Universal Health Care: What the United States Somehow Can’t Afford Even Though We Have Already Paid For It, and Then Some

I recently came across this data from the OECD, on comparative health expenditures by country as a percent of GDP.

The data by financing scheme divides health expenditures into two categories: government/compulsory and voluntary/out of pocket.  The data shows that in the United States, the compulsory/government expenditures alone equaled 14.2% of GDP.  That compares with total health care expenditures at 10.8% of GDP in Canada, 12.1% in Switzerland, 11.7% in Germany, 11.2% in France, 10.3% in the UK, 11.1% in Japan and 10.9% in Sweden.  Those developed countries all have some kind of universal health care, albeit in widely differing systems.  And all have aging populations, many to a greater extent than the U.S. 

And yet we are told by so-called Republicans/conservatives that we can’t afford the added taxpayer cost of “socialist” universal health care, and by so-called Democrats/progressives that we would need to pay even more in taxes to get it – or even to just keep what we already have.  Why?  Not because of ideology.  Because both parties are in the pockets of special interests who benefit from this situation as it is.  Both parties includes, by the way, the Democrats.

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The OECD data may be found here.

https://stats.oecd.org/Index.aspx?DataSetCode=SHA

There is no glossary that I can find, so I’m not sure exactly what the OECD means by government/compulsory, except that compulsory could mean a requirement to buy private insurance, as in Switzerland.

https://www.internations.org/go/moving-to-switzerland/healthcare

That is the system that Obamacare is partially based on.

For the U.S., however, there is the National Health Accounts system from the Centers for Medicare and Medicaid.

https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical

Most of the data and the charts used in this post may be found in this spreadsheet.

Here is the distribution of health expenditure by financing source one normally sees.

The data shows that Medicare accounted for 22.2% of U.S. health care expenditures in 2019.   In addition to those over 65, since 1972 Medicare has paid for the health care of the long-term disabled.  It thus pays for the health care of those who require the most health care, those the private insurers would not want to cover.

Medicaid accounted for 17.1% of the total, with more than one-fifth of that amount also going to the aged as of the most recent data (for 2014).

(Someone made a non-public non-decision to eliminate data accessible to the public on comparative Medicaid spending by state by age group and category, data I once tabulated and wrote about every year.  Why?)

The “Other Third Party Payers and Programs” categories accounted for 12.1% of the total, followed by 4.0% for Other Health Insurance Programs.  This includes the health care programs of the Department of Defense and Veteran’s Administration, and public health spending.  

Adding it up, these categories, almost entirely government, accounted for 55.4% of all health expenditures in the United States, compared with 33.3% for private health insurance, and 11.3% for out of pocket expenditures by consumers.

As the population ages, moreover, the government share of total health expenditures is rising, and the private sector share is falling.  Medicare accounted for 17.6% of total expenditures in 2000, compared with 22.2% in 2019.  That share is going to keep rising until the last of the large Baby Boomer generation is in the program, in 2029.  Unless rising national debt forces Congress to cut later-born people out of the program, while “grandfathering” the richest and most self-serving generations in recent U.S. history.  

Out of pocket plus private insurance combined accounted for 49.5% of total health expenditures in 2000, compared with just 44.6% in 2019.

But this tabulation understates the extent of U.S. health care expenditures funded by the government.  The National Health Accounts has a second way of tabulating the data, by “sponsor” – federal government, state government, private employers, and households.  And this shows a greater government share.

For one thing, consider that private insurance.

Of the $777.8 billion in employer funded health insurance premiums in 2019, $222.5 billion – 29.1% of the total – was funded by federal, state and local governments on behalf of civilian public employees, and paid for by taxpayers.  According to the Bureau of Labor Statistics, state and local government employees, and federal employees other than those in the Department of Defense (who have their own health programs), accounted for 14.6% of total non-farm wage and salary workers in 2019 – about half their share of employer-financed health insurance.

The share of private health insurance funded by private employers, moreover, has been shrinking – despite Obamacare mandates — as more workers are hired as temps or contract workers.  Private employers accounted for 80.0% of employer-funded health insurance premiums in 1987, compared with 70.9% in 2019.

With taxpayer-funded private insurance for public employees generally far more generous than that paid for businesses for private sector employees, virtually any household with one private sector worker and one public sector worker will have their health insurance paid for by the public employer, using tax dollars.  Part of that generosity is richer benefits.  And part of it is a lower employee contribution.

In 2019, private sector employers funded 71.5% of their employees’ health insurance premiums, with the employees kicking in the rest.  That is down from employers paying 77.2% of their employees’ health insurance premiums in 1987.  In the private sector employees are paying a rising share of the premiums, even as less and less of the actual workforce is counted as being employees. Among non-farm workers, the self-employed accounted for 13.5% of U.S. private sector jobs in 1969, 18.3% in 2000, and fully 25.0% in 2019, as I showed using Bureau of Economic Analysis data here.

https://larrylittlefield.wordpress.com/2020/11/22/bureau-of-economic-analysis-local-area-personal-income-data-for-2019-so-this-is-what-was-meant-by-the-fairest-city-in-america/

The rising number of “temp” workers are on top of that.

In the private sector, therefore, individual workers, not businesses, are being forced to pay for rising health care costs.  That is one reason there are no longer calls for health care reform from business lobbyists.

The federal government only covers 70.2% of the health insurance premiums of its civilian employees, similar to the private sector.  But state and local government governments covered 78.4% of the health insurance premiums for their employees and retirees, using taxes collected from less advantaged private sector workers.

This shows whom former President Obama was actually speaking to, and about, when he promised that workers could keep their rich existing employer-funded health benefits under Obamacare.  He wasn’t talking about small business owners and their workers, and he wasn’t talking about later-born generations of workers shuttled off to “informal sector” temp and contract positions.  He was talking about government workers, the base of the Democratic Party, and promising that a multi-tier system of taxpayer-funded health insurance would remain in place, with themselves at the top – getting more, and paying less.

Taking into account the private health insurance purchased by consumers directly, via Obamacare and otherwise, private employee contributions to their own employer-sponsored health insurance, and the large share of private health insurance purchased by governments for civilian government employees, let’s redo the pie chart.

The data shows that households, through out of pocket expenditures and insurance payments, funded 28.7% of all health care expenditures in 2019. The out of pocket expenditures include those not generally covered by health insurance, as well as co-payments.  The government-funded share, excluding co-payments for programs such as Medicare and by public employees, was 56.4%.   

Just 14.9% of total U.S. health care expenditures were actually funded by private employers, separately from the taxes they pay.  That is less than the 17.9% of spending funded by private health insurance premiums paid for by households.  The idea that the U.S. has a private, employer-financed health care system is a fraud.  Such funding is the “usual, customary and reasonable” tail that wags the dog.

And the tail is shrinking.  Private employers funded 18.5% of all U.S. health care expenditures in 2000. While that share varies cyclically with the economy, the long- term share is down to around 15.0% for the last few years, and presumably less (once again) after this recession.

Moreover, even private employer-financed private health insurance is indirectly subsidized by the tax system, according to data that may be found here…

https://home.treasury.gov/policy-issues/tax-policy/tax-expenditures

And in this spreadsheet.

The data shows that in FY 2020, the exclusion of employer contributions for medical insurance premiums from taxable income for federal income tax purposes cost $214 billion.  There is some double counting here, because federal, state and local government civilian employees also benefit from the tax break.  In fact, state and local government workers arrange for a very large share of their income to be untaxed.

But based on the private employer share of total private employer insurance contributions alone, that tax exclusion still provided a subsidy $152 billion, or 4.1% of total health expenditures.  

And for every dollar of federal income tax revenues, there is 24 cents of state and local income tax revenues.  Since the federal exclusion of employer-funded health insurance from taxable income also applies to state and local income taxes, that adds $36.8 billion to the subsidy total.  Though I didn’t include it in the chart below, moreover, other federal tax breaks for health care provide another $31.2 billion in government subsidy, and there are additional state and local government tax breaks as well. 

Subtracting just the income tax exclusion subsidy, private businesses are only actually funding 9.9% of total U.S. health expenditures in our so-called employer-based health care financing system.  

Excluding out of pocket expenditures and insurance premiums paid for households directly, the current distribution is 86.2% government, and just 13.8% private business.

And yet because the health care system is allegedly substantially private, we are expected to tolerate inequalities – and cost inflation — that could never be justified in an open debate as a matter of public policy.

A system that combines massive, ever-increasing taxpayer costs with falling life expectancy and unequal access to care.  A system that also causes massive economic damage to the United States by limiting economic flexibility, to the detriment of workers and would-be business owners, as I first noted in this post 15 years ago (it has gotten worse since).

Socialized Medicine? Get Real, It’s Already Here

Who are the losers?

Start with today’s real working class – not the ever-shrinking workforce with seniority in high-paid, unionized industries.  The real working class consists of Blacks, Latinos, Asians, immigrants, “rednecks,” and others working in the low paid, no-benefit small business sector.

If faced with a serious family health crisis, these families would eventually receive health care under Medicaid, but only after their own resources were exhausted.  This is a disincentive to work and save, since – given the extraordinary “rack rate” charges for health care – those savings would probably be lost someday.  As my former boss once said, we already have universal health care. The problem is that it is Medicaid, and it sucks.

Then there are tomorrow’s elderly, the middle-aged and young people of today.  With U.S. fiscal policy now similar to Argentina under Peron, it is clear that 20 years from now high taxes will be going to pay the interest on today’s debts, not for health care for tomorrow’s senior citizens.  Perhaps it is an exaggeration to say that instead of Medicare those now under age 60 will be offered medical marijuana followed by legal assisted suicide.  Then again, it isn’t hard to find people under 60 who doubt they will do even that well.

Self-employed, “freelancers” and contract workers, a rising share of the workforce, are also losers in a public health care financing system that subsidizes employer-based health insurance, but does little for them. Employers increasingly hire “freelancers” and temps rather than employees just to provide lower compensation – no health care, no retirement plan, no required contributions to Social Security and Medicare – to the next generation of workers, while maintaining tax-advantaged benefits for those already on the payroll, and for management.  

Among the self-employed there is a-sub group of very valuable, but politically under-represented people – entrepreneurs who hope to become major employers themselves someday.  A burst of entrepreneurship could turn the economy around, replacing older businesses and types of businesses that are declining and consolidating. Would-be entrepreneurs, however, have a big disincentive to start new companies.  They are inhibited by the high cost of individual health coverage, and potential financial ruin if they choose, or are forced, to remain uninsured while starting a company.

And it isn’t just healthy young people who could become entrepreneurs – those over age 50, who have accumulated assets, contacts and knowledge over a lifetime, also start businesses.  And it isn’t just entrepreneurs who are penalized by America’s health care finance system.  Those who choose to become artists, to become missionaries, even to run for public office, lose out as well.  

A reduction in entrepreneurship is just one of the ways that the existing health care finance system reduces economic flexibility, diminishes economic opportunity, and reduces economic growth.  Anyone with both employer-provided health insurance and a chronic condition, or with a family member who has a chronic condition, is inhibited from changing jobs, since new employers may are less likely to hire those who might cause their health insurance premiums to rise.  The employment relationship, therefore, is no longer voluntary – the employee is more like a slave, unable to sell their services in the free market – even as they could be laid off at any time.

Small and medium sized companies that still offer health insurance are inhibited from hiring potential employees who have, or who (based on their genetic history) may develop, expensive chronic health problems.   Even if those workers could help their businesses.  For small businesses, the insurance payments for a single unhealthy employee may be enough to bring on a devastating premium increase.  As a result, genetic testing may make some potentially valuable workers increasingly unemployable. 

Those over age 50 are, in fact, virtually unemployable today – until they reach age 65 and qualify to Medicare.  No wonder the employment rate for men age 50 to 65 has remained far lower than in the past, even as it rises for men age 65 and up.  

The result is lost economic potential for the economy, and hardship for the individual.  In fact, the entire employer-provided health insurance system is in a state of slow motion collapse.  The only question is whether to continue to tax the uninsured to subsidize it further, or to break free to a new system that makes more sense for the economy.

So you have what is actually a mostly government-driven health care financing system that not only replicates the inequalities that existed before the public sector got involved with health care.  It exacerbates those inequalities, while also inflating costs, discouraging employment, and limiting economic dynamism.  

Given all these disadvantages, why hasn’t the federal government, responsible for most of this mess, enacted root and branch reforms?  Why are both political parties against it, with one just wanting to add more and more money to the existing system, and the other wanting to take away benefits from those other than today’s seniors?

Consider who the winners are.

The current system benefits today’s elderly, whose retirement income is exempt from the payroll taxes used to pay for their care under Medicare. The cost falls on others, and as divorce and mobility break down extended family ties, those others are less and less likely to be the objects of concern in many families. Indeed, the 1980s elderly uprising, after the Congress had the nerve to pass an additional Medicare benefit for seniors financed by taxes on the seniors themselves, is the stuff of political legend.  It was quickly repealed.  

Later, the Republican Bush Administration pushed through an increase in their benefits, the prescription drug benefit, paid fore exclusively by debts on the backs of later-born generations. The seniors liked that better.  But they bitterly resented Obamacare as “socialism,” since it did something for someone other than themselves.

(Prior to Obamacare, seniors that required custodial care they could not afford could qualify for the program without losing their house and retirement savings.  Obamacare extended that to those under age 65).

Those affluent or fortunate enough to have employer-provided health insurance are also winners, thanks to the tax deduction. Employer-provided, government subsidized health insurance is most secure for those with seniority in unionized companies and industries; of these, public employees are the best off, with the most generous coverage and the lowest chance of losing their jobs. 

No wonder the unions, especially the public employee unions, were so firmly behind Al Gore and against Bill Bradley in the 2000 Democratic presidential primary.  Bradley had proposed universal health insurance, and Al Gore had criticized the cost of it. Why would union members want to pay taxes for others to get something that they were already getting, at other people’s expense, themselves?  You had the same dynamic with Clinton vs. Sanders in 2016, and Biden vs. Sanders in 2020 – Biden promised not to push for a reformed, equal health care finance system.  

It was the public employee unions that fought Obamacare in 2008, and got the changes they wanted – shifting the cost of limiting the federal tax subsidy on high cost plans, like theirs, back to taxpayers at the state and local government level.  They now want to get rid of even that.

https://www.theatlantic.com/business/archive/2010/01/special-deal-for-labor-unions-in-health-care-bill/33532/

The distribution of cash income has become more and unequal in recent decades.  But the distribution of employee benefits such as health insurance has become more unequal as well.  Even if one has employer-provided health insurance, the value of the tax benefit is greater the more you earn, and the more costly that insurance is, something the “Cadillac Tax” was supposed go rein in.  And unlike other tax breaks, the exclusion of health insurance from income comes right off the top, does not phase out at higher incomes, and is not affected by the alternative minimum tax.  Billionaires get the subsidy; burger flippers do not.

Thus in health care, as overall, it is the executive/financial class, the political/union class, Generation Greed, and the serfs.

The health care and health insurance industries are themselves winners, since the mishmash health insurance system allows them to milk the public treasury without appearing to do so.  

No wonder they opposed Bill Clinton’s universal health care plan in 1993.  Not only the insurance companies, through the Republican Party, but also Local 1199 and the Greater New York Health Association, through the Democratic Party. Government-funded health care spending, via Medicaid, was soaring in New York at the time, and they didn’t want a new system that inhibited their ability to charge more and more. 

Part of the winnings are in the form of higher prices, leading to higher wages, benefits and profits (and union dues), for health care in the United States compared with other countries.

https://www.healthaffairs.org/doi/10.1377/hlthaff.2018.05144

A 2003 article titled “It’s the Prices, Stupid,” and coauthored by the three of us and the recently deceased Uwe Reinhardt found that the sizable differences in health spending between the US and other countries were explained mainly by health care prices. As a tribute to him, we used Organization for Economic Cooperation and Development (OECD) Health Statistics to update these analyses and review critiques of the original article. The conclusion that prices are the primary reason why the US spends more on health care than any other country remains valid, despite health policy reforms and health systems restructuring that have occurred in the US and other industrialized countries since the 2003 article’s publication. On key measures of health care resources per capita (hospital beds, physicians, and nurses), the US still provides significantly fewer resources compared to the OECD median country. Since the US is not consuming greater resources than other countries, the most logical factor is the higher prices paid in the US. Because the differential between what the public and private sectors pay for medical services has grown significantly in the past fifteen years, US policy makers should focus on prices in the private sector.

And part of it is the ability to sell people on unnecessary and ineffective care, since it is “free.”  

Public funds and tax-based subsidies are used to pay for, or to subsidize, the most advanced, costly, high technology health care in the world, for those fortunate enough to benefit from it.   Organ transplants.  Artificial bones and hips.  Advanced, non-generic drugs.  Personal health aides.  Viagara, Levitra, and Claritan.  Fertility treatment. Orthodontic treatment.  Advanced sports medicine to allow participation in sports into late middle age and early old age.  In some cases, even plastic surgery. 

Americans no longer expect the health care system to merely preserve their life to the extent practical, but also to make it perfect, free from disability, disappointment, aches and pains.  And there is nothing wrong with that, if they are willing and able to pay for it themselves.   But many people expect others to pay for care they would never be willing to pay for themselves.  And many of the same people are not willing to pay for others to have even basic health care.  

Meanwhile, working people who do not receive employer-financed health insurance, and cannot afford to purchase health insurance themselves, pay taxes for other people’s health care but get next to nothing.  Other than perhaps subsidized Obamacare, a program the beneficiaries of most public health care spending and subsidies have opposed.

Consider once again the trend in U.S. healthcare expenditures as a percent of GDP.  

It soars in recessions, when GDP drops, but never really falls, even as GDP recovers.   Including investment, U.S. health care expenditures equaled 13.3% of GDP in 2000, at the peak of one economic cycle, 16.0% in 2007, at the peak of another, and 17.7% in 2019.  

Now consider the health care spending priorities in New York. What happened to basic public health spending in the run-up to the COVID-19 pandemic?

How about the explosion of Medicaid-funded home health care expenditures in New York, one that is so massive that it must be substantially driven by fraud?

https://www.justice.gov/usao-sdny/pr/10-defendants-arrested-home-health-aide-fraud-scheme

These ten defendants allegedly attempted to swindle the managed healthcare system by billing for no-show cases, where aides provided no actual assistance to patients. “Money that’s earmarked for Medicaid-approved services, and fraudulently paid out to those who don’t render these services, is a crime that’s ultimately paid for by taxpayers themselves. In this case, as we allege, there were even patients involved in the kickback scheme who were willing to play along with the no-show scam in order to earn a few extra bucks. With a nearly $5 billion increase in managed long-term care plan spending recorded over a recent six-year period, the money paid out to those charged today is no drop in the bucket.”

New York’s state legislators have been convicted of organizing Medicaid-related fraud over and over again. But “let’s not talk about the past!” “How dare you trade one need off against another!” As if that isn’t what actually happens.

Then you have the deceit, by “progressive” Democratic politicians and the interests that back them, around the word “affordable.”  The Democratic Party, we are told, is in favor of “affordable” health care, “affordable” higher education, “affordable” public transit, “affordable” housing.  

Does that mean they support policies to reduce the cost of any and all of the above?  No!  It’s the opposite. They want all of the above to become ever-more expensive, relative to the incomes of taxpayers and beneficiaries, because they receive campaign contributions from the organizations that produce these services, who want to become relatively richer and richer.

When they use the word “affordable” what they actually mean is “more heavily subsidized.”  To allow more and more to be charged without individual beneficiaries becoming worse off to pay for it.  But even in states where the tax burden is sky high and rising, such as New York, there is never enough money to provide more and more in subsidy for all. So the choice is made to provide more and more money for fewer and fewer, even as others are left to do without.  And that’s what our health care system is.

If the Republicans actually believed in cost-effective government, as they once pretended, and the Democrats actually were the progressive egalitarian party, as they still lie and say they are, then a reform deal is easy to see. 

  • Government funding would be used to provide everyone with basic health care, equally, for a cost similar to that of developed countries.   
  • People would be free to pay for additional health care themselves, without taxpayer subsidies of any kind.
  • Government spending – direct and indirect – would stop rising as a share of GDP, with any future increases in services offset by decreases in cost, to satisfy Republicans, but the existing government spending would be allocated more equally, to satisfy Democrats.

In reality, what you have is two parties of special interests.  The public employee unions and portions of the health care industry for the Democrats.  The rich, corporations and other parts of the health care industries for Republicans.  All these interests take money off the top, and no reform that forces the privileged to hand anything back is considered.

There is a danger — not just in California, but everywhere — that politics becomes an aesthetic rather than a program. It’s a danger on the right, where Donald Trump modeled a presidency that cared more about retweets than bills. But it’s also a danger on the left, where the symbols of progressivism are often preferred to the sacrifices and risks those ideals demand.

Using tribalism to distract attention from growing social injustice, and generational inequity, driven by government policy. Because those doing the posturing benefit from those social injustices and generational inequities.  There is absolutely, positively, no way that California is worse in this regard than New York.  It isn’t even close.  In New York everyone is a liberal until resources become scarce, and then everyone is a hypocrite.

This is not a “danger,” and it’s not a mistake. It’s a strategy – to blame someone else for 40 years of policies that have favored those now over age 62 over everyone born later, and the richest and most powerful among them in the executive/financial class and the political/union class over everyone else.   In health care nationally, as in public education and many other things in New York, Americans are already paying far more than should be required for something better, but they are being cheated out of it.