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United States experience dramatic shift in public share of healthcare spending
Public spending on healthcare has risen dramatically in the United States from just under 50% of total healthcare spending in 2013 to 81-82% of total healthcare spending in 2014-2016. The dramatic increase in the public share of healthcare spending is reflected in both OECD and WHO data sets and informs IHS Markit's healthcare forecasts. Our latest quarterly forecast, released in January 2019, indicates that public spending in the United States will account for more than 86% of healthcare spending by 2027 if current trends are maintained.
Even at 2016 spending levels - and this is historical data, not a forecast - the US public share of health spending surpassed that of the United Kingdom and Canada. This is a shocking result considering that the US healthcare system has always been dominated by the private sector.
What is behind the shift in public share of spending from 48.81% of total health spending in 2013 to 81.37% in 2014? In simple terms, this steep rise is due to changes brought in by Obamacare (as former president Barrack Obama's flagship Affordable Care Act is popularly known) which have led independent international observers to classify spending classes differently. What the OECD, WHO and IHS Markit consider to be public spending is the sum total of all spending under 'government' or 'compulsory' healthcare schemes. As a result, any spending under mandatory health insurance schemes would count as public. Some spending that previously would have been considered private or out-of-pocket (OOP) spending now counts as spending under the compulsory health insurance sector (i.e., individual insurance premiums to buy insurance in the Obamacare exchanges are now public spending rather than private spending). This may appear far-fetched: especially for Americans who buy insurance directly and very much feel this is still private spending. However, consider how spending is classified under the solidarity-based healthcare systems in Europe: one would not dream of classifying individuals' tax contributions to pay for compulsory healthcare schemes in Europe as private spending, so why would anyone apply a different methodology to the United States by continuing to classify compulsory individual contributions as private spending rather than compulsory healthcare system spending?
Should we expect a change in classification for the United States so that a chunk of what is now 'public' spending goes back to the private and OOP spending categories? What if Republicans succeed in their efforts to "repeal and replace" Obamacare? My expectation is that even if some reclassification of spending occurs, it will be moderate. Republicans in recent months appear to have toned down their language regarding Obamacare. Having failed to repeal it when they had a majority in both chambers of Congress, they are unlikely to attempt a repeal now when Democrats have control of the House. Furthermore, the level of support for Obamacare has changed: in a reversal to 2014, a Fox News poll of likely voters in October 2018 found 54% of people now support Obamacare, with 43% against it. The rhetoric surrounding the midterm elections in 2018 suggests the Affordable Care Act is no longer seen as a poison chalice by the Democrats, who feel again emboldened to defend it amid slowly-rising public support.
But what about the repeal of the individual mandate to purchase health insurance or pay a penalty in December 2017, one may ask? Without the mandate, it would seem health spending under Obamacare plans is no longer mandatory, in which case it should count as private rather than public/compulsory spending, right? Not exactly. The catch here is that despite media reports to the contrary, Republicans in Congress did not repeal the individual mandate in December 2017 as part of the budget reconciliation act: what they did do was reduce the penalty for failing to purchase health insurance to zero with effect from 2019. In other words, the individual mandate remains, but the penalty was removed. The lack of a financial penalty may remove the 'stick' contained in Obamacare to encourage participation, but this does not make the individual mandate any less real. As long as the mandate is in place, any spending on health insurance purchased under the health insurance exchanges will continue to be treated by IHS Markit, the OECD and the WHO as public/compulsory spending, and health system analysts will need to think twice before describing the US healthcare system as private-insurance-dominated.
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