Who really pays for health care

This is an excellent assessment of how we Americans pay for health care. It correctly points out how the glib comments by politicians and some pundits both left and right mislead and distort. It also touches on the misconceptions held by many people. The vast majority of this article is by the Kaiser staff. My comments are shown in bold text.

Who Really Pays For Health Care Might Surprise You

By Jay Hancock
KHN Staff Writer
APR 30, 2014
This KHN story was produced in collaboration with USA Today

Eight million people have signed up for subsidized private health insurance under Affordable Care Act, President Obama said this month. Millions more obtained new coverage through the Medicaid program for the poor.

Full implementation of the health law, and its wider coverage, new taxes and shifting subsidies, has renewed discussions of winners and losers, makers and moochers.

Here’s a corrective to common misconceptions about who pays for health care.

1. Before Obamacare we had a free-market health-care system.

Government has been part of the business of medicine at least since the 1940s, when Washington began appropriating billions to build private and government hospitals. The drug industry and its customers owe much to federally funded research.

Of course Medicare for seniors and Medicaid for the poor, which both began in the 1960s, represent direct government transfers from some taxpayers to others. States have set rules for health insurance for decades.

If you’re insured through an employer that files an income-tax return your coverage is heavily subsidized by the feds. Tax deductions for private medical coverage cost the Treasury $250 billion a year. Premiums your employer pays on your behalf are tax-free and even the premiums you pay are before taxes in many cases.

Some would argue that private health insurance is its own kind of subsidy. What the healthy pay in premiums finances care for the sick. This is the basic concept behind insurance; spreading the risk. It’s not a matter of getting your money’s worth from health insurance. Your goal should not to collect one penny in claimsFew patients except foreign potentates have paid their own medical bills for a long time.

2. I fully paid for Medicare through taxes deducted from my salary.

Scholars at the Urban Institute have calculated that the typical Medicare beneficiary who retired in 2010 will cost the system more than twice as much in health costs than she and her employer paid in Medicare taxes.

It’s another subsidy. If Congress had designed Medicare to pay for itself rather than add to the budget deficit every year, payroll taxes would be far higher and your take-home pay would have been far lower. Medicare has no budget, it just pays and pays. Income taxes paid on Social Security also fund Medicare. The Part B premium for beneficiaries pays only 25% of the total cost.

3. Premiums from my paycheck fund my company health plan.

Probably not entirely. Or even mostly.

For family coverage, which costs an average of $16,351 last year, the average worker paid only 29 percent of the premium. For single-person coverage, workers paid only 18 percent of the (lower) total cost. However, paying your portion of the premium is only part of the story. Out-of-pocket costs add to total cost-sharing.

Although premiums and out-of-pocket costs have been soaring for consumers, costs have been rising for employers, too — up by nearly 80 percent in a decade. Business spends more than half a trillion dollars annually on employee health care.

4. Government and employers pay for almost all health care.

But give workers and consumers credit. In 2012 households still paid the largest single share of health costs, according to federal actuaries. Part was premiums paid through employers and directly to insurers. Part was out-of-pocket expense.

The household portion of the health-spending pie shrank from 37 percent in 1987 to 28 percent in 2012. But it’s still larger than the federal government’s 26 percent share or business’s 21 percent.

The share of costs paid by households is on the rise as more plans restrict benefits to network providers and deductibles are increasing especially with the growth of high deductible health plans and Health Savings Accounts.

5. The insurance company is always the bad guy.

Human resources pros like to trash-talk the company’s insurance plan when they tell employees the doctor network shrank, the deductible rose or certain procedures aren’t covered.

But more than half of all workers with health coverage are enrolled in “self-insured” plans where the employer pays medical bills directly. The insurance company only processes claims.

If your company has at least 500 workers it is probably self-insured

In such plans the employer is the insurance company. And it’s the employer calling the shots. This is a key point. Even though your ID card may say Blue Cross/Blue Shield, Aetna, UnitedHealthcare or any other insurance company, in most cases your employer determines your health benefit options, your deductibles and co-pays and how certain services are covered under your plan, including prescription drugs. In many cases your employer also has the final word on claim appeals.

2 comments

  1. I see both sides of this. On one hand, it is true, medicine is not a free market if you use or accept Medicare or Medicaid (or the VA!). That sticks the federal bureaucrats into the middle of the healthcare decisions, and yes, the feds are in fact responsible for a LOT of what is wrong with medicine. The article’s point #2, in an indirect way, shows just how bleak the future is for Medicare. Folks, Medicare, in its current form, is going to starve to death.

    This article is very helpful to inform the uninformed. However, this article paints with such a broad brush that it becomes almost untrue. I think point #5 is wrong for including the Blues in a bullet point about shrinking networks. With Obamacare, yeah the Blues have been forced to produce these useless tiny networks, but until last year, every Blues network I had ever seen was very robust, no matter who was paying the bill.

    Millions of Americans like me do not get Medicare, Medicaid, Obamacare subsidies or employer insurance. People like me go on ehealth and shop for ourselves with our own dollars. I sit down with pencil and paper and compare the available deductibles, copays and premiums. What has happened to the individual market with Obamacare is a disaster. You often write that insurance is a choice: higher premiums or higher deductibles. Nope, not with Obamacare. Rates have skyrocketed, unless you are in a group that gets a taxpayer subsidy, but at the same time deductibles have skyrocketed. You say people should save more for retirement, then admit that the skyrocketing insurance rates we are seeing this year is ruining the ability to save for retirement.

    I’ll be curious to see your take on the recent announcements of 2015 Obamacare rates. The news has so far tried to highlight the smallest increases. However, there was a fascinating article on the front page of today’s Investor’s Business Daily that broke down the rate increases, and showed that the smallest 2015 Obamacare hikes are from plans that are very small and _geographically limited_. The big plans, the ones that went ahead and covered nearly the entire state of Virginia or Washington, are being forced into double digit rate hikes.

    Like

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