Analyzing the Cost of Universal Care
Despite taking a back seat to today’s economic issues, the topic of healthcare reform continues to be one of the most politically charged areas of debate in the U.S. President Obama continues to push congress for a resolution to the issue, while proposals and testimonies continue to pour in from experts of both the private and public sectors. However, the cost of implementing a universal healthcare system may be the most significant hurdle to enacting reform measures in the U.S. – and when comparisons are made with established socialized or single payer systems of other nations, the issue can get even more complicated.
Funding Outlook for European Programs
According to a recent study published by the National Center for Policy Analysis and authored by economist Jagadeesh Gokhale, many European countries are facing conflicting pressures on their domestic budgets due in large part to their aging populations. Because there is not enough tax revenue to cover the projected spending increases on government-sponsored healthcare programs and other promised benefits, many countries could have significant unfunded liabilities. In order to continue their current socialized healthcare programs, these countries would need to save an average over four times (434%) their current annual Gross Domestic Product. For example, Spain would need 2.5 times its GDP to cover projected costs, while Poland would need 15 times its GDP to continue its programs.
To address these needs, the NCPA study calls for increased fiscal discipline and for these countries to invest more in the future of these programs, possibly funding on average 8.3% of GDP annually until 2050. If the U.S. were to implement universal coverage, similar increased investment in our healthcare system may be necessary for sustainability. But it would also mean that further scrutiny would need to be applied to how that investment is funded.
U.S. and Canada: The Border Comparison
In Canada, where the government has legislated a single payer system for its public healthcare system, much of the costs have been shifted to the taxpayers. In Quebec, public health expenditures amount to 29 percent of the provincial government budget. It has been estimated that for each citizen to have access to the public health system, the government needs $1,200 in taxes annually. That translates to the average two-child family paying almost $5,000 per year in public health insurance – which outweighs even the most comprehensive private health insurance plan.
However, the system works for Canada because the provincial and federal governments have set annual budgets for healthcare. In comparison, the U.S. has no such budget for Medicare, which is why the program is in desperate need of reform. The NCPA study suggests that in order to continue funding Medicare without overhauling it, the U.S. would need to either: save 8.2% of its GDP; double the current payroll tax on employers and employees; or eliminate discretionary spending on education, national defense, environmental protection and/or welfare. Each option may require some measure of cost-shifting to private payers. However, the true solution to fixing Medicare and reforming our healthcare system altogether may rest more in reducing the cost of care rather than simply shifting costs to consumers.
Approaching a Viable Solution
Given the current cost projections, cost-shifting measures may not provide the needed sustainability for healthcare reform. According to a December 2008 study by Milliman, Inc., passing the underpayments of physicians and hospitals on to consumers would essentially impose a surtax of $88.8 billion annually on privately insured patients. In addition, shifting costs of uncompensated care for individuals without coverage to those with privately-covered individuals brings the overall cost-shifting surtax to $2,107 annually for families with private coverage.
However, it should be noted that the healthcare-related measures included in the stimulus package, such as comparative effectiveness research (see Eyes on Benefits, April 9, 2009) and adoption of electronic medical records (see Eyes on Benefits, February 27, 2009) represent efforts toward reducing healthcare costs, which may go further in helping to bring about healthcare reform.
For more information, please click on the links below…
AHIP Testimony on Addressing Insurance Market Reform in National Health Reform
Healthcare Reform will Include Public Health Insurance Option
Measuring the Unfunded Obligations of European Countries (NCPA study)
Socialized Medicine: The Canadian Experience
America’s Ailing System: An Argument for Socialized Medicine
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Important Notice: Hill, Chesson & Woody does not engage in the practice of law, accounting, or medicine. Therefore, the contents of this communication should not be regarded as a substitute for legal, tax, or medical advice.
April 24, 2009
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