The burden of carrying healthcare by taxpayers is getting heavier every year. We can thank President Obama for that, even though he promised ObamaCare would “bend the cost curve down” for healthcare spending.
According to Chris Conover, Duke healthcare economist writing in Forbes, by 2025, federal, state and local taxpayers will be financing fully two-thirds of American health care! This is seen dramatically in the graph below:
You won’t get this data from the Center for Medicare and Medicaid Services (CMS) because they do their calculations differently. They report the federal government will pay only 29.7% of health spending in 2026, while state and local government will pay only 10.9%, making a grand total of just 40% of total healthcare spending.
But Conover says they arrive at this low figure by ignoring the literally hundreds of billions of dollars in health-related tax expenditures – the largest of which is the tax exclusion for employer-provided health coverage.
In 2016 alone, the federal government lost over $300 billion in revenues due to such tax expenditures and states/local governments lost an additional $40 billion. By 2025 the federal tax revenue loss alone will exceed more than half a trillion dollars!
Why is this important?
Conover says, “At the margin, each dollar of tax-financed health spending shrinks the economy by 44 cents.” That means when government pays for two-thirds of healthcare and healthcare consumes 19.9% of GDP (the official CMS forecast for 2025), these figures imply we will forego 5.9% of GDP due to tax-financed healthcare.
In other words, we will lose $1.1 Trillion dollars of economic stimulus! That amounts to an expense of about $3,000 per U.S. resident. I’m sure that money would go a long way toward alleviating the financial difficulties of most Americans.
The point of all this is we should be minimizing rather than maximizing the share of health spending funded by taxpayers. Economists call this drag on the economy an enormous “excess burden.” The government should get out of the business of financing the healthcare of the wealthy through Medicare and go to a means-tested system of government support rather than one based solely on age.
Conover says the $300 billion a year tax exclusion could be used to finance a new system of “universal tax credits that would provide everyone with the means to purchase catastrophic coverage but not incentivize people to purchase lavish policies with little cost-sharing or that cover routine care that grown-ups can and should budget on their own.”
Think about this. No one expects that homeowners insurance will pay for mowing the grass nor for auto insurance to pay for gasoline and oil changes. Why do people expect health insurance to pay for routine medical expenses?
If we treated health insurance like homeowners or auto insurance there would be more money saved in taxes and premiums that could fuel the economy and raise our standards of living.