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Each week, Health Affairs' Rob Lott brings you in-depth conversations with leading researchers and influencers shaping the big ideas in health policy and the health care industry.
A Health Podyssey goes beyond the pages of the health policy journal Health Affairs to tell stories behind the research and share policy implications. Learn how academics and economists frame their research questions and journey to the intersection of health, health care, and policy. Health policy nerds rejoice! This podcast is for you.
Welcome to A Health Podyssey. I'm your host, Rob Lott. Every year, the Office of the Actuary at the Centers for Medicare and Medicaid Services develops an official national health expenditures report. And in full disclosure, Health Affairs has served for decades as the publication venue for these reports, conducting peer review of summary articles authored by CMS actuaries and economists, giving them visibility among policymakers, researchers, and industry stakeholders. Now, these reports are vital because they give us a picture of how much is spent every year, both in absolute absolute terms and as a share of the economy.
Rob Lott:It's a picture of growth and of how fast that growth is happening with lots of detailed tables, breaking all that spending down by category and programs and coverage sponsors. But as beautiful as those tables are, there's one important thing that they don't really do, and that's describe how much each American contributes to support The US health care system in any given year, nor do they provide a sense of how those contributions vary. Fortunately, there's a number of brilliant researchers out there up to the job, and they've just taken on those important questions. I'm here with Doctor. Irene Papanicolas, a professor of health services, policy, and practice at Brown University, where she also serves as director of the Center for Health System Sustainability.
Rob Lott:Together with co authors, she has a new paper in the September issue of Health Affairs titled, quote, US health care financing, tax, premium, and out of pocket contributions among tax filers 2023. This is a sneakily under researched question, and I'm thrilled to be able to explore it here today. Doctor. Irene Papanicolas, welcome to A Health Podyssey.
Irene Papanicolas:Thanks for having me. It's a pleasure to be here.
Rob Lott:Well, let's maybe start with some background and sort of the standard approach that goes into quantifying the burden of health care financing on individuals. How have researchers and policymakers typically described this landscape?
Irene Papanicolas:Sure. I think there's a handful of metrics that people have used in this space. Probably the most common is thinking of the direct payments a household or an individual might make during a given year. So things like out of pocket payments, which can include things like deductibles, co pays, or services that you pay for out of pocket that aren't included in your standard health benefit package. In addition to this, we see, especially in The US, numbers on premiums.
Irene Papanicolas:So what total employer premiums look like that are shared between individuals and employers or often what the employer contribution looks like, and that is usually presented as, what an individual worker would pay or or a family of four. Sometimes, maybe more in the international literature, there this can be related to income. So specifically, this out of pocket component, we have measures, things like catastrophic health payments, which relate this out of pocket contribution to some threshold of disposable income that we deem to be catastrophic. So often the benchmark is something like 40% of your income, and we say how many households have direct payments that exceed that. So these are usually kind of the the way that we we express these individual contributions.
Irene Papanicolas:Another way is thinking of total health spending divided just by the population. So sometimes you see this statistic, I think, in 2024, it's something like $15,000 So in The US, per person, we pay $15,000 to finance the health system. So those are probably the most common.
Rob Lott:So that last one, that's basically the top line number from those national health expenditures reports that I was talking about a moment ago divided by what 300,000,000 or however many Americans there are. Just a simple division arithmetic right there.
Irene Papanicolas:Yeah. That's correct.
Rob Lott:Got it. Okay. So what's missing from those sort of traditional descriptions, and why might that be a problem or a gap that we'd wanna fill?
Irene Papanicolas:Yeah. So I think there's, I'm gonna say three big things that are kinda missing from this representation. I'd say the the first is, you know, that that per capita number gives us an idea of, like, what per person is being spent, but it doesn't really tell us how much individuals are contributing. Right? And we know that that's not equal.
Irene Papanicolas:And so so we get a sense of what the system maybe costs on average, but we really don't know how that's distributed across the population and whether it's fair or whether it looks the way we would want it to. I think that the second thing that makes this difficult is The US doesn't have one health system. And and by health system, I'm I'm thinking of this as like one way that care is provided and and wants us enough finances care. Instead we have multiple health systems. We have Medicare, Medicaid, employer sponsored insurance, the VA, all of things that are which multiple people contribute to and different people benefit from.
Irene Papanicolas:Maybe from more than one in a given year, or more than one over the life time, but it's complicated. And so trying to pull all those figures together to figure out how much people are contributing in a given year across these systems can be very difficult because we don't have one system. We have a fragmented kind of patchwork of systems. And I think then the the third thing is that the the statistics I mentioned before that we do capture, things like out of pocket payments or premiums, are really focused only on one type of contribution. And they can miss a really substantial and important part of health care financing.
Irene Papanicolas:So one thing we don't talk about is how much tax goes into financing the health system. We sometimes forget how big the public part of of financing is of US health care. I looked it up just before this, and in 2024, it was about 54% of health expenditures coming from public sources. That's according to the OECD. So that's a substantial part of health care financing that we're not really talking about when we look at how much individuals are contributing.
Irene Papanicolas:But, of course, these taxes come from households. So how that breaks down is also really important if we want to understand the share that individuals contribute in a given year towards financing health care provision in The US.
Rob Lott:Do you have a sense of why that piece has been missing for so long? Why why are you know, I think you guys are sort of the first to ask this question, and correct me if I'm wrong. And why has it taken so long for someone to ask what seems like a very fundamental question?
Irene Papanicolas:So I think others have have tried this before with maybe, more synthetic data or microsimulation models, but it's just difficult, again, partly because of the the fragmentation. Even if we think of of just the tax component, there's income taxes, state taxes, sales taxes, like there's all these different parts that go into that. But then, again, there's so many different parts of the system. So these are not easy numbers to pull together, and then to break apart depending on how you're interested in looking at it. So by income, by how sick people are, by what coverage they have, by where they live.
Irene Papanicolas:You know, all of the things that we talk about when we think of who's paying into care and and who's, like, benefiting from that.
Rob Lott:Got it. Well, kudos to you for, doing that that hard work, and let's talk about that. Your paper used the 2023 Current Population Survey Annual Social and Economic Supplemental Data. Did I get that right? Yes.
Rob Lott:To quantify, health care contributions among US tax filers, and you broke them down by income quintile, payment type, and sociodemographic characteristics. What were some of your top line findings?
Irene Papanicolas:So, I guess, first, top line finding is, virtually everyone, will contributes to financing US health care. So we often talk about kind of how we don't have universal coverage. We do have nearly universal financing, though. I think that's really interesting. Of course, we're looking at tax filers, but virtually all tax filers contribute to financing some aspects of health care provision in The US in in 2023 in a given year.
Irene Papanicolas:And that can be in different ways, you know, through their income tax, through payroll contributions to Medicare, through out of pocket payments, through premiums. Often, it's in more than one way. But I think that's really interesting if we're thinking, you know, if about this universal coverage debate, that we also have this this financing component, and that is very universal. I think a a second really interesting finding is how that breaks down across groups and population. So overall, we do see, if you look at all these streams, that that it is progressive in the sense that the the richer people contribute more than the poorer people, But also, that breaks down by financing source is different.
Irene Papanicolas:So it's it's very progressive when you look at income tax contributions. It's proportional when you're thinking of something like payroll contributions. But out of pocket payments are quite regressive and fall much more on the poorer and sicker parts of the population.
Rob Lott:You're talking about deductibles and co pays, that kind of thing.
Irene Papanicolas:Yeah. Exactly. And then the other thing that was really striking to me is going back to this idea of universal coverage and universal financing, is that, you know, paying into the system doesn't guarantee you being protected by the system. So we one of the ways we broke down the data was to look at payment by insurance status. And we saw that if you're uninsured, you're still paying a a fair amount into health care provision.
Irene Papanicolas:You're just not covered by the health system in any way. Because of course you're paying through things like taxes. And so on average, across the income distribution, we find that the uninsured contribute about 64% of what the insured contribute, which we thought was really interesting and and feeds into this debate about universal coverage.
Rob Lott:Great. You sort of hinted at some of the things that that surprised you, but I'm curious about these findings and sort of how they compare to what your expectations were going in. Anything, that caught you off guard?
Irene Papanicolas:It was funny to think I was trying to think about what our expectations were going in, and and, obviously, we weren't working on this paper for so long. Was, going back to what motivated us to look at this question. So by way of background, I guess what I study is different health care systems across the world, and how they're financed and delivered care. And one thing, one reason that we wanted to explore this is that The US quite different from other high income countries in in just how fragmented it is, and how many different parts of the system there are. So trying to piece this all together and think about what it looks like was was kind of just intellectually interesting.
Irene Papanicolas:Going in, I I expected it to look more aggressive than it did when we put all the data together. Although, we do estimate also these employer contributions, and once you add that, you can see that the middle of the income distribution seems to be much more contributing more than even the richest as a percent of their income. And and so I I think that that kind of was more what I expected to see in the data. The other bit that really surprised me was how much the uninsured contribute. And, yeah, that finding really stood out to to all of us when we saw it, and we thought this this is kind of what's really interesting about the analysis.
Rob Lott:Wow. Okay. So notably, you know, when you add up all the various contributions outlined in your paper, they they don't actually align with that total national health expenditure number that we were talking about earlier. And can you sort of dig in on that a little bit? What explains that discrepancy?
Rob Lott:And is it possible that the that difference or those missing elements may sort of skew the final picture that your paper represents?
Irene Papanicolas:Yeah. So so it's correct. Our numbers don't align with those total national health expenditures that you outlined kind of in the beginning of the podcast. But to some extent, this is to be expected just by the design of the paper. So our objective was to measure as best we could the financing contributions from individual tax filers in a given year.
Irene Papanicolas:So this is a cross section, not to allocate every dollar of national health expenditures back to individuals. So there the main reason the totals won't match is because we're with this approach, we're not capturing every revenue source in a given year. So one important, for example, omission would be something like sales tax. Sales tax, it is impossible to to work out back to the individual how much everybody is contributing given the data source that we had, and so we're we're missing that, and that can be, especially at the state level, you know, quite a substantial amount of revenues that are going into health care financing. Something else that we don't capture directly, we do provide estimates in the paper, is the employer contribution.
Irene Papanicolas:And obviously, that's a big amount of the the employer sponsored insurance, landscape. And that also affects households if you think of what it means indirectly, you know, if in terms of how fast wages are growing and and and how that is spread across the income distribution also might look different than than than our estimates show in the paper. I guess there's also a timing issue. So this is a cross section paper, and and government spending in a in a particular year isn't necessarily financed exclusively by taxes collected in that same year. Some is deficit financed, so so there'll be some discrepancy there.
Irene Papanicolas:Now in terms of how this affects our top line findings, you can think maybe how you might expect some of these contributions to look across the income distribution. So sales tax, know, is more regressive. If you have a lower income, a bigger proportion of your income goes to sales tax. And so so that would make our findings in the paper look more progressive than they are in reality relative to income. Something else we don't include is the employer tax subsidy on private insurance.
Irene Papanicolas:And again, if you think about how that would look across the income distribution, probably benefits the higher income part of the distribution more. So, again, that would make our findings in the paper look more progressive than they would be in reality. So so that's kind of where they don't match up and what you might expect the difference to look like if you think about those missing pieces.
Rob Lott:Great. Okay. An important recognition, you know, for readers. So let's put these findings sort of in the broader context of the affordability discourse that's happening now, both in sort of health policy as well as on the political stage. You know, politicians of all stripes are sort of promising to confront the affordability crisis.
Rob Lott:And let's say some of them maybe get ahold of your paper. What kind of steps or forms do you think your paper might inspire a, let's say, rational policymaker to pursue?
Irene Papanicolas:So I guess one thing, again, coming from a comparative perspective that always strikes me about The US system is there's, at least from a comparative lens, not a lack of money in this system. I mean, The US, as a proportion of its GDP spends way more than any other country in the world on its health care system. And so I think what's interesting when you're thinking about this from affordability standpoint is there's a lot of money in the system, and understanding where that money is coming from can be really important as you think of affordability. Because affordability isn't it's not just about out of pockets and premiums. It's about the total burden that people face.
Irene Papanicolas:You know, if you are paying a a big proportion of your taxes into health care, that means you have less disposable income even to pay for these other means. And and so affordability the affordability of rate is just as much as how you distribute that burden across the population and across those payment streams. So I think there's a lot that we can think about when we're thinking about the financing of the health system to ease affordability on the populations who are most strained. And so I guess with that in mind, I think our paper is trying to draw emphasis to paying attention to who is bearing that burden and and how what this means both for affordability currently and also for sustainability of financing moving forward. We see that that middle part of the income distribution is really strained.
Irene Papanicolas:And so, you know, if if we're thinking that we have to raise revenues, and this how are we gonna do that in a way that it that doesn't put more pressure on this part of of the income distribution? So these are often young working age families. And then, I guess, finally, like, what are people getting in return for what they're paying? You know, we see that people contribute at all parts of the income distribution, and yet, even if you're contributing, you're not always protected from high out of pocket payments or, you know and these payments that can put you at financial risk, even if you're paying into the system, you're not necessarily protected by the system. So I I think that's another part that speaks maybe more indirectly to the affordability debate that if you're paying in, you wanna feel like you're getting something out.
Irene Papanicolas:And and at least even what our data shows is that for for many people who need care, it it doesn't appear that their prepayments are protecting them from direct payments later on. Our study doesn't answer what the optimal financing reform would be, But one thing that I think it points as a direction for future research is that we have a lot of funding streams and a lot of money in the system. So can we pool this money better and reallocate it better where there's need to maybe use that money more effectively. So if we have universal or almost universal, you know, participation in financing, but we're not translating that into universal coverage or financial protection, Can we do something with that money to redistribute it better, and ease the affordability burden on the populations who are feeling it the most?
Rob Lott:Well, a really sort of fundamental question about how we organize health care in America and, a lot of important work still to come, hopefully, building on, the work you've done in this paper. So doctor Irene Papanicolas, thanks so much for taking the time to, share your paper with us and talk about it. I had a lot of fun.
Irene Papanicolas:Thank you. Thanks for having me. It was a lot of fun to and a great opportunity to share the work.
Rob Lott:To our listeners, thanks for tuning in, to learn more about the paper. You can check it out in the September issue of Health Affairs. And if you enjoyed this episode of A Health Podyssey, please subscribe, leave a review, recommend it to a friend, and, of course, tune in next week. Thanks, everyone.