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Who Really Pays for Health Care? It's Not Who You Think

By Jay Hancock, Staff Writer, Kaiser Health News

Eight million Americans have signed up for private health insurance - much of it government subsidized - under the Affordable Care Act. Millions more obtained new coverage through Medicaid, the government-sponsored insurance program for low-income people.

stethoscope and dollar
Andriy Solovyov

The full implementation of the law - along with its wider coverage, new taxes and shifting subsidies - has brought renewed discussions and debates over the winners and the losers in the new health care landscape.

Here are five common misconceptions about health care - followed by the facts about who pays for it.

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1. Before Obamacare we had a free-market health care system.

Government has been part of the business of medicine at least since the 1940s, when Washington began appropriating billions to build private and government hospitals. The drug industry and its customers owe much to federally funded research.

Medicare and Medicaid, which both began in the 1960s, do represent direct government transfers from some taxpayers to others. States have set rules for health insurance for decades.
If you're insured through an employer and your employer files an income tax return, your coverage is heavily subsidized by the federal government. Tax deductions for private medical coverage cost the Treasury $250 billion a year.

Some would argue that private health insurance is its own kind of subsidy, with what the healthy pay in premiums financing care for the sick. Aside from foreign potentates, few patients have paid their own medical bills for a long time.

2. I fully paid for Medicare through taxes deducted from my salary.

Scholars at the Urban Institute have calculated that the typical Medicare beneficiary who retired in 2010 will cost the system more than twice as much in health costs than she and her employer paid in Medicare taxes.

It's another subsidy. If Congress had designed Medicare to pay for itself rather than add to the budget deficit every year, payroll taxes would be far higher and your take-home pay far lower.

3. Premiums from my paycheck finance my company health plan.

Probably not entirely. Or even mostly.

For family coverage, which cost an average of $16,351 last year, the average worker paid only 29 percent of the total cost. For single-person coverage, workers paid only 18 percent of the total cost.

Although premiums and out-of-pocket costs have been soaring for consumers, costs have been rising for employers, too - up by nearly 80 percent in a decade. The private sector spends more than half a trillion dollars annually on employee health care.

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4. Government and employers pay for almost all health care.

But give workers and consumers credit. In 2012, households still paid the largest single share of health costs, according to federal actuaries. Part was premiums paid through employers and directly to insurers. Part was out-of-pocket expense.

The household portion of the health spending pie shrank from 37 percent in 1987 to 28 percent in 2012. But it's still larger than the federal government's 26 percent share or business's 21 percent.

5. The insurance company is always the bad guy.

Human resources pros like to trash-talk the company's insurance plan when they tell employees the doctor network shrank, the deductible rose, or certain procedures aren't covered.

But more than half of all workers with health coverage are enrolled in "self-insured" plans, where the employer pays medical bills directly. The insurance company only processes the claims.

If your company has at least 500 workers, it is probably self-insured. In such plans, the employer is the insurance company. And it's the employer calling the shots.


This KHN story was produced in collaboration with USA Today.


Photo: graffoto8/iStockphoto


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