Replace “Obamacare” With Publicly Funded Healthcare
Go on the Attack!
The Republicans are hard at work repealing “Obamacare” (The Patient Protection and Affordable Care Act, AKA “ACA”), but it’s clear to the entire country they have no idea what to replace it with.
I’d like to see it replaced with Publicly Funded Healthcare. This is a system where all essential healthcare is paid by the federal government out of a progressive tax.
This has three clear advantages over defending ACA.
First, Publicly Funded Healthcare is a winner. It’s a clear step forward and vastly superior to any market-based proposal Republicans can make. Republicans have already convinced people, even many Democrats, that ACA has flaws. Chief among them are the costs for many middle-class families. As a counter to Republican proposals, Publicly Funded Healthcare is a much stronger competitor than ACA.
Second, now that Republicans have opened up the healthcare debate, we have the enormous opportunity to move forward on healthcare. They gave us the opportunity to solve the practical issues of healthcare. These are commonly summarized as the need for fair, universal, and affordable healthcare.
Third, it actually fixes the problem. ACA didn’t bring costs down, never covered everyone in the country, and still doesn’t distribute costs fairly. Publicly Funded Healthcare eliminates those problems.
This is our opportunity to get fair, universal, and affordable healthcare.
The Healthcare Problem
Healthcare became a political issue when costs soared past 15% of GDP. In 2015, U.S. GDP was about $17.9 trillion and the healthcare sector cost us about $3.2 trillion, or 17.8% of GDP. [A,B,C] (References given in square brackets refer to the References section, below. The References section points you to pages on the Web where you can check the claims made.) Money spent on healthcare comes at the expense of spending in other vital sectors—food, clothing, housing, transportation, education…you name it.
For this enormous spend we get less than universal coverage. In 2015, the number of just non-elderly Americans without coverage was over 28 million. [D]
Other countries do better.
The U.K. spent about £140 billion in 2014 on a GDP of £1,644 billion, about 8.5%. [E] Health outcomes in the U.K. are comparable to those in the U.S. (despite what you may have heard), and one study showed the U.K. has the best end-of-life care in the developed world (despite what Sarah Palin appears to believe). For this 8.5% they cover everyone, whereas the 28 million “young” people in the U.S. without healthcare constitute almost 9% of our population.
At a minimum, we need to reduce costs to 15% of GDP or less to get affordable healthcare, at the national level, and for that reduced amount it needs to cover everyone.
It also needs to be affordable for the federal budget and for individuals. Another big impetus for ACA was to restrain federal spending on healthcare, which was spiraling out of control. ACA made serious progress on this, but individual costs are still so high that a large constituency wants to abandon it, even though they are getting better coverage. (Or, getting coverage at all, because now they face a stiff penalty if they don’t buy in, so they’ve taken out insurance for the first time.)
This goes to the fairness issue. How do we fairly distribute the costs of healthcare?
The Republican Failure
Republicans are not interested in talking about fairness. When they do, they whine about how it’s unfair for people with no health problems to have to pay for people who need care.
The Republicans are divided over how vile to be. Some of them want to put enough government money into healthcare that they don’t look like heartless ghouls and some of them don’t want to put any government money into healthcare at all.
Republicans leaders want to go to a totally market based system, where it’s basically up to the individual to pay for any insurance they get and to go bankrupt if they get any serious medical problem. They want to push the risk down as far as possible, in their eyes ideally to the individual level. “Have a health problem? That’s your tough luck, buddy!”
This is exactly in the wrong direction. Risk should be shared by the biggest group possible, ideally the entire population. That’s not only fairer, but it’s more fiscally responsible. The more risk is divided up, the more money has to be set aside to cover that risk. If you have a hundred people in your risk pool, the statistical chances that something unforeseen will happen to it are large, but if you pool is 320+ million Americans, statistically you know exactly what’s going to happen. [F]
The foundation of Republican plans is flawed, and therefore all their proposals are flawed. Even if they can get the numbers to balance at the federal level (taxes vs. spending), they can’t ever make their system fair at the individual level. You can apply Rep. Alan Grayson’s description to any and all of their plans.
Publicly Funded Healthcare Fixes the Problem
Publicly Funded Healthcare gives people more choice than the Republican plan. Under it, you have total freedom to pick your provider and select the service from them you want. It is tailored to your unique needs. The Republican plan forces you to select from only coverage you can afford. This severely limits the type of treatments anyone not in the highest wealth levels can get.
Publicly Funded Healthcare fixes the cost problem by doing away with totally unnecessary costs caused by private health insurance. It does that by integrating these companies into a single payment system. It’s a kind of single-payer system.
The difference between Publicly Funded Healthcare and plain old single-payer is how the money is raised. For example, one proposal is to extend the Medicare system. How would we raise the money for this? Medicare is supposed to be funded by a 2.9% payroll tax on wages. This is a flat tax.
The problem with a flat tax is that it is inherently unfair. Using a flat tax to pay for healthcare means poor people are subsidizing healthcare for the rich. That’s because to raise the money needed for the average cost of care, you need to have a rate high enough cover that cost. People with low incomes then pay a much higher percentage of their income for this coverage than those at the top of the pay scale.
Right now, most of the cost of Medicare actually comes from the federal budget. A part of that is progressive income tax, but much of it is excise taxes, tariffs, and corporate taxes, which are not progressive.
Publicly Funded Healthcare would establish a separate, progressive tax just for healthcare. The net result of that is that the burden currently placed on working people would be substantially relieved.
In fact, we currently spend a lot of tax money on healthcare. In 2016 we spent [G]:
$585 billion for Medicare
$344 billion for Medicaid
$65 billion for Veterans Health Administration
That’s almost a trillion dollars for healthcare in federal spending, alone. Considering the total revenue from individual income taxes and the Medicare tax is about $1.85 trillion, that’s a lot of money. [H] (The balance, of course, comes from other federal income—and the deficit.)
We would move the portion of this budget paid by individual taxes into a new, progressive tax. This would relieve the burden on low-income tax payers, making the system fairer.
Most of this trillion dollars goes to providers (or, especially in the case of the VA, is spent directly on providing care). In the private sector, another estimated roughly $850 billion was spent in 2016 by private health insurers on providers. [I] This includes hospital care, physicians’ services and clinical services, prescription drugs, and similar things. This does not include spending on nursing homes, dental, and many other components of the healthcare sector, but it gives us a glimpse of what goes to care and what goes to overhead.
States also spend money on care (for which I don’t yet have figures), but on the face of it about $2 trillion of the $3.2 trillion we spend in the healthcare sector probably goes to providers, either through federal programs or private insurance. This suggests there is approximately a trillion dollars that doesn’t directly go to care.
Where does this money go?
A lot of it goes to profits and overhead costs, such as marketing, sales, and administration of benefits. Profits in the industry are around 3% (they were estimated as 3.2% for 2015). Net operating margins were around 6.9% at this time. Administrative costs were previously approximately 13% (from 2010 to 2012) for all healthcare companies. [J]
This is only the payer side of the equation. There are also significant administrative costs on the provider side. I’ve seen estimates of around 15% administrative costs across the system, and based on the numbers cited here I think 15% is probably a minimum.
There’s no reason for profits on health insurance. Profits on health insurance come from the suffering and death of the insured. Collecting and paying for healthcare is a natural government function. It’s part of the government’s duty to protect the people. What we’ve done with health spending effectively is to outsource a government service. Outsourcing government services is always wrong. When you outsource a government service, the taxpayer pays twice. First, they pay for the service, and then they pay for the profits.
This is the wrong way to pay for healthcare, and that’s one reason it’s performed so poorly. If you do something wrong you get a bad result.
Publicly Funded Healthcare would eliminate much of this overhead. Let’s just take the $850 billion spent by private insurance companies as an example. In the years 2010-2012, claims paid in all these markets were about 85%, with the other 15% going to profits and administrative costs. [See the CBO link in reference J.] About $150 billion went to overhead.
A public payment system could run on about 5% overhead. We know this because the UK NHS was running on 5% administrative costs until “quasi-market reforms” caused the costs to jump to around 12%. [K] Also, the Veterans Administration runs on about 5.6% administrative costs. [L]
In fact, since the system would not be running providers or own facilities, it could probably operate on a slimmer margin. But as a target, we could expect to save about $100 billion a year, just from converting private insurance to a public service.
This would also reduce costs for providers. Providers must deal with thousands of plans. With Publicly Funded Healthcare, they would only be dealing with one plan, and it would fundamentally have this rule:
If it’s essential for the health of the patient, the provider gets paid for providing it.
Getting to Publicly Funded Healthcare
Here’s the plan:
Preparation: Establish regional governance for the system. This provides a method for members of the medical profession and resident in each major region of the country to work out the basic rules and definitions, such as what procedures will be covered in that region.
First Phase: Establish a Department of Health Funding, with authority to use federal funds to pay for essential healthcare not covered by Medicare or the VA. Establish a federal surcharge on income taxes that helps provide funding for this agency. Transfer Medicaid funding and administration to this agency. Purchase all health insurance companies and integrate them into this agency. Give employees at health insurance companies temporary income and support in finding jobs in other industries. Set up payment system for providers and certify them. Start paying for all essential healthcare for those under 65.
Second Phase: Integrate Medicare and any other government payment of healthcare into this new system.
Third Phase: Establish a Department of Health Delivery that provides all public health services delivered directly to the public and all funding for research into health practices and drug development. Transfer health delivery currently provided by the VA and other government agencies to this agency. Transfer the management of research funding to this agency. Transfer any remaining payment systems to the Department of Health Funding.
The activity in some of these phases may overlap.
How Publicly Funded Healthcare Works
Qualification for Coverage
The basic qualification for coverage under this plan is to be a native or naturalized U.S. citizen or in one of these qualifying groups:
In the official process of immigration
On a valid visa
Some medical procedures would not be covered unless you were a citizen. For example, childbirth services would not be covered for those immigrating. (I think you can guess why.)
Some services would also be available regardless of your status. That would include:
Emergency services needed to stabilize your condition
Treatment for any communicable disease
The first of these falls in the category of humanitarian aid. The second goes back to the basic purpose of government: to protect the nation.
For those qualifying for all essential care, the application of the criterion “essential” would depend to a limited degree on which region of the U.S. you resided in.
Just like there are twelve Federal Reserve Districts, this proposal for Publicly Funded Healthcare envisions about a dozen regions for the system. The needs of regions are somewhat different, and it will be easier to develop standards for the system if each region takes its own initiative to develop them.
Within these regions, proposed standards for “essential care” would come from the medical community. Each medical practice within the medical community would elect a Board of Medical Practice for their specialty, and that board would set the standards.
For example, Doctors of Medicine (MDs), would establish standards for essential care for common procedures in their profession based on the general definition for the system, which is “care that is medically necessary for the continued health of the patient”. Similarly, Doctors of Osteopathic Medicine (DOs), would establish standards for procedures they commonly carry out.
If a profession was licensed in any of the states in the healthcare region, the medical practitioners within that profession would have its own board to propose standards.
Also within each region citizens would elect a Board of Governance for that region. This board would approve recommendations from the boards of medical practice. The governors for the region could negotiate with the medical profession to reach agreement. If they couldn’t agree, the governors’ decision could be appealed by the profession to a federal court.
In addition, if a patient was told they were not eligible for payment for a treatment, they could appeal in federal court on the grounds the treatment is medically necessary under the general definition.
Each member of Board of Governance would be elected to represent a district of about 320,000 people (1/1000th of the population). By making the districts smaller than congressional districts, we make them harder to gerrymander.
For the first phase, we need to fund the combined costs of Medicaid plus private health insurance. We can take that the current funding for Medicaid includes its administrative costs, so about $344 billion. The cost for private insurance claims payments is around $850, and we need to add around 5%, our target for administrative costs, getting around $900 billion.
To get started, we can transfer the $344 billion for Medicaid from the federal budget. This isn’t as good as raising it as a separate tax, because it’s not as progressive, but we can fix that later. This means we only need to raise $900 billion in extra taxes to cover existing costs. Private citizens (and the companies they work for) are already paying more than this to private insurance companies. In fact, they are paying about a trillion dollars, so this represents a savings to them of about $100 billion a year.
Unfortunately, we also need to cover the other 9% of the population currently without coverage, so costs will be closer to $1 trillion, erasing that savings.
Given the income distribution in the U.S., I recommend establishing rates roughly as follows, based on household income:
Under $30,000 … no insurance tax
$30,000 to $50,000 … 4%
$50,000 to $200,000 … rates between 5 and 13%
Over $200,000 … 17%
This is calculated to raise about a trillion dollars in revenue to pay for estimated payments to providers plus administrative overhead.
With these rates, about 27% of households would pay no health insurance tax and another 31.5% would pay 5% or less. This means more than half of taxpayers would have very affordable payments, especially if this proposal were combined with a minimum wage hike that brought most families close to a living wage. Virtually no one would pay more than they currently are paying for health insurance premiums, except for the very wealthy.
In addition to a medical tax for individuals, we should also impose an excise tax on prescription drugs. That tax would be based on drug profits, so it would tend to normalize drug prices. It’s time to stop U.S. citizens getting stiffed by the drug companies just for being Americans.
That tax would kick in once the drug company had revenues over 500% of the development cost of the drug. This would allow those companies to recoup their investment and pay for the costs of their operation. It would, in fact, allow them to invest proceeds in further drug development.
The excise tax would start at 10% for additional profits (over 500% of development), and rise as revenues covered higher percentages of development costs. It would reach 95% after the company hit 20 times the development costs (2000%).
To the degree this contributed revenue, the tax rates for individuals would be reduced.
Under this system, it is unlikely companies would continue to charge thousands of times the cost of drug production. And, if they did, 95% of that profit would go to the system, where it could be used to pay those drug costs.
Would there be co-pays for this system?
My suggestion is to have a system of co-pays for a limited number of situations. One of those situations is where the public an be reasonably expected to select between providers. I can envision this for dental coverage, for example.
Co-pays are not appropriate where the patient has no effective way to influence whether they need a procedure or no way to select among providers. In addition, they are inappropriate for preventative care. And, active service members in the military as well as veterans shouldn’t have co-pays.
Co-pays may be required for services that arise from risky behavior. If you go hang-gliding and get hurt, probably you should have a co-pay.
Converting Employer Plans
Under Publicly Funded Healthcare it will no longer be necessary for companies to pay for insurance. One provision of this plan is to convert that to monetary compensation. The law would require companies to start paying the same amount dollar-for-dollar to the employee that they were paying an insurance company for their healthcare.
Right now, company-provided healthcare is a pre-tax benefit, which means the value of employee plans isn’t taxed. However, the money they receive will be taxed. To offset this, these employees would receive a tax exemption for the money received in lieu of these plans. That exemption would be phased out over five years so that there was no longer a preference for people getting this money through their employer. As it is phased out, there would be an offsetting increase in the minimum wage that would ensure no one is unable to afford to pay the insurance tax we need to pay for their healthcare.
This is necessary because we don’t want any component of healthcare to depend on who you work for.
The Department of Health Funding will issue to every qualifying person some form of identification to use with providers to get care.
When obtaining care, the patient will use their identification to show they are covered. They will sign or otherwise certify that they are receiving specific care. The provider will pass on that certification with their own that the patient received that care. The Department of Health Funding will then pay the provider for that care.
Both the patient and the person providing the care will be making the claim. They will both be legally responsible for that claim, and there will be penalties for both parties if the claim is fraudulent.
In addition, the facility providing the care will be held responsible for making sure the care fits the legal definition of “essential” and was actually given. And, to prevent widespread abuse by members of the business community who might want to use fraud as a business plan, companies and individuals who invest in providers that have significant fraud will be required to divest from those providers.
This is only a working proposal for how to establish Publicly Funded Healthcare. The first phase doesn’t provide much savings over our current system. Instead, it addresses “universal” healthcare.
But there are a lot of opportunities for savings. The current system has two, big inefficiencies:
The first is the number of plans. There are estimated to be 15,000 health insurance plans in the U.S. Even two similar people with insurance from the same company can have radically different plans because of when they purchased insurance and whether or not they got it from their employer.
An enormous advantage of Publicly Funded Healthcare is simplicity: one plan.
With the exceptions noted above, qualification for coverage would be very simple. Essential healthcare? Check. U.S. citizen or here on an official status? Check. This procedure listed in your region? Check. Got it.
Things that wouldn’t apply:
Employment status or who employs you
Bank account balance
Are you a Republican? (Hmm. Let me think about that.)
Right now, there are two people employed more-or-less full time to check the specific terms of coverage for each patient.
One of them works for the provider and needs to make sure the patient is covered under the specifics of their plan, one of thousands of plans. They do their best to make sure the patient and the procedure fits the criteria of the plan.
The other person works for the insurance company and needs to make sure the patient is not covered under the specifics of their plan. They do their best to make sure the patient doesn’t qualify because they don’t meet with all the fine print. Maybe they had a fall in 1995 that they didn’t report on their form. Maybe their great-grandmother had a hereditary condition that could have been passed on to the “insured”.
Both these jobs will be unnecessary under Publicly Funded Healthcare.
There still will be a need to detect and prosecute fraud. But there will be much less need to check coverage because the rules will be clear and (for all practical purposes) universal.
We spend around $2 trillion on providing care, and the other $1 trillion appears to go to various kinds of overhead. The biggest underlying cause, I suspect, is this systematic overspending on administrative costs. This suggests we could cut as much as a third of the total cost by eliminating profits and administration.
And, this is the only thing that has the potential to cut costs enough to get us under 15% of GDP. None of the Republican proposals will result in any significant savings on administrative costs. In fact, opening up the market will probably increase costs (at least in the short run, until the unrestrained market results in a monopoly, in which case those administrative costs will turn into profits).
The second opportunity for savings comes from the existing barriers to collecting and using information. Since there are so many players in the current healthcare sector, it is often difficult to obtain statistics about procedures. Unifying the system breaks down these barriers.
Winners and Losers
The government should pick winners and losers in this market. It is the duty of government to protect its people. Certainly, protecting people from ill health is an important part of the job of our government.
The big winner with Publicly Funded Healthcare is the vast majority of citizens who will see their costs go down under this plan. They will also have a much fairer system, one that doesn’t throw them under the bus if they have the misfortune of being hit by a bus.
The big losers are health insurance companies, which will go out of business because their services will no longer be necessary. Shed not one tear for them. Their executives will pull the rip cords on their golden parachutes and then go find legitimate jobs with other companies. Their employees will receive help finding other jobs. Many of them will probably be employed by the new Department of Health Funding, because probably half the company’s operations will still need to be carried out.
The other big losers would be rich families, because they would no longer be able to offload medical costs on the poor. For example, a fairly large part of healthcare costs is the $65 billion a year that goes to veterans. This is one cost of maintaining a large military (and using it fairly often whenever there’s a Republican President). While the military certainly protects the country, at least half it’s costs are to obtain resource abroad and bring them safely to the U.S. One reason we have billionaires in the U.S. is because the U.S. spends about $765 billion a year on the military. [M] This benefit goes disproportionately to the rich, which benefit from the economy of scale that the U.S. economy (made possible by our military presence) creates around the world.
However, there are also a number of other big winners.
One of the biggest winners will be business. Businesses will no longer need to offer and manage health insurance benefits. This has a number of beneficial effects:
It lowers prices of American products vs. those from other countries. Companies in many other countries don’t pay for employee healthcare, and Publicly Funded Healthcare removes their advantage over our products.
Managing healthcare is an unnecessary complication to business plans. How well you manage this cost is currently important to business success. Companies can instead spend their energy on how well they compete in the market.
Employer-provided healthcare is a systematic advantage to large firms over small ones. Removing this allows smaller companies to compete more fairly in the market.
It reduces risk. In most employer-provided plans, the employer pays more or less depending on the health of their pool. Not only does this introduce unnecessary risk for employers, but also it gives them incentive not to hire older people, because the age of the employee affects the cost of their medical plan.
In practical political terms, if you run a business outside the health insurance industry you should be strongly in favor of Publicly Funded Healthcare and support this plan. It’s good for your business. It’s good for you. It cuts your costs and simplifies your business operations.
Another huge winner is the economy. I know you don’t “feel” for the economy, but a healthy economy helps everyone. By removing hundreds of billions of dollars in unproductive activity each year, we shift economic activity to things that improve our standard of living.
The Withering Defense of the Status Quo
A lot of credit goes to the Obama Administration for making a significant change to the healthcare system with ACA. Right now, many readers may be very skeptical if not outright hostile to this proposal. If ACA was so hard to get and is on the threshold of being snatched away by Republicans, how can an even more radical proposal possibly make it to law?
I’m sure this feeling proceeded the enactment of Medicare, Medicaid, and even ACA.
I believe this is not only possible but likely to become law, for two reasons.
First, the Republicans have run on repealing “Obamacare” ever since it passed. They were elected with resounding majorities in Congress, at least in part, because a very large part of the public is unsatisfied with ACA. And, they are going to repeal it. They have the means, the motive, and the opportunity. The crime is afoot.
Second, all the factors that led to the passage of ACA still hold. Costs are over 15% of GDP. We don’t have universal coverage. And costs are egregiously unfairly distributed. Nothing the Republicans can conceivably do in replacing ACA can possibly address this situation, although they can possibly get costs down below 15% by simply leaving vast numbers of people without coverage and enormous numbers of people suffering either serious health problems beyond their ability to cope or literally bankrupt.
The Republicans, therefore, can’t prevent us from enacting Publicly Funded Healthcare—only the Democrats can. They can do that through a failure of vision or a failure of heart. Or, I suppose, by selling us out.
The way to prevent that is to inform everyone you know that there is a third option. That is neither the Republican option of letting capitalism chew up and spit out our citizens nor the status quo option of restoring ACA after the Republicans have their way with it. It’s the option of fair, affordable, universal healthcare afforded by Publicly Funded Healthcare.
Will you help carry that forward?
In the run up to this article I posted a survey on DailyKos three times to gather preferences from members about the type of healthcare system they favor. I’m posting that same poll again with this article, so I can get more feedback on preferences.
Since I put up the same survey three times previously, it’s possible for the same person to have voted up to three times for the same system. However, I think overall this gives an indication of people’s preferences going into this proposal.
The question is: What kind of healthcare system do you favor for the U.S.? I got 161 responses. Here are the results:
5.0%…Allow a totally free health insurance market, nationwide.
0.6%…The Republican healthcare plan (American Health Care Act)
2.5%…The Patient Protection and Affordable Care Act, AKA “ACA” AKA “Obamacare”
50.9%…Single-payer (a al Medicare)
34.8%…Publicly Funded Healthcare (all essential healthcare paid out of a progressive tax)
5.6%…Socialist healthcare (where the government provides facilities and employs medics)
0.6%…Other (see my comments)
Over 90% of respondents want a system more progressive than ACA. And, over a third of respondents specifically called out Publicly Funded Healthcare.
Here are the places where you can find the statistics quoted in this piece.[A] “In 2015, U.S. GDP was about $17.9 trillion”.
See 2015 Economic Statistics and Indicators table “Country Listing in Year 2015” from Economy Watch. [B] “healthcare sector cost us about $3.2 trillion”.
See U.S. health spending rose nearly 6%, fastest since 2007 from CNN Money. [C] “17.8% of GDP”. Based on [A] and [B], that’s about 17.83%. [D] “…the number of just non-elderly Americans without coverage was over 28 million”.
See Key Facts about the Uninsured Population from The Henry J. Kaiser Family Foundation: “As of the end of 2015, the number of uninsured nonelderly Americans stood at 28.5 million…”. [E] “The U.K. spent about £140 billion in 2014 on a GDP of £1,644 billion, about 8.5%”.
See the official UK budget at www.gov.uk. Chart 1: Government spending 2014-15 shows £140 billion for the Department of Health. Table D.2: Determinants of the OBR central fiscal forecast shows “Nominal GDP (£ billion)” as 1644. This is 8.52%. [F] “…320+ million Americans…”.
See Demography of the United States from Wikipedia: “As of January 23, 2017, the United States has a total resident population of 324,420,000…”. [G] “$585 billion for Medicare, $344 billion for Medicaid, $65 billion for Veterans Health Administration”.
See Fiscal Year 2016 Budget of the U.S. Government from the Government Publishing Office. Table S-4: Adjusted Baseline by Category shows Medicare as $585 billion and Medicaid as $344 for the year 2016. Table S–11: Funding Levels for Appropriated (“Discretionary”) Programs by Agency shows Veterans Affairs as 70.2 billion for 2016. Also, page 51: “The Budget includes $70.2 billion in discretionary 2016 resources for the Department of Veterans Affairs (VA)…”.
However, Department of Veterans Affairs – Budget In Brief shows the medical part of the VA spends about $65 billion. [H] “…the total revenue from individual income taxes and the Medicare tax is about $1.85 trillion…”.
See Fiscal Year 2016 Budget of the U.S. Government from the Government Publishing Office. Table S-4: Adjusted Baseline by Category shows receipts for Individual income tax” as 1,610 billion and receipts for “Medicare payroll taxes” as 244 billion for 2016, which totals $1,844 trillion. [I] “…estimated roughly $850 billion was spent in 2016 by private health insurers on providers…”.
See CBO Healthcare Stats 51130-Supplemental_Data.xlsx [Excel Spreadsheet] Figure 5: Spending on Health Care Claims by Private Insurers in 2014 from the Congressional Budget Office, which shows:
Hospital Care: $362 billion
Physicians’ Services and Clinical Services: $255 billion
Prescription Drugs: $127 billion
Other: $58 billion
Total Spending in 2014: $802 billion
From Figure 2: Annual Premium Levels and Growth Rates for Employment-Based Plans: According to Survey Data, growth rates for 2012-2014 were 3.4, 3.0, and 3.2 percent, for an average of 3.2% Applying this growth rate, compounded, to $802 billion yields about $854 billion for estimated payments in 2016. I rounded this down slightly to $850 billion because rates of increase have been falling and because this number is easier to understand and calculate in the remaining analysis.[J] “Profits in the industry are around 3% (they were estimated as 3.2% for 2015). Net operating margins were around 6.9% at this time. Administrative costs were previously approximately 13% (from 2010 to 2012) for all healthcare companies.…”.
See Just Facts section Profits and Salaries: “Net Profit Margin” for “Health Care Plans” is listed as 3.2% in one of the tables. [Just Facts appears to be a libertarian-leaning organization, but I don’t have reason to doubt these numbers from them.] Note (from the same source): “In 1993 through 2014, the annual operating profit margin (i.e., profit margin before interest expenses and taxes) for all companies in the S&P 500 averaged 14.1%. For healthcare companies in the S&P 500, it averaged 14.8%”. This 14.8% applies across the entire timeframe and for all medical companies in the sector.
See the The American Hospital Association report Trendwatch Chartbook 2016. Chart 1.31: Operating Margins of the Top Insurers, 2013 – 2015: The average operating margin for the top five medical insurance companies for the three years 2013 to 2015 was about 6.9%.
See CBO Healthcare Stats 51130-Supplemental_Data.xlsx [Excel Spreadsheet] Figure 6: Uses of Premium Revenues in Fully Insured Markets, 2010 to 2012 for Administrative Costs in All Markets: 13%. Enrollee’s healthcare claims were about 85%, leaving around 2% for profits. [K] “…the UK NHS was running on 5% administrative costs until “quasi-market reforms” caused the costs to jump to around 12%”.
See The British Labour Government’s Reform of the National Health Service from ResearchGate: “In all international comparisons the NHS has traditionally scored high on account of its low cost of administration, which up until the I980S accounted for about 5% of health services expenditure. As a hierarchical structure the NHS thus had low administrative and transaction costs. The “internal market” reforms of the I99OS led to the reorganisation of the NHS on the model of the “purchaser- provider split” and was underpinned by a series of contracts for care. These quasi-market reforms led to an increase in administrative costs from 5% to 12%.” [L] “…the Veterans Administration runs on about 5.6% administrative costs”.
See Department of Veterans Affairs – Budget In Brief, page BiB-13, (Table) Department of Veterans Affairs Budget Authority , 2015-2017: Total budget authority: $167,484,033,000, General Administration: $9,438,389,000. Administrative costs as percentage of total: about 5.64%. [M] “…the U.S. spends about $765 billion a year on the military”.
This is also from Fiscal Year 2016 Budget of the U.S. Government and Department of Veterans Affairs – Budget In Brief (in billions):
Defense Agency: 534.3
Defense Overseas Contingency Operations: 50.9
National Nuclear Security Administration: 12.6
Veterans Affairs: 167.5
Total 765.3 billion in 2016.
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