Spending on healthcare – To fulfill the promises for lower spending, any Medicare for All approach requires addressing how, where, when, what and why we use health care. Everything else is rhetorical fluff.

What does the US spend on health care? That depends on how you define it, what’s included and what is not. Overall it is reported we spend $3.65 trillion a year, but that includes indirect tax spending (such as tax-free employer- provided health benefits) not actually on care. Nearly a third of the spending is by government via Medicare, Medicaid, CHIP and ACA subsidies.

By far the majority of spending is on personal health care. When we talk about reducing spending, and making health care affordable, that’s the spending that requires our focus. Instead we tend to focus on insurance costs and premiums largely because of politics.

In fact, about 60% of workers with employer based health care coverage are enrolled in a self-funded plan; no insurance. Between government run programs and self-insured plans the majority of Americans are not affected by actual insurance premiums and their plans have no profit motive.

In its March 2018 report to Congress the Department of Labor included this:

Below is how we spend money on health care related costs. Note the item “Net cost of health insurance” That’s the portion of premiums collected and not spent directly on health care in a given year. That’s the sliver of total health care spending (less than 5%), that is being focused on as our main problem; insurance company administration and profit.

When you look at what is included you will see additions to reserves and premium taxes. Reserves are money set aside to pay future claims so eventually that is health care spending. Premium taxes (about 1.5 to 2% of premiums) are taxes paid to the states. The bottom line is an insignificant portion of all health care spending is the result of unnecessary administration and insurance company profits, a fact you cannot discern among all the political rhetoric.

To fulfill the promises for lower spending, any Medicare for All approach requires addressing how, where, when, what and why we use health care. Everything else is rhetorical fluff.

3 The net cost of health insurance is the difference between premiums earned and benefits incurred. That is, the amount of health insurance spending attributed to nonmedical benefit expenses, such as administrative costs, additions to reserves, rate credits and dividends, premium taxes, and profits. The net cost for private health insurance companies that insure the enrollees in Medicare, Medicaid, Children’s Health Insurance Program, and workers’ compensation (health portion only) are also included.

Source: CDC

Federal spending is already the bulk of health care spending in the US


One comment

  1. Everybody seems to forget that insurance companies (life, home, health, car) are in most cases regulated by the states that they operate in. The states ensure that they are solvent and have enough reserves to pay future claims. In other words, the states ensure that they do not rip off consumers by collecting premiums and not paying their bills. If an insurance company cannot make money by its’ state rules, it pulls out of that state. If their profit margins and pricing is too large, they will lose customers and pull out. If politicians do not like the insurance companies then they should be talking to their state’s insurance regulators. Where states have interfered too much, there is a lack of competition often seen in the car insurance market because they pull out of that state.

    There is one thing that can be done immediately. Transparency on costs and utilization. Cost is not what you pay for your insurance premium but what is billed for a procedure. Pricing between providers is extreme. Procedure costs from the same provider is extreme depending on who paying the bill. There is no reason an uninsured person should pay 5x more than an insured person. I can understand some discounting for insurance companies and Medicare but up to 80% is wrong. If a provider can make money on a $20 test, why are they charging $100 to an uninsured person?

    Nobody knows what the true cost of care is or what it should be. Know the true costs is the first step to making sound decisions.


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