The American "privatized" health care system is heavily
subsidized with public dollars.
More than half—56.1 percent—of all health care spending within
the civilian noninstitutionalized population is accounted for by government
spending, according to a study posted on July 29 in Health Affairs
Furthermore, public spending increased with poorer self-reported physical
and mental health. Close to $12,000 in public dollars was spent per capita on
people who reported being in poor mental health. That amount did not include
spending on those receiving institutional care or who were active-duty
But the study also found that the largest component of public spending is
in the form of tax subsidies of all kinds—a hidden, or implicit, form of
public support that is not typically included in health expenditure
calculations, but which accounts for more than is spent on Medicare and
Medicaid. Moreover, it represents a public benefit that is shared across
income levels and physical and mental health status.
Lead author Thomas Selden, Ph.D., an economist with the Agency for
Healthcare Research and Quality (AHRQ), said the finding is a valuable one as
total health care spending is expected to approach $2.4 trillion in 2008 and
as health system reform looms as an imperative for the next presidential
"It is undeniable that we have a large public intervention in health
care, and the question is how best to structure that," Selden told
Psychiatric News. "Do you tap into competitive market forces by
offering subsidies, or do you go for direct public financing? However we
resolve this, we are going to have a very large public involvement in health
Selden and coauthor Merrile Sing, also of AHRQ, pooled data for 2002 and
2003 from the Medical Expenditure Panel Survey (MEPS), an annual household
survey sponsored by the AHRQ, and the National Center for Health Statistics.
MEPS is designed to yield nationally representative estimates of insurance
coverage, medical spending, insurance premiums, and a wide range of other
health-related and socioeconomic characteristics for people in the U.S.
civilian, noninstitutionalized population.
To account for public outlays that are missing or underreported in MEPS,
the data were aligned with information from the National Health Expenditures
Account, produced by the Centers for Medicare and Medicaid Services. The
report combines provider revenue estimates and administrative claims data to
produce aggregate estimates of U.S. health spending by service type and
The authors also allocated Medicaid and Medicare disproportionate share
payments and state and local funding for public hospitals using MEPS data on
uncompensated care. Other estimates were made for spending on public health,
research, and infrastructure.
Finally, they estimated a comprehensive array of tax expenditures at the
household level, relying heavily on a model used by the National Bureau of
Economic Research. As expected, the largest tax subsidy was from the exclusion
of employer-sponsored insurance premiums for current workers from federal and
state income taxation and from Social Security and Medicare payroll taxation.
The second-largest component is the exemption of medical care from state and
local sales taxes. Other tax expenditures include the medical-expense
deduction, self-employed insurance premium deduction, the tax preference for
retiree coverage, and other deductions.
All told, there is a striking number of ways in which public dollars
support American health care (see table), totaling an estimated $753 billion,
more than half of the total health care spending for the U.S. civilian,
noninstitutionalized population. Of that $753 billion, tax subsidies accounted
for $214.8 billion, more than was spent by either Medicare or Medicaid.
Public spending averaged $2,612 per person in 2002 dollars. Tax subsidies
averaged $745 per person, according to the report.
Not surprisingly, public spending on health was heavily targeted at those
enrolled in public coverage, with spending for people receiving both Medicare
and Medicaid averaging $12,859 per person. Public spending was also high on
those with poorer self-reported health and mental health; just under 80
percent of all spending on people with poor self-reported mental health comes
from public dollars, according to the report.
Somewhat more unexpected is the fact that even among people with private
insurance, public spending accounted for 41.1 percent of total spending. Tax
expenditures made up nearly two-thirds of this total, with most of the
remainder explained by publicly funded uncompensated care and broadly targeted
spending on research, public health, and investment.
"We think we are paying into this system and buying our coverage, but
the public sector is picking up a large portion of the insurance
premium," Selden told Psychiatric News.
Again not unexpectedly, public spending was strongly related to age, with
expenditures rising with age. Children aged 18 or under received $1,225 of
public spending per capita, on average, which was less than one-fifth of
average public spending for seniors over age 65 ($6,921).
More interesting is the dramatic difference between the two as a share of
total spending: public spending was 10 percentage points higher for seniors as
a share of total spending than for children. In fact, the public share for
children was only 5.4 percentage points higher for children than for adults
under age 65.
"We thought that was interesting in light of the large debate that
has been going on over expansion or rollback in public coverage for children
in the SCHIP programs," Selden said in an interview. "There are
two points here—one, children are far less expensive overall than
seniors, and two, once you add everything up, the public commitment to paying
for children's health care ends up being a lower share of total spending than
that for seniors.
"It also dramatizes simply that a lot of public spending is going
toward seniors. It's not a value judgment; it's just that it's a lot of
"The Distribution of Public Spending for Health Care in the
United States, 2002" is posted at<http://content.healthaffairs.org/cgi/content/full/hlthaff.27.5.w349/DC1>.▪