The decades-long, partisan divide over health care continues.
The fights in Congress mostly center around who should pick up the tab for our nation’s health care spending. Should it be the federal and state governments through Medicare, Medicaid, and insurance subsidies, or should it be individuals and families? Despite the prominence of this issue, nothing has been done to address the underlying problem: Reducing the cost of health care itself.
If we ignore the root cause, then regardless of whose pocket it initially comes from, America’s middle-class will foot the bill through increased taxes and higher out of pocket costs in the form of insurance premiums, deductibles, and co-pays. People are understandably concerned about what lies ahead and how providing adequate medical care could undermine their financial security.
For over 30 years, soaring health care costs have devoured an ever-growing share of the U.S. economy. These costs have begun to cripple the budgets of U.S. families, businesses and our state and federal governments. This article has two objectives. First, it will discuss in simple terms the scope of the problem and the key drivers of health care spending. Second, it will remind readers that unless we achieve comprehensive health care reform, these costs will play an increasingly larger role in their future spending and saving plans.
In 2016, health care expenditures in the United States topped $3 trillion, or over $10,000 for every man, woman, and child. This represents just under 20% of our country’s gross domestic product (GDP). The “percent of GDP” metric is used by health care economists to produce a meaningful, “apples to apples” comparison among different countries. When it comes to medical costs, the U.S is an anomaly, and not in a good way.
Other advanced nations such as the U.K., Germany, and Japan spend less than half of what we do on both a per person and percent of GDP basis while achieving better treatment outcomes and life expectancies and about the same prevalence of disease.
Of the $3 trillion, roughly $1 trillion is paid by the U.S. government for Medicare (benefitting those 65 and older) and Medicaid (benefitting the poor) recipients. These costs represent one-third of federal government spending and are the primary drivers of the country’s widening budget deficits and soaring debt.
Another $1 trillion is borne by private businesses and state and local governments for insurance premiums on behalf of workers. The final one-third or $1 trillion represents insurance premiums and other out of pocket costs paid directly by households.
Governments, businesses, and families have limited funds and are forced to make economic trade-offs and choices about how this money will be used. Every dollar spent on health care is a dollar less that is available to invest in other important priorities, many of which would yield a greater benefit.
Next week, I will talk about the burden of rising health care costs and the toll it is taking on our nation’s financial security.
This article is for general information purposes only and is not intended to provide specific advice on individual financial, tax, or legal matters. Please consult the appropriate professional concerning your specific situation before making any decisions.
John Spoto is the founder of Sentry Financial Planning in Andover and Danvers. Sentry is a fee-only financial planning firm that does not work for any financial institution, sell financial or insurance products of any kind, or accept commissions or referral fees. For more information, call 978-475-2533 or visit www.sentryfinancialplanning.com