Who Actually Foots the Bill for American Healthcare?
The following is adapted from Broken, Bankrupt, and Dying.
Do you know the number one cause for bankruptcy in America?
Medical expenses.
In 2019, a survey of Americans who filed for personal bankruptcy found that a shocking two-thirds of Americans who had filed for bankruptcy claimed healthcare was the trigger. I think we can all agree that it’s not a good state of affairs when people have to choose between their health and going bankrupt.
On top of that, the care isn’t even great, especially when it comes to preventative medicine, chronic care, or overall health outcomes. Our system consistently ranks last among our peer nations.
The American healthcare system does not serve everyone, and the people that it does serve, it does so at a high cost. To put it bluntly, we’ve been paying Rolls-Royce prices for Kia-level luxury.
But when I say “we,” who am I really talking about? If we’re shouldering $3.65 trillion dollars annually in healthcare costs, who’s actually footing the bill?
Well, in some ways, that’s one of the most complex parts of the entire system. In the US, it can be hard to figure out in any single instance who the payers are or should be.
There are actually two levels of healthcare payers—an obvious level that actually pays the immediate bill, and a silent, but critical, payer level. I’ll break each level down below.
The 1st Level of Healthcare Payers: The Immediate Bill-Payer
The obvious level of healthcare payers directly pays the healthcare providers for the actual episode of care. So when the hospital, pharmacy, or doctor’s office drops a bill for healthcare rendered, the obvious level payer is the entity that actually pays that bill for services rendered.
In this level, there are four types of participants. First, we’ve got straight government insurance, such as Medicare and Medicaid, or the Veterans Affairs (VA) system. Government insurance is the obvious level payer for patients enrolled in those programs.
Second, we’ve got private insurers. These are private insurance companies that sign up individuals as customers. Customers pay insurance premiums to these companies to purchase and maintain health insurance. In turn, the companies are supposed to pay healthcare bills, as obvious level payers, when their customers become unlucky enough to have become patients who incur medical costs.
Third we’ve got the patients themselves, who are not only the “customers” of the healthcare industry, but turn out to be participants as obvious level payers as well. Uninsured patients pay their bills, or at least the amount they can afford, out of pocket. Insured patients pay deductibles, co-pays, and coinsurance, and a variety of other fees and add-on costs (e.g., per diem hospital rates), that go directly to the healthcare provider.
Finally, we’ve got the American taxpayer, distinct from the patient who’s paying for their own healthcare. We’re going to discuss the deeper, hidden payer level next, and you can expect to see taxpayers come up again there. But for now, we should remember that the American taxpayer is also an obvious level payer. Why? Because someone has to pay for emergency care for patients who have no insurance and cannot afford their healthcare bills. The American taxpayer gets stuck with the bulk of that cost, paid directly to healthcare providers, funded by local, state, and federal taxes and fees.
The 2nd Level of Healthcare Payers: The Invisible Funders
The obvious payer level is often simply a pass-through to a deeper payer, whose name is never on the actual check or wire transfer used to cover the bill, but who actually underwrites the money used by the obvious level payer to pay the bill. These elusive, hidden, nearly anonymous and invisible payers provide the real funding that makes the entire healthcare system work.
There are two groups in the US who serve in this foundational role. The first is you and me of course—the taxpayers of America.
Why do I refer to us as hidden, invisible payers? Let’s stop and think about the obvious healthcare payers I listed above. Government insurance is funded entirely by American taxpayers, including individuals and corporations. Medicare, Medicaid, the VA, and other government/public health insurance programs may be the obvious level payers, but they don’t have money trees in their backyards that they go pluck trillion-dollar bills from to pay healthcare bills. They are, rather, essentially intermediary pass-throughs funded by us and our taxes.
So, when we discuss these public insurance programs, we need to remember that the taxpayers of the US control and fund them, and we have a heckuva lot more influence over them than we do over private payers. Or at least we should, because we fund them with our taxes, and these programs answer to our elected officials, and we get to choose who we elect into office.
Plus, I can’t ignore the fact that we, the people, also pay private insurance companies premiums. Private insurers might foot the obvious bill for healthcare, but they’re just a pass-through for Americans who pay their bills every month.
The second group of invisible payers comprises the businesses and employers of America. In 2020, more than 150 million Americans receive health insurance from their employers. On average, insurance benefits amount to more than 10 percent of total compensation for an employee.
In essence, the way we fund health insurance in the US amounts to a hidden 10 percent tax on businesses and on employees. We don’t consider this to be a “tax” because it is not collected by federal or state tax collectors or by the government. Rather it gets paid to private insurance companies. But it is nevertheless a tax on employee income and employer costs.
The Bottom Line
Here’s the fundamental, critical point. All healthcare costs in the US are ultimately born by the American people and businesses, who pay for healthcare directly out of pocket (personal or corporate). These payments are made via local, state, and federal taxes, and/or via reductions in worker pay to free up money for insurance premiums. To pretend otherwise is to be disingenuous.
People entrenched in the current model might tell you that switching from an employer-sponsored system to a tax-funded one will cause a massive tax burden for American people. But the truth is, we’re all already footing the bill.
The only way to meaningfully reduce our costs is to fundamentally change the way the healthcare system works. We have to redesign American healthcare and shift away from a system that overtreats, overcharges, and underserves. Then, and only then, will we see prices drop.
For more advice on healthcare funding, you can find Broken, Bankrupt, and Dying on Amazon.
Dr. Brad Spellberg is chief medical officer at the Los Angeles County + University of Southern California Medical Center, and the associate dean for clinical affairs at the Keck School of Medicine at USC. Internationally respected as an expert in Infectious Diseases and Internal Medicine, Dr. Spellberg has authored more than two hundred scientific publications, including his award-winning Rising Plague, named Outstanding Academic Title in 2009 by Choice magazine. Dr. Spellberg is also prominently featured in the documentary film, Resistance, and in the PBS Frontline episode, “Hunting the Nightmare Bacteria.”