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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.
Posted 12 February 2019 by Milena Izmirlieva, Director, Life Sciences Research, IHS Markit