Monday, August 3, 2009

Socialized Medicine: Only 13.3% of Americans Purchase Their Own Health Insurance

Despite the cries of "socialized medicine" that have permeated debates over health care reform, Gallup has released polling data that provides a useful context for analyzing this rhetoric. The survey shows that 56.5% of Americans receive health care through employer-sponsored plans, 30% rely on government-sponsored plans, and only 13.3% receive health care through "some other means," including self-purchasing. Generously assuming that all of the persons in the "some other means" category purchase their own insurance coverage still means that only 13.3% of Americans purchases their own health insurance.

A closer look at the largest share of health insurance -- the employer-sponsored plan -- reveals that the government already greatly subsidizes or directly covers the utilization of health care in the United States. Employer-sponsored plans masquerade as "private" plans, but they are closely linked with public policy -- particularly federal and state tax policy. Favorable tax treatment for employers and employees allows this system to work.

The federal government does not tax health care benefits"earned" as a part of employment, even though these benefits would ordinarily meet the definition of "income" contained in the tax code. Furthermore, employers can deduct health care expenses just as they deduct the payment of wages or other business expenses. Accordingly, the government subsidizes employee health plans by immunizing the payments to employees from taxation and by allowing employers to deduct these payments as business expenses.

A 2007 study by the Office of Management and Budget found that the beneficial treatment of employer health insurance benefits in the tax code represented the single largest category of "tax expenditure" by the government (see analysis of this issue here and here). "Tax expenditures" are "revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability." When the benefits from state tax treatment are added to the federal policies, the magnitude of public expenditures for "private" insurance becomes even larger.

According to a study by health care researchers Thomas Selden and Bradley Gray, federal and state governments funded over 1/3 of all employer-sponsored family health plan expenditures in 2006. Furthermore, as the Gallup survey indicates, 30% of Americans are already directly covered by a government plan. Accordingly, the notion that the health care industry in the United States is purely private -- even excluding Medicare and Medicaid -- is absolutely false. This fact does, however, not tell us how health care reform should look. Nevertheless, as I have argued previously, the extent of public sponsorship of health care makes the socialist versus private rhetoric completely unhelpful and bankrupt.


Infidel753 said...

Interesting point. One wonders how much of an increase in expenditure a straightforward national system would really mean, taking this into account -- especially since the present methods of subsidy are indirect and fragmented and thus probably inefficient.

Darren Lenard Hutchinson said...

Infidel - that's what many of the people who actually explore this angle argue. This system actually encourages greater costs. First, even though it is cheaper than each employee seeking coverage, it is more fragmented than the single payer option. Also ,this system encourages more and more medication because people use it without bearing the costs (hence, "we" pay for people who visit the doctor because they sneeze). It is also a regressive tax benefit -- mostly high income earners have health coverage through employment, and they get a greater tax benefit when they do not have to count these benefits as employment.

eagle007blogger said...

Employer provided healthcare coverage uses private insurance companies. The economic effect is basically the same as if the insurance was purchased by the individuals - the various companies offer competitive plans and compete. It is this private sector that is endangered by a "public option" which is government supported.

Employer-sponsored plans do not masquerade as private plans, they are private plans! Whatever tax incentives are provided to companies is beside the point, it supports a private healthcare industry. (By the way, the idea of taxing employer provided healthcare benefits keeps coming up as a way to help pay for the disasterous "public option").

Isn't supporting healthcare coverage in this way, the employer provided way, more preferable anyway?

What is not being said is that the healthcare reform is really about lowering costs across the board - it is being sold as a plan to make insurance available to more people - but it is really about reducing overall expenditures as the government can expect a larger and larger part of the budget going for medical benefits in the current form, Medicare and Medicaid.

The numbers of "uninsured" are being fudged, and the numbers include young people who can afford their own medical insurance but prefer not to by it at this stage in their life (the government would dictate to them, under Obama's plan, that they MUST have insurance.)

Darren Lenard Hutchinson said...

Sorry, Eagle, but your effort to contrast "public" health insurance from "private" health insurance fails in several respects. First, Medicare recipients have the option of using private companies as well -- and many of them do. The government pays the premiums. Also, as I argued in the blog post, the "private" employment plans are "public" in the sense that "we" the taxpayers pay for them. So, to the extent that people have whined about the cost of healthcare reform, suggesting that any public sponsorship represents socialism, they are in denial or simply ignorant about the current situation.

One final point - on the young people who "don't" want health insurance: this is fine, until they NEED medical treatment. Who pays for their expensive coverage as uninsured persons? Taxpayers. Yes, I agree this is about reducing costs, and a single payer (or public plan option) does that by allowing a single or fewer payers to negotiate cheaper services. HMOs work this way. It is not drastically different with the government.

Infidel753 said...

Isn't supporting healthcare coverage in this way, the employer provided way, more preferable anyway?

Why? The employer-provided model is harmful in at least two obvious ways: it discourages worker mobility by tying health insurance to the current job, and it deters hiring by increasing the per-worker cost to the employer.

Anonymous said...

Some good points here, Darren. But you're right; it does not answer the question of how do we make the business of health insurance more effective without risking loss of the private sector - and the whole field of medicine in particular - to the federal government.

Infidel753, offering a good health insurance plan is good business because it helps to retain more qualified and productive workers.

You cannot say it deters hiring because under HR 3200, employers are going to pay no matter what. And, in the case of an employee choosing to use a plan other than their employer's, the way the bill is written right now, the employer is going to pay TWICE for that employee's health insurance. That is going to deter a lot more hiring.

eagle007blogger said...

Generally the costs of uninsured people receiving treatment are absorbed by hospitals and passed along to private insurance, and not the taxpaer, are they not?

Medicare operates as a single payer system.

Anonymous above makes some good points about employer provided benefits.

Anyhow, the loss of the private sector is the main concern. Does Obama want to take over the healthcare sector?

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