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How Much Does Our Government Pay for Health Services?

It’s generally thought that most US healthcare is funded by private insurance; however, the majority of costs may actually be funded by the government.

Recently there has been hot political debate regarding the funding of healthcare in the United States. It’s generally known that the U.S. has the world’s highest healthcare costs of any developed country. What’s largely unknown is just exactly how much of that cost is paid for by the government, or perhaps more accurately, by the taxpayer. In 2013, the Centers for Medicare and Medicaid Services (CMS) estimated that local, state and federal governments paid 43% of the country’s total health expenditures. However, this value does not reflect the government’s indirect costs spent on healthcare. An accurate figure of what the government currently spends, and what they are projected to spend in the upcoming years, may better allow taxpayers to make an informed decision on the future of U.S. healthcare.

A recent study set out with the goal of calculating the current direct and indirect U.S. government healthcare expenditures for 2013 and the projected costs through 2024. As mentioned, in 2013 CMS estimated the government funded 43% of the country’s total annual healthcare cost. This figure represents the government’s direct cost for Medicare, Medicaid, and public programs like the Veteran’s Health Administration, but does not include things like government-paid benefits to senators because a private insurer pays the actual medical claim. Nor does it include tax incentives, such as those paid to private employers for health expenditures.

This study estimated the total taxpayer costs by summing what they consider to be the government’s three main healthcare expenditures: (1) Public employee health insurance; (2) Local, state and federal tax subsidies for healthcare; and (3) Payments for Medicare, Medicaid and public programs like the National Institutes of Health, Veteran’s Health Administration, and public health departments.

Figures provided by CMS’s Office of the Actuary were used to estimate direct government payments for healthcare and health benefits of government employees. Tax subsidies for healthcare were calculated using the Office of Management and Budget’s (OMB) official estimates of federal payroll and income tax subsidies. State and local income tax subsidies were estimated by multiplying the federal income tax subsidy by the ratio of state and local income taxes to federal income taxes. The ratio was derived using surveys (from the Census Bureau) of state and local tax receipts and then comparing that to data from the Internal Revenue Service (IRS). The extrapolation from 2013 to 2024 was made by assuming the ratio would not change. Projections for the years 2014-2024 are based upon projections from the OMB.

Tax-funded expenditures for 2013 were calculated to be 64.3% of total healthcare costs in the U.S. This represents $1.877 trillion, $5,960 per capita and 11.2% of U.S. gross domestic product (GDP). Tax-funded expenditures for healthcare in the U.S. are expected to reach 67.1% of total healthcare costs by 2024. Medicare accounted for the majority of the cost at 20.1% in 2013 and is projected to rise to 22.5% by 2024 due to aging “Baby Boomers.” Medicaid is projected to stabilize and remain around 17% of total healthcare costs through 2024, though it rose by 1% between 2013 and 2015 after the implementation of the Affordable Care Act (ACA).  Tax subsidies for private health insurance are projected to remain stable through 2024 at 10% of the total healthcare expenditure. In 2013, 28% of all employer payments to private health insurance companies were for government employees, and thus paid for with tax dollars. This figure is anticipated to rise to 31% by 2024.

Though U.S. healthcare is perceived to be privately financed, this study projects that by the year 2024, over two-thirds of U.S. healthcare costs will be funded by the government. Per capita this is more than countries with universal healthcare like Canada.

Practice Pearls:

  • CMS estimates of U.S. government healthcare expenditures are not reflective of the total cost to the taxpayer, which in reality is much higher.
  • Though most people believe the majority of healthcare costs in the U.S. are paid by private insurance, this study shows that about two-thirds of healthcare costs are actually paid with tax dollars.
  • According to this study, per capita, the U.S. spends more tax dollars on healthcare than countries with universal healthcare like Canada.

Researched and prepared by Devon Brooks, Doctor of Pharmacy Candidate from LECOM College of Pharmacy, reviewed by Dave Joffe, BSPharm, CDE

Himmelstein DU, Woolhandler S. “The current and projected taxpayer shares of US health costs.” American Journal of Public Health. Web. 21 Jan. 2016.