Health care spending is more than just the parts you see

Drew Altman, Kaiser Family Foundation February 28, 2019

People focus on the health costs that are most tangible and sometimes outrageous to them: their deductibles, and drug costs, and surprise medical bills, and the annual increase in the share of the premium they pay. But there's more that gets less attention because it's not as visible to them.

Why it matters: To really understand how Medicare for All or any other big change in health care financing would affect them, people need to understand how they would impact their overall family health budgets. Few people think about the other health costs they pay: their taxes to support health care, or what their employers are paying towards premiums (which is depressing their wages).

Between the lines: Consider this hypothetical example of a total family health “budget”:

• The Browns, a family of four with at least one member in poor health and a $50,000 income, have standard employer coverage much like 156 million other Americans. They spend $9,250 per year (19% of their income) on health.
• This includes $3,950 (8% of their income) in out-of-pocket health spending, $3,900 (8% of their income) in health insurance premiums, and, although they are almost certainly not aware of it, approximately $1,400 (3% of their income) in state and federal taxes that fund health programs.
• The Browns are not taxed on the contributions their employer makes toward health insurance premiums, which economists generally say offset wages. Their employer is contributing an additional $13,050 to their health insurance premiums, as well as $750 in Medicare payroll taxes.
• When combined, the Brown’s spending on health care and the money spent by their employer on their behalf totals a considerable $23,050. And remember, they make $50,000.

A few ideas that could help people learn more about their health total care spending and how reform proposals might affect their health spending:  

• The IRS and states could include a simple pie chart on everyone’s tax forms, showing taxpayers where their tax dollars go today.
• Along with estimating the impact of health reform legislation on the federal budget, or the number of uninsured, the CBO could estimate its impact on typical family budgets, taking into account all of the forms of health spending families have today. Organizations like ours could do this as well.

What to watch: This could be particularly important when analyzing Medicare for All proposals, since they would so significantly alter the financing of health care by shifting it from premiums and out-of-pocket costs to taxes.

• A Medicare for All plan would likely reduce what the nation spends on health care by lowering payment rates to providers and creating administrative efficiencies. The average family would likely pay less, but how much is hard to say without more details.
• However, by changing the financing so significantly, there would likely be both winners and losers. Low-income people and sick people might pay less, and higher-income people and those who are healthy could pay more.

The bottom line: We can only get a clear picture of how family finances would be affected by Medicare for All, or any other significant overhaul of the health care system, by looking at the totality of what they pay now.

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