that government actually provides in the U.S. for health care expenditures in order to decide where to go next.

The Centers for Medicare and Medicaid Services (CMS) estimated that federal, state, and local government paid for 43% of healthcare expenditures in 2013, leaving 57% of the bill in private hands. Whatever factual weight this statistic may carry, this statistic apparently counts only those expenditures directly paid by government. In “The Current and Projected Taxpayer Shares of US Health Costs,” published in the March 2016 issue of American Journal of Public Health, authors David U. Himmelstein, MD, and Steffie Woolhandler, MD, MPH, argue that a better policy debate of the issue requires a broader understanding of the role that governments play in paying for healthcare in this country.

Public Expenditures Redefined

In order to understand the true extent of public expenditures for health care in 2013 and projecting through 2024, Himmelstein and Woolhandler combine three types of expenditures:

> “Direct” government payments, which include government payments under not just Medicare and Medicaid, but other public programs provided through the Department of Defense, the Veterans Health Administration, the National Institutes of Health, and other public health departments;

> Public agency expenditures for health insurance coverage for public employees; and

> Tax subsidies for healthcare provided by federal, state, and local government.

Their numbers for the first two categories were calculated using information from CMS, while their calculation of the value of tax subsidies was derived from Office of Management and Budget (OMB) estimates of federal tax subsidies combined with information about the ratio of federal tax receipts to state and local receipts.

There are two primary differences between this formulation and that of the CMS. First, if a private insurer pays for healthcare claims for a government employee, the CMS counts that as a private rather than public expenditure, while Himmelstein and Woolhandler include the costs of healthcare benefits provided by a public employer as a public expenditure. Second, Himmelstein and Woolhandler include tax subsidies in their formulation, while the CMS does not.

Results

From these calculations, the authors found that for the year 2013, total tax-funded expenditures for health care in the U.S. came to $1.877 trillion, which constituted 64.3% of total health spending for that year rather than the lower 43% calculated by CMS. Of that amount, direct government expenditures such as Medicare and Medicaid accounted for $1.394 trillion, with Medicare accounting for 20.1% of total national health expenditures, followed by Medicaid with 15.9%.

Payments for public employee health benefits in 2013 accounted for $188 billion, or 6.4% of total national expenditures, and tax subsidies for private employer-paid health insurance and other privately paid care accounted for $294 billion, or 10.1% of national expenditures. Of the government expenditures for employee health benefits, the majority, $156 billion, came from state and local governments, while only $32 billion came from the federal government. Conversely, the federal government provided a much greater proportion of the tax subsidies, with $249 billion provided by the federal government and only $45 billion by state and local governments. About 96% of the tax subsidies were for private employer-sponsored coverage.

Using their formulations, and assuming no drastic changes to the economy or health or tax policies, Himmelstein and Woolhandler project that government’s share of tax-funded expenditures in the U.S. will rise to 67% of total expenditures in 2024. They project that Medicare and Medicaid will see percentage increases to 22.5% and 16.9%, respectively, while they estimate that tax subsidies will see a slight percentage decrease to only 9.9% of total national expenditures. While the accuracy of their projections remains to be seen, they note that the impact of the Affordable Care Act and an increase in Medicare’s contribution caused by aging baby boomers will seemingly ensure some increase in the government’s total contribution to national health expenditures.

Comparison to Other Countries

As the authors recognize, U.S. health policy is often described as being largely based on private funding, but using these numbers, health care funding in the U.S. is clearly not the private affair that it is often described to be. Moreover, how does the U.S. compare to other industrialized nations when it comes to government funding of health care? As a percentage of Gross Domestic Product (GDP), total healthcare expenditures in the U.S. in 2013 constituted 17.4% of GDP, while tax-funded health expenditures were 11.2% of GDP. By comparison, tax-funded health expenditures in Canada in 2013 were reported to be only 7.2% of GDP, in France 8.6%, and in the United Kingdom 7.3%, all countries with universal tax-funded healthcare systems. As another point of comparison, the authors note that by 2024, government expenditures for healthcare will account for almost as large a percentage of total healthcare expenditures in the U.S. as in Canada, with an estimated 67% in the U.S. to 70.7% in Canada.

Conclusion

It should be noted that this discussion does not address the costs of health care services or the effects private market forces can have on total healthcare expenditures, which arguably can be better contained through the single-payor public systems found in other countries. In the U.S., limitations on costs for services do come into play when Medicare and Medicaid are involved, and health insurance providers usually negotiate with healthcare providers for lower rates on services. Putting aside the issue of cost containment, however, if we accept the formulations adopted by Himmelstein and Woolhandler, tax-funded expenditures for healthcare in the U.S. are not that far proportionally from those of other industrialized nations, and as noted, even constitute a larger proportion of GDP than in many countries with universal public health care systems.

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