How You Pay Your Share Of Health Care? Rising Costs Spur Debate on Reform

Something has long been missing from the charts showing where health-care spending comes from and where it goes: The fact that nearly all health-care spending starts from your pocketbook.
You’ve seen the usual breakdowns: Government pays for about 40% of all health care and private insurers pay for about 35%, leaving 25% that individuals pay directly.
But trace back the origin of the government and insurance dollars, and you find all the bucks start in your household.
Many experts agree that’s something to keep uppermost in mind as soaring costs and horror stories about health care denied further heat up the debate on health-care reform.

The chart at right is the result of two dozen interviews with economists, health-care accountants, corporate benefits specialists and government experts. The raw data come from the Health Care Financing Administration, the Commerce Department and the Congressional Budget Office.
Some extrapolation and estimating were necessary. And some elements of health spending were excluded for simplicity’s sake. These total about 7% of 1990 spending, or $ 47 billion. They include company health clinics in factories and offices ($ 2 billion), insurance company profits and some administrative costs ($ 18 billion), what hospitals and other health institutions earned from investments ($ 16 billion), and some research spending.
To translate the $ 618 billion remaining into family terms, we divided by the 91.5 million U.S. households the Census Bureau says existed last year. That comes to $ 6,750 per family.

The flow chart makes several things clear. One is why administrative costs and bureaucracy consume 19 to 24 cents of every health-care dollar, according to a study released last week. That’s twice what most other countries’ health systems spend on paperwork – a result, in part, of having to move health-care dollars through a complex thicket of 1,500 private insurers, plus government programs, with little standardization among them.
Another is what health economists call cost-shielding. Families may typically shell out 40% of their share of health spending at the grocery, the department store and the car dealership, but it doesn’t feel like health-care spending. That sum – about 6 cents of every dollar we spend – is built into the prices of all the goods and services we consume –to pay the businesses’ health-care costs, both their employees’ health insurance and taxes to support government programs. The same goes for the health-care chunk of the taxes we pay (roughly 10% of the sales, property, income and Social Security taxes individuals pay).

The only thing that really feels like health-care spending is the 22% of our health-care spending we pay directly to health-care providers, and to a lesser degree the 8.6% we pay in direct insurance premiums and health maintenance organization fees. So we, – and our doctors, who make the decisions on about 80% of our health-care charges, – are shielded from most of the cost.
All countries play hide-the-cost in health care. Most of the world accepts that the risk of a costly illness or injury should be spread throughout society, that money shouldn’t be an issue when you’re sick or hurt.
But without the spending controls other countries impose, our cost- shielding system amounts to a blank check. It’s a fundamental reason why health-care spending keeps soaring, economists say.

Finally, the chart makes it easier to understand how, when one intermediary tries to squeeze its spending, the burden merely shifts to another.
When government began cutting health-care spending growth in the mid-’80s, the burden shifted to private insurers, which passed it up to business, which is currently passing it to where the buck stops: – families.

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