Paying More, Getting Less
Just Where Do America's Health Care Dollars Go?
We trim this 2008 article from Dollars and Sense, posted on AlterNet June 23. Besides socializing medical care, another way to lower its cost is to allow more competition between licensed doctors and others; for example, a doctor might charge $300 to clip ingrown toenails while a pedicure costs $30 but cannot legally include chemicals to first numb the toes. Why should taxpayers be forced to kick in that extra $270 rather than just let beauticians apply a local analgesic? Anyway, the author does consulting in epidemiology and research design.
By Joel A. Harrison, PhD, MPHThe United States spends an enormous amount of money on health care. In 2006, US health care spending exceeded 16% of the nation’s GDP, up from 15.3% two years before. In 2004, Canada spent 9.9%, France 10.7%, Germany 10.9%, Sweden 9.1%, and the United Kingdom 8.7%. Consider per capita spending: in 2004 America spent $6,037 per person, Canada just $3,161, France $3,191, Germany $3,169, and the U.K. $2,560. US heart surgeons charge twice as much as Canadian heart surgeons -- or more -- for the same coronary bypass operation, with no difference in morbidity or mortality.
Americans who have insurance experience steep annual premium hikes along with rising deductibles and co-pays, and risk losing their coverage should they lose a job or have a serious illness in the family. Those without health insurance face sky-high doctor and hospital bills -- when they receive care at all -- plus pay into the system.
More than 60% of the $2 trillion annual US health care bill is paid through taxes. Tax dollars pay for Medicare, which funds much of the expensive equipment hospitals use along with medical residencies, and for Medicaid; half of its dollars pay for nursing homes, while the other half provides basic health care coverage, primarily to children in low-income households, at a cost of only about $1,500 a year per child. Public revenue also pays for the Veterans Administration, the Indian Health Service, coverage for federal, state, and municipal government employees and their families, as well as for many employees of private companies working on government contracts. Taxpayers in general make up for the tax deduction for employer-paid health insurance and other health care-related tax deductions.
Since federal, state, and local governments collected approximately $3.5 trillion in taxes of all kinds -- income, sales, property, corporate -- in 2006, that means more than one third of the aggregate tax revenues collected in the United States that year went to pay for health care.
A family with an annual income of $50,000 that has no health insurance nonetheless contributes nearly 10% of its income to health care by paying taxes on income, payroll, sales, excise, et al. A household at the $50,000 income level with family health insurance coverage is paying over a quarter of its income into the health care system. A person who earns about $25,000 a year and has no health coverage already contributes over $2,400 a year to the system -- enough for a healthy young adult to purchase a year’s worth of health insurance.
In 2007, the average annual premiums for health insurance policies offered through employers were $4,479 for individuals and $12,106 for families. Whether employers pay a share of that premium or not, the entire premium is a cost imposed on the worker. Whenever premiums go up, workers either see their own premium payments rise directly or else face cuts or stagnation in their wages and non-health benefits.
Premiums do not include out-of-pocket expenses, which averaged 13.2% of all health care expenditures in 2005. Moreover, they do not include the risk of bankruptcy that health care costs impose: 50% of consumer bankruptcies in the United States stem from medical bills, including a surprising number among households that do have some kind of health coverage. Nor do they include the approximately 20% of auto insurance premiums or the 40% of workers’ compensation premiums that pay for medical expenses.
The United States accounts for 51% of all global spending on medical research; 60% of this is public funding, 8% comes from nonprofit institutions, and 32% comes from the private sector. Most basic research -- the research that undergirds most applied research and that requires long-term investment before any payoff can be expected -- is heavily funded by the public.
US taxpayers pay more for the same research. In Canada or Sweden, for a research grant of $200,000, an additional 15% would be tacked on to cover administration and use of computer centers, offices for grad students, etc; in the United States, 50% to 100%. So, the same $200,000 research project would cost about $230,000 in Sweden or Canada, versus $300,000 to $400,000 in the United States.
The United States has the most bureaucratic health care system in the world, including over 1,500 different companies, each with its own marketing, enrollment procedures and paperwork, CEO salaries, sales commissions, and other non-clinical costs. Shareholders are the primary clients of for-profit insurance companies, not patients. This system takes almost 25 cents more out of every health care dollar for expenses other than actually providing care.
Of this overhead in the current US system, approximately half is borne by doctors’ offices and hospitals, which maintain large billing and negotiating staffs to deal with all the plans. By contrast, under Canada’s single-payer system (which is run by the provinces, not by the federal government), each medical specialty organization negotiates once a year with the nonprofit payer for each province to set fees, and doctors and hospitals need only bill that one payer.
Of course, the United States already has a universal, single-payer health care program: Medicare, which serves senior citizens, regardless of pre-existing conditions, and people with disabilities, including diagnoses such as AIDS and end-stage renal disease. By covering a high-cost slice of the US population, Medicare costs $8,568 per person, or $34,272 for a family of four (2006). Medicare operates with overhead costs equal to just 3% of total expenditures, compared to 15% to 25% overhead in private health programs. Since Medicare collects its revenue through the IRS, there is no need to collect from individuals, groups, or businesses.
A universal single-payer system can cost most Americans less than the system we have today.
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