Income Taxes and Healthcare: The Disconnect

The Keckley Report
 

After leaving Navigant in February, my pondering of ‘what’s next’ was interrupted by the reality of income taxes due weeks later. By midnight tonight, 240 million Americans will have filed, 53% will have paid something to Uncle Sam and all of us will be puzzled by where it goes and how it’s used.

Our federal individual taxes provided 47% of the federal government’s revenues, or $1.48 trillion for FY15.  Payroll taxes paid jointly by workers and employers made up another 34%, or $1.07 trillion and corporate taxes 11%, or $342 billion.

The federal government will spend more than it receives: FY2015 just ended, federal receipts from all sources were $3.25 trillion and expenditures were $3.68 trillion. And 25% of that went to Medicare and the federal portion of the CHIP and Medicaid programs.

Healthcare makes up the biggest chunk of Treasury spending followed by Social Security (24%), Defense (16%), and a bucket of expenditures called Discretionary Spending (16%) over which Congress exercises its influence most directly. And when Defense spending for healthcare is added ($51 billion annually), the state portions of Medicaid and CHIP payments are added, and health coverage for federal employees are added, more than 30% of the federal spending goes to healthcare. So one might reason that if individual income taxes are 47% of total federal receipts, income taxes paid for more than $500 billion of the healthcare tab. But that’s not widely known or understood by taxpayers nor is it a complete picture.

According to the Organization of Economic and Community Development (OECD) data comparisons of the developed health systems of the world, government payments in our healthcare system represents 49% of total funding, with 35% coming from private insurers and 12% from consumers out of pocket payments. By contrast, in the other developed systems of the world, direct payments from the government average 72%; private insurance is 20%; and out of pocket payments are negligible. In other words, our taxes pay less than half and the rest hits us more directly in insurance premiums, co-pays, deductibles, over the counter products and health services.

Case in point: I recently had a physical exam. My physician ordered a set of lab tests and an echocardiogram. Last week I got the paperwork: my charges were $538 for the four lab tests, and $3041 for the echo. My insurance paid $2261 and I am on the hook for $1317 largely for a test my internist advised was precautionary. These expenses are in addition to my taxes and insurance premiums.

And as I began my search for insurance coverage post Navigant, I discovered what millions know well—it’s expensive and complicated. I ended up paying an independent advisor $250 to assess my options and advise accordingly. I’ve been in health services research for 40 years and I am confused by all the rules and regs around Medicare Parts A, B, C and D, much less how much I will pay in premiums and deductibles. And I have been paying my Medicare withhold taxes since 1971! 

At the center of the health reform movement in our country, and central to the Affordable Care Act, is the notion of value-based purchasing. That’s shorthand for replacing incentives to do more tests, procedures, visits and admissions with payments for only what’s efficient and effective. Let’s face it: our system of healthcare, at $9400 per capita, is the world’s most expensive because we pay more for the drugs, technologies, buildings and professionals than anyone else.  We expect the latest and best, and assume somewhere somehow it’s sustainable year by year. After all, for four decades, healthcare spending has exceeded our GDP overall by 2% or more: We somehow absorb it in our economy by raising taxes, charging more and collecting what we can. The OECD data shows that our costs are nearly 50% higher than what’s spent in countries like Norway, France, Switzerland and the UK where outcomes are comparable and satisfaction higher. Citizens in these countries pay additional taxes to fund a larger portion of the system, and in turn, additional services are included, and more cost is absorbed  (i.e. payroll tax for Medicare).  The citizenry associates taxes with their healthcare system. Example: At the opening ceremony of the 2012 Olympics in London, the UK celebrated its NHS on its 50th anniversary as its national treasure.

Do U.S. taxpayers associate their taxes with the healthcare system? And if so, do they think they’re getting their money’s worth?

Polls show Americans favor a simpler payment system and satisfaction with its performance is waning. Investors are flocking to mobile apps that empower price transparency, but there’s scant evidence they’re making a dent in what’s spent. And the volatility of the private insurance market and spike in drug prices is sparking attention to how we pay for the goods and services we receive.

At tax time, the majority of Americans take a deep breath and hope for the best. There is an increasing disconnect between the taxes we pay and quality we receive. Perhaps it’s time to fix it.

Paul

Paul H. Keckley, Ph.D.
The Keckley Report
PO Box 150422
Nashville TN 37215

pkeckley@paulkeckley.com
615-351-0265
www.paulkeckley.com

 Independent Healthcare Research & Policy Analysis