Disc 6 U.S

The Current and Projected Taxpayer Shares of US Health Costs

David U. Himmelstein, MD, and Steffie Woolhandler, MD, MPH

Objectives. We estimated taxpayers’ current and projected share of US health ex-

penditures, including government payments for public employees’ health benefits as

well as tax subsidies to private health spending.

Methods. We tabulated official Centers for Medicare and Medicaid Services figures on

direct government spending for health programs and public employees’ health benefits

for 2013, and projected figures through 2024. We calculated the value of tax subsidies

for private spending from official federal budget documents and figures for state and

local tax collections.

Results. Tax-funded health expenditures totaled $1.877 trillion in 2013 and are

projected to increase to $3.642 trillion in 2024. Government’s share of overall health

spending was 64.3% of national health expenditures in 2013 and will rise to 67.1% in

2024. Government health expenditures in the United States account for a larger share of

gross domestic product (11.2% in 2013) than do total health expenditures in any other

nation.

Conclusions. Contrary to public perceptions and official Centers for Medicare and

Medicaid Services estimates, government funds most health care in the United States.

Appreciation of government’s predominant role in health funding might encourage

more appropriate and equitable targeting of health expenditures. (Am J Public Health.

2016;106:449–452. doi:10.2105/AJPH.2015.302997)

See also Galea and Vaughan, p. 394.

The United States has the world’s highestper capita health care costs—about double those of other wealthy nations.1

According to both official figures and public perception, most health care funding in the United States comes from private payers. For instance, the Centers for Medicare and Medicaid Services (CMS) estimates that federal, state, and local governments accounted for 43% of health expenditures in 2013.2

These official figures reflect an accounting framework based on who wrote the final check as money flowed from households or employers to health care providers, and ex- clude many indirect government health ex- penditures. Thus, when government pays for veterans’ care, CMS classifies it as a public expenditure because government writes the checks that fund the Veterans Health Administration. But CMS classifies government-paid health benefits for senators or Federal Bureau of Investigation agents as

“private” expenditures because a private in- surer pays the claims. Moreover, the tax subsidies that fund a significant share of private health expenditures (e.g., private-employer spending) are not counted by CMS as gov- ernment health spending, although the Office of Management and Budget (OMB) tabulates these subsidies as “tax expenditures” in official budget documents.3

In a previous study, we estimated that the public share of US health spending—after inclusion of these tax subsidies and govern- ment payments for public employees’ health benefits—amounted to 59.8% of the total in 1999, nearly double the 1965 figure.4 The current study provides detailed estimates of

direct and indirect government health spending in 2013, as well as projected figures through 2024.

METHODS We estimated total taxpayer expenditures

for health care by summing 3 types of ex- penditures: (1) direct government payments for Medicare, Medicaid, and other public programs such as the Veterans Health Ad- ministration, the National Institutes of Health, and public health departments; (2) government agencies’ expenditures for public employees’ health insurance coverage; and (3) federal, state, and local tax subsidies to health care.

To estimate direct government payments for health care, as well as government agencies’ expenditures for public employees’ health benefits, we used figures from the national health expenditure projec- tions prepared by CMS’s Office of the Actuary.5,6

Tocalculatethe valueofhealth care–related tax subsidies, we first obtained the OMB’s official estimates of the value of the federal income tax and payroll tax subsidies to health care and health insurance each year.3

Like the federal government, state (and local) governments do not include the value of employer-paid health benefits when cal- culating income and income tax liability. Hence, we estimated state and local income tax subsidies in 2013 by multiplying the value of the federal income tax subsidy by the ratio of (local + state) income tax receipts to federal income tax receipts. We calculated this ratio with data from the Census Bureau’s quarterly surveys of state and local tax receipts7 and

ABOUT THE AUTHORS The authors are with the City University of New York School of Public Health at Hunter College, New York, NY.

Correspondence should be sent to David U. Himmelstein, MD, 255 W 90th St, New York, NY 10024 (e-mail: dhimmels@ hunter.cuny.edu). Reprints can be ordered at http://www.ajph.org by clicking the “Reprints” link.

This article was accepted November 17, 2015. doi: 10.2105/AJPH.2015.302997

March 2016, Vol 106, No. 3 AJPH Himmelstein and Woolhandler Peer Reviewed Public Health Policy 449

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Internal Revenue Service data on federal income tax receipts.8 For future years, we assumed that the ratio would remain at the 2013 level.

The OMB’s estimates of health-related tax subsidies include tax subsidies to government employees, and we had already included the entire government contribution to its em- ployees’ health benefits as a tax-financed expenditure. Hence, to avoid double- counting, we adjusted the tax subsidy esti- mates downward to exclude government employees based on government employers’ share of total employer-paid premiums as detailed in the CMS actuaries’ projections.4

These methods emulate those we used to estimate public spending in 1999,4 with 1 modification. In the past, we used multiple data sources and complex methods to estimate payroll tax subsidies because no official figures for these subsidies were available. In 2008, OMB began providing such figures, which serve as the basis for our current estimates. Compared with our older method, use of the more accurate OMB figure increases our estimate of government’s share by about 0.7%.

Finally, to offer perspective on the US taxpayer-funded health expenditures, we compared them to figures for several other developed nations by using data from the Organization for Economic Cooperation and Development (OECD).1

We carried out data management and analyses with Microsoft Excel 2003 (Micro- soft, Redmond, WA).

RESULTS Tax-funded expenditures for health care

totaled $1.877 trillion in 2013 ($5960 per capita) (Table 1). Tax-funded expenditures’ share of overall health spending was 64.3% of total health expenditures in 2013. Projections suggest that government’s share will rise to 67.1% in 2024.

Medicare will remain the largest category of tax-funded expenditures, rising from 20.1% of overall expenditures in 2013 to 22.5% in 2024 (Table 2). Medicaid’s share rose more than 1% between 2013 and 2015, coincident with the rollout of the Affordable Care Act’s (ACA’s) Medicaid expansion, and is projected to stabilize at about 17% of national health spending.

Tax subsidies to private health spending totaled $294.9 billion in 2013, and are ex- pected to remain about 10% of total health expenditures through 2024. Federal income and payroll tax subsidies account for more than 80% of these tax expenditures, with state and local income tax subsidies accounting for the rest. The vast majority of tax expenditures subsidize employer-sponsored coverage; subsidies to out-of-pocket expenditures ac- count for only 4.1% of the total.

Government employers currently account for 28% of all employer payments for private health insurance, a figure that is projected to rise to 31% in 2024. Most of these expen- ditures (more than four fifths) are made by state and local governments.

Private employers’ spending for health insurance premiums as a share of national health expenditures reached a high of 18.5% in 2000 to 2001, falling to 16.7% in 2013, and are expected to decline to 14.5% in 2024. (These figures do not take account of tax subsidies, which would reduce these estimates by more than one third.)

As is well known, US health care costs are far higher than those in any other nation (Table 3). However, the high level of tax- funded spending in the United States receives less attention. Indeed, tax-funded health

expenditures in the United States account for a larger share of gross domestic product (11.2% in 2013) than do total health ex- penditures in any other nation.

DISCUSSION Americans pay the world’s highest

health-related taxes. Yet many perceive that US health care financing system is pre- dominantly private, in contrast to the uni- versal tax-funded health care systems in nations such as Canada, France, or the United Kingdom. By 2024, government expendi- tures in the United States are expected to account for more than two thirds of national health spending. This is nearly the same proportion as in Canada, where official figures put government’s share at 70.7% (although this figure excludes modest tax subsidies for supplemental private coverage).

Even as overall US health expenditures soared over the past half century, taxpayers’ share grew substantially. After correction for differences in the methods used to estimate tax subsidies, the public share increased from about 31% in 1965 (before Medicare and Medicaid) to about 56% in 1980, 60% in 1999,4 and 64.3% in 2013.

TABLE 1—Tax-Financed Health Expenditures (Billions of Dollars): United States, 2013–2024

Expenditure 2013 2014 2015 2020 2024

Total national health expenditures 2919 3080 3244 4274 5425

Direct government health expendituresa

Medicare 585.7 616.8 646.0 905.7 1221.3

Medicaid or Children’s Health Insurance Program 462.9 517.0 559.6 728.6 914.6

Other health programs 345.9 353.5 366.0 485.1 611.3

Government expenditures for public employees’ health benefits

Federal government 32 33 34 40 49

State or local governments 156 169 177 239 307

Tax subsidies for private employer–paid health insurance

and other privately paid care

Federal government 249.2 262.7 276.4 345.9 453.2

State or local governments 45.7 47.4 49.8 63.5 85.7

Total tax-financed expenditures 1877.4 1999.4 2108.8 2807.8 3642.1

Tax-financed expenditures as a percentage of total national

health expenditures, %

64.3 64.9 65.0 65.7 67.1

Note. Figures for 2013 are based on actual expenditures; 2014–2024 are based on Centers for Medicare and Medicaid Services and Office of Management and Budget projections. aEquivalent to traditional Centers for Medicare and Medicaid Services tabulation of government’s share of expenditures.

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This trend seems likely to continue. The expected uptick in government’s share is at- tributable both to the effects of the ACA and to population aging, which will push Medi- care enrollment up by 37% (19.0 million persons) between 2013 and 2024. Medicaid enrollment, which rose rapidly between 2013 and 2015 because of the ACA’s Medicaid expansion, is expected to increase by a further 10.8% (7.6 million) between 2015 and 2024.

Overall, the share of the population covered by Medicare and Medicaid is expected to rise from 36.9% in 2013 to 44.6% in 2024. Meanwhile, the ACA is expected to provide $99 billion in government subsidies for pri- vate coverage in 2024.9

Several caveats apply to our findings. As in any forecast, our projections could prove inaccurate because of economic fluctuations or unforeseen changes in health or tax policy.

Official health and tax expenditure figures provided the raw data for our estimates; however, in several instances we made ad- justments to avoid double-counting, and to estimate the magnitude of state and local tax subsidies for health care. Our analysis adopts the perspective that health care–related tax subsidies are tantamount to tax expenditures—an assumption that is widely shared within the policy community and by the OMB. Our analysis may slightly understate public expenditures as we did not include tax subsidies for nonprofit hospitals, which were estimated at $24.6 billion in 2011,10 about 1% of health spending. Our international comparisons rely on data from the Organization for Economic Cooperation and Development. Despite that organiza- tion’s attempts to harmonize expenditure categories and definitions across nations, some differences may cloud comparisons. Finally, our figures for the public share of expendi- tures in other Organization for Economic Cooperation and Development nations ex- clude tax subsidies for their relatively small private insurance sectors (Switzerland does not offer tax subsidies for employer-paid insurance).

Public funds help the vast majority of Americans pay for care, but these funds flow through many different spigots. The funding streams for the poor, the elderly, veterans, family planning, and public sector workers are visible and hotly debated. Meanwhile, the hundreds of billions in tax subsidies that disproportionately benefit wealthier Ameri- cans have drawn far less public attention.

Although taxpayers fund the vast majority of health spending, overall priorities for this funding are rarely discussed. Appreciation of the magnitude of government funding might encourage more explicit, appropriate, and equitable targeting of these expenditures as components of a total health budget.

CONTRIBUTORS Both authors contributed equally to all aspects of this work.

HUMAN PARTICIPANT PROTECTION This research did not involve human participants. No institutional review board approval was sought for this research.

REFERENCES 1. Organization for Economic Cooperation and Devel- opment. OECD health statistics 2015. Available

TABLE 2—Tax-Financed Health Expenditures as a Percentage of Total Health Expenditures and of Gross Domestic Product: United States, 2013–2024

Category of Expenditure 2013, % 2014, % 2015, % 2020, % 2024, %

Medicare 20.1 20.0 19.9 21.2 22.5

Medicaid 15.9 16.8 17.3 17.0 16.9

Other government health programa 11.8 11.5 11.3 11.4 11.3

Public employee benefits 6.4 6.6 6.5 6.5 6.6

Tax subsidies 10.1 10.1 10.1 9.6 9.9

Total tax-financed expenditures as a percentage of total national

health expenditures

64.3 64.9 65.0 65.7 67.1

Total tax-financed health expenditures as a percentage of gross

domestic product

11.2 11.5 11.7 12.2 13.2

Note. Figures for 2013 are based on actual expenditures; 2014–2024 are based on Centers for Medicare and Medicaid Services and Office of Management and Budget projections. aIncludes health spending by the Department of Defense, Department of Veterans Affairs, Indian Health Services, the National Institutes of Health, maternal and child health programs, school health, public health activities, and other smaller categories of federal, state, and local health spending.

TABLE 3—Total and Tax-Funded Health Expenditures: United States and Other Developed Nations, 2013

Country

Total Spending Per Capita, PPP $

Total Spending as

Share of GDP, %

Tax-Funded Spending Per Capita, PPP $

Tax-Funded Spending as

Share of GDP, %

Canada 4351 10.2 3074 7.2

France 4124 10.9 3247 8.6

Germany 4819 11.0 3677 8.4

Italy 3077 8.8 2381 6.8

Japan 3713 10.2 3090 8.5

Netherlands 5131 11.1 4495 9.7

Sweden 4904 11.0 4126 9.2

Switzerland 6325 11.1 4178 7.3

United Kingdom 3235 8.5 2802 7.3

OECD average (excluding United States) 3226 8.8 2443 6.5

United States 9267 17.4 5960 11.2

Note. GDP = gross domestic product; OECD = Organization for Economic Cooperation and Development; PPP = purchasing power parity. US figures are from national health expenditure accounts; figures for other nations are from OECD data. Figures for tax-funded spending in nations other than the United States exclude tax subsidies to private spending; Switzerland does not offer tax subsidies for employer payments for coverage.

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at: http://stats.oecd.org/index.aspx?DataSetCode= HEALTH_STAT. Accessed August 4, 2015.

2. Centers for Medicare and Medicaid Services. NHE fact sheet. Available at: https://www.cms.gov/research- statistics-data-and-systems/statistics-trends-and-reports/ nationalhealthexpenddata/nhe-fact-sheet.html. Accessed September 23, 2015.

3. Office of Management and Budget. Analytical per- spectives: budget of the United States government. Various years. Available at: https://fraser.stlouisfed.org/ title/?id=425. Accessed August 4, 2015.

4. Woolhandler S, Himmelstein DU. Paying for national health insurance and not getting it: taxes pay for a larger share of U.S. health care than most Americans think they do. Health Aff (Millwood). 2002;21(4):88–98.

5. Centers for Medicare and Medicaid Services. NHE projections 2014–2024—tables. Available at: https:// www.cms.gov/Research-Statistics-Data-and-Systems/ Statistics-Trends-and-Reports/NationalHealth- ExpendData/Downloads/Proj2014tables.zip. Accessed August 4, 2015.

6. National health expenditure accounts methodology paper 2013: definitions, sources, and methods. Available at: http://www.cms.gov/Research-Statistics-Data- and-Systems/Statistics-Trends-and-Reports/ NationalHealthExpendData/downloads/dsm-13.pdf. Accessed July 26, 2015.

7. US Census Bureau. Quarterly survey of state and local tax revenue (first quarter 2015 data release). Available at: http://www.census.gov/govs/qtax/index.html. Accessed August 4, 2015.

8. Internal Revenue Service. Individual income tax returns, preliminary data, 2013. Available at: http:// www.irs.gov/pub/irs-soi/soi-a-inpd-id1505.pdf. Accessed August 4, 2015.

9. Congressional Budget Office. Insurance coverage provisions of the Affordable Care Act— CBO’s March 2015 baseline. Available at: https://www.cbo.gov/sites/ default/files/cbofiles/attachments/43900-2015-03- ACAtables.pdf. Accessed December 14, 2015.

10. Rosenbaum S, Kindig DA, Bao J, Byrnes MK, O’Laughlin C. The value of the nonprofit hospital tax exemption was $24.6 billion in 2011. Health Aff (Mill- wood). 2015;34(7):1225–1233.

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