The Cost of Free Health Care

Discussion in 'Budget & Taxes' started by Seth Bullock, Jan 28, 2016.

  1. Seth Bullock

    Seth Bullock Well-Known Member Past Donor

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    I wanted to find out what it would cost us to pay for free health care in the U.S. Here's what I found out....

    Americans today spend about $3 trillion dollars a year on health care. http://www.cdc.gov/nchs/fastats/health-expenditures.htm

    To figure out what "free" health care would cost us without reducing our quality and speed of care, I first looked at the cost of Medicare. I found that 38% of Medicare costs are paid for by payroll taxes. That tax is 2.9% of wages, paid 50/50 by the employer and employee. (The majority of the rest of Medicare costs are paid by premiums and deficit spending by the government.) So this tells us that to make the existing Medicare program for seniors truly "free" and to actually pay for it without deficit spending, we would need to more than double the payroll tax. But just for the sake of discussion, let's take that 2.9% tax, round it up to 3%, and double it. That makes 6%, split 50/50 between employer and employee.

    That 6% payroll tax would pay for Medicare's total expenditures in 2014 which were just under 600 billion. http://kff.org/medicare/fact-sheet/medicare-spending-and-financing-fact-sheet/

    600 billion is 20% (or 1/5th) of our total health care costs of $3 trillion for all Americans.

    So, with that 6% Medicare tax, we would be actually paying for only 1/5th of our total health care cost. To pay for the remaining 4/5ths, we would have to multiply that 6% tax by 4, bringing us to a 24% tax. This would be paid 50/50 by the employer/employee. So your payroll deduction would go up from 1.45% to 12%. So would your employer's cost.

    So if a household brings in $100k, they would pay $12k for health insurance, or $1000/month. Interestingly, if the household brings in $200k, it pays $24k, or $2000/month.

    I wondered how much of this $3 trillion cost would be saved by taking out the for-profit insurance industry, and I discovered that the amount is so small as to be insignificant. Those profits for the major insurance industries are in the area of $14 billion-17 billion according to some charts I could find in my search.

    So, would this work for you?

    Would it work for your employer?

    Are my figures and math way off?

    Discuss...
     
  2. Seth Bullock

    Seth Bullock Well-Known Member Past Donor

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    Actually, I have to modify those numbers. In order to calculate what percent of tax we would need to pay for "Medicare for All", we would have to multiply the 6% it would take to pay for 1/5th of the cost by 5, not 4. That means we would be paying a 30% tax, split 50/50 between employers and employees.

    So if a household earns $100k, they would be paying $15k, not $12k like I said in my first post. That would be $1250/month. A household bringing in $50k would pay $750/month.

    Any thoughts?
     
  3. Ndividual

    Ndividual Well-Known Member

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    The term "Free Healthcare" implies it to be provided at no cost, so why should it require raising taxes?
     
  4. Seth Bullock

    Seth Bullock Well-Known Member Past Donor

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    Because it isn't free. It's got to be paid for somehow. It's only "free" at the point of service. The hospital or physician would bill the government instead of billing you or your private insurance company. Where did you think the government was going to get the money to pay $3 trillion a year?
     
  5. TBryant

    TBryant Well-Known Member Past Donor

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    the danger of for profit insurance companies is the way they escalate cost, (nevermind the fact that they are about as necessary as a fifth wheel for a unicycle in a federally funded healthcare system). We can already see the way they warp the cost of healthcare by comparing the cost here to other first world countries.

    A good article was printed in Time magazine "A Bitter Pill" before AHCA (Obamacare) was enacted. Nothing in the ACHA addresses the problems outlined in that article btw.
     
  6. Seth Bullock

    Seth Bullock Well-Known Member Past Donor

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    Thanks for the feedback. The thread isn't getting much notice so far. I don't remember the particulars of that Time magazine article, but I remember reading it. Anyways, I was just curious what it would actually cost us to institute a "free" health care system, so I tried to figure it out. I was a little surprised to find out how relatively small the profit is in the health insurance industry. The net profit runs between 4-5%. I wasn't terribly surprised to see that if Americans want a national health care system (Medicare for all, so to speak), it's going to cost them, though.
     
  7. TBryant

    TBryant Well-Known Member Past Donor

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    For health insurance to be a profitable enterprise it needs to be able to disqualify at risk (the elderly and terminally ill) clients, and it needs to be able to set its own benefits. Federal law has forced the industry into a losing business scenario; making it something it was never intended to be.

    If the government intends every citizen to get essential healthcare they need to fund it directly.

    Oh, yea. To respond to the point of your thread, I think the tax cost is about even with what I pay right now anyway.
     
  8. HonestJoe

    HonestJoe Well-Known Member Past Donor

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    Well they must be somewhere since the idea that any tax-funded healthcare program could require a 30% payroll tax just on its own is ridiculous. Lots of countries have some form of state funded system without anything close to that.

    It’s wrong to assume all the funding for tax-funded healthcare would come from payroll tax (especially if it would actually take it up to 30%!). In practice, most tax income goes in to a big pot and most spending comes out of it. The money for any big-budget departments will inevitably come from multiple sources.

    I think taking reported figures of “health care costs” or “health care spending” then trying to count back to that via taxation is fundamentally flawed since the whole way in which those costs are calculated and paid will be entirely different in a private (or mixed) environment compared to a state run one (and indeed could be very different between different systems of the same type). It’s also the case that even in nations with fully state-supported healthcare, a proportion of health care spending will still go to the private sector (e.g. the rich hiring private doctors, elective plastic surgery etc.).

    Theoretically, it’s not insurance profits you’d need to exclude but their net income since all of that money is being removed from healthcare even if they end up spending it managing the insurance system. In reality, how these costs are reduced and/or transferred depends a lot on the form of state system brought in to replace it.
     
  9. Lil Mike

    Lil Mike Well-Known Member

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    Excellent Analysis, however Medicare doesn't pay for everything. It's a standard 80/20 plan, as is Medicare Advantage which has copays and deductibles. So to keep Bernie's pledge, you need to pay for all of those costs which are currently out of pocket.
     
  10. Seth Bullock

    Seth Bullock Well-Known Member Past Donor

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    Thanks for the feedback.

    I'm going to respectfully defend my rationale, though. The system Bernie Sanders is advocating is basically Medicare for everyone, so I still think it is valid to use the present Medicare rates as a starting point. I do realize that there are some variables and probably some aspects I've overlooked or don't know about. But the fact remains that we pay $3 trillion/year for health care as a nation, and only a small part of that is profit to insurance companies. Right now, the entire federal budget is about $3 trillion. Roughly one third of that is paid for by deficit spending. Truth is, right now, we are only paying for 2/3rds of what we spend in actual dollars out of our incomes. If we were actually paying for our nation's spending, we'd have to have taxes that are 33% higher than they are.

    So how can we think that we can add nearly $3 trillion to that budget unless we are willing to actually pay for it? And how can we think it will be cheap? We would be nearly doubling the federal budget! I made these figures based on the assumption that the nation would not use deficit spending to pay for this because $3 trillion/year of deficit spending would ruin us. I think we can all agree on that. So the money has to actually come from us. And the other thing to keep in mind is that we would be subsidizing the poor. For example, if a person only earns $20k in a year, the contribution by the person and their employer for the year would be $3000. But if a person earns $75k, the combined contribution is a little over $11k. The more you make, the more you contribute in gross dollars. At some point, your contributions are paying for yourself and others.

    The other thing I didn't even try to factor in is that Medicare has deductibles and co-pays just like private insurance. Do we want to keep it that way, or do we want to tax ourselves enough to pay those too?

    Another question to ask is this: If the cost of something we want is too high, we can always choose to pay for less of it. Would America be willing to receive less health care in order to make it affordable? I doubt it.

    Before writing this response to you, I quickly searched out some background on UK's tax system. I found that they have higher income taxes than we do, they have a national insurance tax, and they have a 20% value added tax on most things (necessities of life are 0-5%). So make no mistake, it does appear that a great deal of their personal income goes to taxes to pay for their government, health care, and retirement.

    Americans frustrate me. Everyone wants something for nothing. Everyone wants someone else to pay for what they want. The left does, the right does, and the public does.

    I am not against government spending. I'm not even against government health care in theory, if we can still receive timely, cutting edge health care. What I am against is not paying for it if that's what we want. We, as a society, have to act like grown-ups, not little children.

    My two cents ...
     
  11. Seth Bullock

    Seth Bullock Well-Known Member Past Donor

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    Thanks. Yes, that's true about the deductibles and co-pays. You must have written that while I was writing my answer to HonestJoe. I mentioned the same thing. Take a look at my answer to him.

    I'm just trying to generate some realistic discussion about this. Feel free ...
     
  12. Mr_Truth

    Mr_Truth Well-Known Member

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    The cost in terms of human blood for lack of health care insurance was 45,000 Americans every year. That was a holocaust that far surpassed all the casualties of war the USA has ever had. Consider that in your equation.
     
  13. Seth Bullock

    Seth Bullock Well-Known Member Past Donor

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    It probably is about even for you. It just depends on how much you make (or your household). In a national health care model, with its cost being paid out of our incomes at a flat percentage, low income people would contribute, but not enough to pay for themselves. Middle income people would pay enough to pay for themselves, give or take some. And people in the higher incomes would pay for themselves and others.

    I agree with you about federal law forcing the insurance industry into something it was never supposed to be. Insurance companies are still profit-making businesses, and yet they are also a de facto arm of the government now.
     
  14. Seth Bullock

    Seth Bullock Well-Known Member Past Donor

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    Mr Truth, I am not debating whether it is good or bad for all Americans to have access to good health care. In a perfect world, it is good! My questions really are:

    Are you willing to pay for it?

    Can your employer pay for it?

    If this is what we want, we have to be realistic. Can we do that?
     
  15. Mr_Truth

    Mr_Truth Well-Known Member

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    I am willing to pay to save the lives of my fellow Americans - just as I have been forced to pay taxes that save the lives of Fortune 500 companies because they are subsidized by the American taxpayers. By the way, Americans have paid for Israel's health care coverage for over 60 years without objection from anyone.
     
  16. HonestJoe

    HonestJoe Well-Known Member Past Donor

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    I think that's an error in the first place (though I don't know whose). Medicare isn't a public healthcare system, it's a tack-on to the insurance based private healthcare system to cover those who can't afford insurance. Just extending Medicare to cover more people is a non-starter. If the US was going to move to a public system, it would need to be created from the ground up (which is one of the main reasons it's never going to happen).

    As I said, those kind of figures need to be deeply analysed before you start basing policy on them.For example, if a hospital buys a box of pills for $10, charges the patient's insurance $15 and the insurance company bills the patient $20, that could well be calculated as a $20, $30 or even $45 "healthcare cost" depending on how the figures are measured. Given the reported "healthcare spending" in the US is around double that of any other nation, I'd suggest that the nature of your system is playing a significant part in misrepresenting the true costs and therefore how much government would actually need to spend for a public system.

    That's generally how tax-rates work. It's actually how insurance works in that those who make fewer claims subsidise those who make many. I don't see that as a bad thinking, just a thing (and I earn above the national average).

    It's pretty much impossible to compare general taxation rates between places with some vastly different systems but the UK and US are at least in the same kind of ballpark (especially if you account for the fact that most Americans have to pay for things like healthcare on top of any taxation).

    Trust me, there's nothing special about Americans with that. One thing you can guarantee about any healthcare system is that people will find something to complain about.
     
  17. Derideo_Te

    Derideo_Te Well-Known Member

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    The current for profit healthcare system in this nation is burdened with inflated costs and profits that don't exist elsewhere in the world.

    In essence what you are suggesting is that taxpayers pay for a for profit healthcare system.

    If instead we opt for a single payer system which is operated as a non profit then you will see significant savings. Compare the overhead of a for profit HMO to Medicare to see the difference. In addition single payer systems overseas negotiate for lower rates on drug prices since they can "bulk buy" as a single payer. There is a huge savings to made in that area alone. (FTR that provision was eliminated from Medicare in the Part D boondoggle act.)

    Another savings for single payer systems comes from having medical staff on the government payroll. Yes, there are pluses and minuses to that option which is why having a parallel private sector healthcare system in place makes sense alongside a single payer system.

    In essence limit the single payer system to primary healthcare alone for everyone. Basic services are provided but if you want extra services you have to pay for them privately. Many nations have this two tier system in place and it works quite well for the most part. The single payer aspect keeps the prices down and the private for profit sector has to compete with the lowest cost provider for customers.
     
  18. Derideo_Te

    Derideo_Te Well-Known Member

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    You are only looking at the profit margin for healthcare insurers. Included in their "costs" are the profits of all of the medical service providers. There is "hidden profit" in the current system because it isn't readily apparent. But yes, your local doctor, radiology, physical therapy, pharmacy, nursing home, etc, etc all have their own profit margins.

    And by far the largest profit margin is that of Big Pharma. They literally make billions in profits out of drug prices and yes, that is included in the "costs" of the HMO's.
     
  19. Seth Bullock

    Seth Bullock Well-Known Member Past Donor

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    Actually, Medicare is a stand-alone, taxpayer funded, non-profit (because it's government) insurance system. It is for seniors. Virtually all seniors go on Medicare. The private insurance industry offers Supplemental Medicare Insurance which some people buy if they can afford it.

    Well it is true that there is profit built in to the whole system. But I don't think we can ever change that. I'm not very convinced that we even want to change that. The reason is that the system of health care may be expensive, but the quality of service is very good and really very speedy. (That's a general statement; there are always examples to the contrary in a country the size of ours.)
     
  20. Seth Bullock

    Seth Bullock Well-Known Member Past Donor

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    But it's like I commented to HonestJoe ... Our system has profit built into it. It makes it expensive. But the quality of care and speediness of care is really very good. I would be very, very reluctant to bring in a system that might degrade that quality, speed, and cutting edge modernity. My concern is that if all we care about is cutting cost, someday when we're sick or hurt, we may regret it.

    It sounds like a double-edged sword to me. On the one hand - cost. On the other - quality and ease of access.
     
  21. Derideo_Te

    Derideo_Te Well-Known Member

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    Except that it is possible to have both good quality and low cost because other nations have done it already.

    Yes, I agree that here in the USA we face a very special challenge. Instead of treating healthcare as a basic right we have sacrificed that right on the Wall Street Casino Alter to the Almighty Dollar.

    Profits before People is the Holy Grail that no one dares to question. If a doctor does not have the right to become a millionaire then why should they even bother to go to medical school in the first place?

    That mindset is the problem here, not the actual medical coverage itself. Yes, this nation is perfectly capable of having a two tier medical system with a public single payer system providing basic heatlhcare to everyone and a for profit system operating for those who want to go first class and not deal with the unwashed proletariat.

    But to do so means the possibility of sacrificing some small portion of the enormous profits in that $3 trillion healthcare ripoff industry. The greedy 1% will predict that this nation will turn into a 3rd world slum if that happens just like it did when they introduced Medicare and Obamacare.

    Oh wait...that never happened!

    But still, ignore the facts and just listen to the fearmongers who are scared of losing their cash cow that is milking corporations and funneling the profits into their vast shareholder pockets.

    Nothing is going to "degrade" healthcare in this nation any more than it was already being degraded by the rampant greed that was throwing sick people out of their health plans for daring to actually get sick and want treatment instead of just paying in and dying quickly if they did get sick.

    There is a fundamental ethical problem with the concept of making a massive profit from the pain and suffering of a sick child.

    Until this "christian nation" faces up to that ethical conundrum the current status quo will continue to stumble along and nothing will really change for the better.
     
  22. Seth Bullock

    Seth Bullock Well-Known Member Past Donor

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    I laughed at those last few words.

    So you're suggesting something kind of like Medicare is now. You see, it doesn't provide everything, so that's why the elderly purchase supplemental Medicare insurance so that more is covered and paid for.

    I thought your reply to me was interesting. It was interesting in a philosophical way. Philosophically, it would be nice if the entire industry was non-profit and everyone, from the engineers who make medical devices and machines, to the researchers and scientists who make discoveries, to the physicians and nurses, the hospitals, the care facilities - the entire system and all of its adjuncts - just worked for a decent living and a fair salary, and all the cost of profit was taken out of it.

    But we both know that's not going to happen. And even if it were possible to do that, and we could reduce that $3 trillion cost to $2 trillion (purely hypothetical), it's still $2 trillion! That money doesn't come out of thin air.

    So that leaves us to deal with this issue on a practical level rather than a philosophical one.

    I am doubtful that we can institute a single-payer system. It's not the profits that make me doubtful. Medicare today pays for close to half its costs with deficit spending and the other half with money paid into it by people. It only covers about 13% of the population. If we were to double the Medicare payroll tax (make it 6-7% split 50/50 employer/employee) and actually pay for the program without the deficit spending, I'll bet you people would scream bloody murder that the politicians were gouging them with more and higher taxes. I can hear them yowling already just thinking about it.

    So just try getting them to pay for a single-payer program that covers everyone. If they don't want to pay fully for the elderly 13%, what makes us think they would agree to pay a lot more in taxes to cover everyone?
     
  23. Hoosier8

    Hoosier8 Well-Known Member Past Donor

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    Medicare costs have grown substantially faster than the economy for most of the last 50 years. Each dollar saved by Medicare for all is a reduction in someone’s income and lower coverage than they have now with private insurers. The cost savings are supposed to come from monopsony where one buyer, the government, dictates what they will pay and as we all have seen with current Medicare cuts, fewer doctors are willing to take on Medicare patients.

    Nothing is free.
     
  24. Derideo_Te

    Derideo_Te Well-Known Member

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    I agree with you that the fundamental problem is one of mindset. Until We the People stop acting like children who don't want to play nicely with others and figure out that we are all better off if We the People decide that healthcare is a right instead of a profit center the current situation will continue.

    No, I am not holding my breath waiting for that to happen because it means a paradigm shift in national perceptions and that isn't going to happen overnight unless "shift happens"! View attachment 40699

    It is entirely possible that it might happen over the next couple of decades as the children of the Boomers find themselves having to carry the burden of caring for their parents as they age. The fact that 80% of Boomers don't have enough to retire on and 20% have nothing at all but social security is going to already be a burden. Couple that with the fact that Medicare doesn't cover everything so the BoomerBabies will be picking up that slack too and they will start reconsidering their own options when they have to retire. Will they want to burden their own kids in the same way or will they go about changing to a single payer system that does cover everything regardless of the increase in taxes?

    People change when they feel pain. Unfortunately there is going to be some very real pain coming along and that could be the driver for that paradigm shift.

    Nothing else is going to make it happen IMO.
     
  25. Seth Bullock

    Seth Bullock Well-Known Member Past Donor

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    I think you're right about pain being a driver. Unfortunate, but very true.

    Having thought about this, perhaps, if I were running for president, and if I could get the people to agree and the Congress, I think what I might do is start some incremental change rather than radical change. I think I would begin by seeing if we could go ahead and raise that payroll tax enough to actually pay for Medicare without running deficits. I think that would cause little pain. It would mean rather than paying 1 1/2 cents out of your payroll dollar, we paid 3 or 4 cents. I think the Dems would go along with that, and it could be sold to Repubs as a deficit cutting measure for a program even they have to support. If we succeeded at doing that, in time, we could propose another incremental change. Medicare is for people 65 years and above. Perhaps we could bring in the 55-65 demographic. Their medical costs are less than the 65+ crowd, so maybe we could raise the Medicare tax by only 2 or 3% or so and do it. This would take some cost pressure off the private insurance companies because the older the clientele, the more they cost. And that could help hold the cost down for the younger crowd using the private insurers. We could let the economy get used to that for a while, and then look at the next increment. And so on, gradually making this transition over maybe a decade or 15 years. We would be letting the economy gradually adjust rather than shocking it like it was sitting in an electric chair. Maybe something like that could work. Dunno. Just sorta thinkin' out loud. Again, thanks for the feedback.
     

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