Many people in the United States assume that employers and the government, along with a few individuals, work together to help shoulder the cost of healthcare.
Nothing could be further from the truth.
Who Really Pays For Healthcare in America?
The prospect of truly affordable and widely accessible, quality healthcare in America is the holy grail of our generation. Countless time and treasure have been spent in the pursuit of a more equitable system that allows the sick to get the health care they so desperately need without drowning in insurmountable debt or being financially devastated.
Most Americans would agree that a hard-working employee, who puts in 40 hours of work or more in a full-time capacity ought to be able to afford dignified healthcare that won’t bankrupt him or her. Even those lucky enough to have either employer-sponsored or self-funded health care often can’t afford it, they are "functionally uninsured"; they spend sometimes 30% of their gross wages for a plan they don't have money left to use because of high deductibles, copays, and coinsurance. More than 50% of Americans don't have $400 to spend on acute care without going into debt.
The Burden of Providing Healthcare
In the pursuit of a better healthcare system, the conversation often turns toward who will bear the burden of ensuring a viable healthcare system. Ideally, individuals, employers, and the government would work together to carry the burden of providing equitable care to as many citizens as possible. Many people too often assume that this is already the case.
According to conventional wisdom, employers already pay a good chunk of workers’ healthcare premiums. Likewise, the government provides subsidies for those who need it in the form of financial aid, subsidies, and social welfare programs such as Medicare and Medicaid for the elderly and low-income families respectively. Individuals, or so the thinking goes, pick up what remains of the healthcare tab.
In a perfect conception of the world, this trinity of parties all pitching in to help each other shoulder the weight and financial burden of the cost of healthcare seems to make sense.
The private sector bears some cost and responsibilities for the health and well being of its workers. The government carries some cost and responsibilities for the health and well being of its citizens. Also, each person or family has an individual responsibility to take care of his or herself and/or family. If everyone contributes, no one needs to go without the healthcare, they need to not only survive but thrive.
While this concept of the healthcare system seems nice in theory, it remains an idyllic theory only.
The truth is there is no nice and neat trinity of equal and mutually beneficial relationships that all work together to bear the weight and responsibility of paying for healthcare.
Instead, the people that pay for this nation’s spiraling out of control healthcare costs aren’t companies or federal, state, or local governments. Instead, virtually all the costs of healthcare are borne by individuals in one way or another.
Companies Don’t Pay For Healthcare, You Do
All signs point towards companies shifting the burden of paying for rising healthcare costs to their employees.
The evidence is everywhere and self-evident.
Just ask yourself, “Why do I pay more and more every year for health insurance that covers less and less?”
While health insurance premiums have risen year over year in the last decade, the total share of this increasing healthcare burden shouldered by employers has either fallen or stayed somewhat stable. Instead, according to many surveys, workers are increasingly picking up the ever-growing healthcare tab.
Look at wage growth compared to the cost of healthcare from one year to the next. A booming economy and a tight job market would seem to indicate a strong wage growth for employees. When there are fewer workers, there is more competition for employers to keep and attract more talent. That is economics 101.
Instead, wage growth has been stagnant even during the recent economic boom.
Part of what’s eating into wage growth for workers is the increasing healthcare costs for families.
The average dollar contribution paid by employees for family coverage has increased by 21% since 2013 and 65% since 2008.
According to the Kaiser Family Foundation, the average annual premiums for employer-sponsored health insurance in 2018 are $6,896 for single coverage and $19,616 for family coverage. Over the past year, the average single premium increased 3% and the average family premium increased 5%. while workers’ wages increased 2.6% and inflation increased 2.5%. The average premium for family coverage has increased by 20% since 2013 and 55% since 2008.
Part of the shift of responsibility from employers to workers has come in the form of healthcare plan offerings with higher and higher deductibles that cover fewer and fewer conditions. The average deductible for a worker with single coverage in 2006 was only $303. In comparison, coverage in 2018 for the same worker was $1,573. Over the past five years, the average annual deductible among workers has increased by 53%.
It is not uncommon for workers to have so-called high-deductible, “catastrophic” insurance plans. Where deductibles over $1,000 used to be considered extreme, today half of all workers with single coverage have a deductible more than $1,500. Many have deductibles of $5,000 or more.
Economists point out that most companies don’t pay for their employees' healthcare. Instead, they pass down the costs to their employees by pricing the cost of healthcare into the wages they pay their employees or by cutting other benefits.
If an employer knows that it will cost $10,000 to cover their share of an employee’s healthcare, it will pay the employee $10,000 less in salary, pullback benefits, or cut costs elsewhere. The salaried employee or the working person ends up with the burden of the costs in one form or another.
The Government Doesn’t Pay For Healthcare, You Do
Another enduring myth about the American healthcare system is that the government bears a portion of the costs. Many a political fight over healthcare funding has come about as a result of proponents of Big Government or champions of fiscal austerity coming to loggerheads about how much financial responsibility the federal government should bear for the health and well being of their constituents.
They are missing the point entirely.
Government funding arises from direct and indirect taxes, bonds, and debt. That means the money the government spends on healthcare subsidies and programs ultimately comes from the people. It’s our money. The government isn’t paying for healthcare or shouldering the burden; we are paying through our taxes into the government coffers. In 2018 alone, that number was $1.1 trillion.
Even worse, government intervention into the healthcare market and sometimes its lack of intervention for political reasons (Medicare not negotiating pharmaceutical prices) is responsible for creating market distortions that prop up high healthcare prices and costs. This is known as a third-party payer problem.
When the government injects massive amounts of cash into a market as it does with Medicare and Medicaid, it tips the natural balance of competitive markets.
Government intervention by its very nature creates artificial winners and losers and dangerous market anomalies.
Just look at the Affordable Care Act.
The ACA Created a New Captive Market For Insurers
While the Affordable Care Act (ACA), or Obamacare, did assure plans for high-risk individuals and eliminate noncoverage for preexisting conditions, it did little to address many of the fundamental issues at hand. Namely, it did not solve the dual problems of anti-competitive price opacity and market-distorting third-party payers such as insurance middlemen and, of course, the federal government. Much of the ACA was written in a way that enshrined these interest groups.
The ACA’s individual mandate virtually guaranteed insurance companies a steady source of revenue. The ACA required that all individuals obtain a minimum essential coverage (MEC) health plan from an insurer or pay a “shared responsibility payment.” Unsurprisingly, this effectively pioneered a new market for insurance companies by driving many people who would have foregone this type of health insurance, such as young people who rarely use these services, to purchase these plans. These plans for low-level coverage do not provide for catastrophic coverage, and are not a real solution.,
Additionally, the ACA further misaligned incentives. by capping insurance company profits at 10% of revenue. Thus insurance companies have been incentivized to increase the cost of care rather than curtail it in these plans.
Instead of tackling these problems head-on, Obamacare put bandaids on the status quo system that led to the current healthcare crisis in the first place. That is to say; it did not fundamentally change or address the underlying system and instead opted to tweak certain features of the existing system in an attempt to affect better outcomes for individuals. Many of its effects ended up costing consumers much more.
If Individuals Are Already Bearing the Costs, What Can They Do?
The best thing a person can do is do his or her homework and shop around for healthcare and medical services. I realize this is not always possible. A health emergency will still be a health emergency, and we must work together as a country to devise a way to get people the emergent healthcare they need without ruining them financially. However, up to 80% of hospital bills contain errors, many of those multiple and costly and those can be addressed.
If we’re all paying for healthcare why not have our say how we spend that money outside of medical emergencies? We should not give away control to a health insurance company.
Skip the middleman when possible.
Consider investing in your healthcare by subscribing to a direct primary care (DPC) doctor who will help you find high-quality low-cost care and keep you out of urgent care and ER situations most of the time.
If you have a high deductible or copay, shop around for medical services and pay healthcare providers, such as independent doctors and medical facilities, directly. Use emerging online tools and marketplaces showcasing such care. Use practices like Texas Free Market Surgery and Green Imaging who do the shopping and vetting for you.
These simple steps can save you a lot of money and support your local healthcare providers who are trying to change the system by providing high-quality direct care, without greedy go-betweens.
Often, the direct price or the cash price is the best price and often direct care is the best care!