Public spending for health care goes disproportionately to seniors and those in poor health, but it is less concentrated among low-income Americans than is sometimes thought.
In a study published today on the Health Affairs Web site, government analysts provide the first study since the 1970s that comprehensively analyzes the distribution of health care outlays and health care tax subsidies provided by federal, state, and local governments. By breaking down public spending on health by age, race, sex, health status, coverage status, and income, the work fills important knowledge gaps as the United States begins a fundamental debate over the role of the public sector in the health care system.
Using the most recent data available in sufficient detail, economists Thomas Selden and Merrile Sing of the Agency for Healthcare Research and Quality (AHRQ) report that public outlays and tax expenditures constituted 56.1 percent of all health care spending in 2002. Overall, public spending on the civilian, noninstitutionalized population averaged $2,612 per person. Of that amount, $1,867 per person came from outlays through Medicare, Medicaid, and other programs, while $745 per person came from health-related tax subsidies, predominantly the exclusion of the value of employer-sponsored health insurance from federal and state taxes.
Selden and Sing stress that the public sector is tasked with caring for many of the sickest members of society. In 2002, public spending as a share of total health care spending increased with health need, accounting for 79.9 percent of spending for those who reported being in poor general health and 79.3 percent of those who reported being in poor mental health.
Some groups benefited from public-sector health spending more than others. Public spending in 2002 disproportionately flowed to those age 65 and over. Medical expenses tend to increase with age, so it is perhaps not surprising that the average senior received $6,921 in public spending, more than five times as much as the average child ($1,225). More notably, public spending as a share of total health care spending was ten percentage points higher for seniors than for children under 18 (66.5 percent versus 56.5 percent) and only 5.4 percentage points higher for children than for nonelderly adults, despite coverage expansions for children through Medicaid and the State Children’s Health Insurance Program (SCHIP).
Public Spending Was Not Limited To Lower-Income Americans
Public spending on health in 2002 was more broadly distributed across income groups than may be commonly believed. “Means-tested” spending through Medicaid and SCHIP heavily benefited low-income families. However, the two largest spending categories — Medicare and tax subsidies — are not means-tested and conferred benefits to families at all income levels. As a result, public spending in 2002 accounted for 45.8 percent of total health care spending for people in families with incomes greater than four times the federal poverty level.
Tax subsidies actually increased markedly with incomes: Americans in high-income families received an average of $1,177 per person in tax subsidies — more than ten times the $102 per person that poor people received through the tax system. This is because the largest tax subsidy, for employer-sponsored insurance, is not capped and rises with both marginal tax rates and the amount of employer coverage received.
“It might surprise some to learn that the public sector finances nearly half of all health care spending for families with incomes over four times the poverty line, so that public spending on health care in the U.S. extends far beyond the provision of a safety net for the poor,” Selden said.
Selden and Sing combined data from AHRQ’s Medical Expenditure Panel Survey with data from the National Health Expenditures Accounts compiled by the Centers for Medicare and Medicaid Services. They estimated the amounts of health-related tax subsidies using economic modeling data from the National Bureau of Economic Research and other sources.