Wednesday, December 22, 2010

How Much Money Do You Spend On Health Care?

The per capita annual income of the United States is $44,070. Of that, $6,174 goes to health care expenses, meaning that the average American spends 14.3% of his or her income on health care. This can come in many forms: co-pays, Medicare withholding, deductibles, out-of-pocket expenses, and tax subsidies for employer-based health insurance.

As a point of comparison, consider the averages of six of the Beveridge Model nations. (I've excluded Cuba, Hong Kong, and Norway: Cuba has a command economy and so is not comparable; Hong Kong is an outlier; and Norway's nationalized petroleum helps fund its social services.) As a group, Denmark, Finland, Great Britain, Italy, Spain, and Sweden have an average per capita income of $37,222. Of that, $3,031 goes to health care, meaning that the residents of these countries spend 8.1% of their incomes on health care (including the tax burden).

Six Bismarck Model nations (Belgium, France, Germany, Japan, Netherlands, Switzerland) have an average annual per capita income of $35,067, with $3,379 going to health care (9.6%). (Keep in mind that there are more than six Bismarck model nations.)

So, if the average American per capita expense on health care was 8.1%, as it is in Beveridge model countries, he or she would spend $3,570 on health care for a savings of $2,604 person. For a family of four, that's over $10,000 a year. For the economy as a whole, that's about $786B per year that is arguably being spent unnecessarily and unproductively.

If the average American per capita health care expense was 9.6%, as with the Bismarck model countries cited here, he or she would spend $4,230 annually for a savings of $1,944, or nearly $8,000 annually for a family of four and $583B for the economy as a whole.

Another way of looking at it is to compare per capita incomes before and after health care expenses:
United States: $44,070/$37,896
Beveridge: $37,222/$34,191
Bismarck: $35,067/$31,688
None of this is intended as an endorsement of either model. But it illustrates the impact that reducing the per capita health care expense from 14.3% to 10% would have: A family of four would have an additional $7,000 a year to save, buy food and clothes, travel, or enjoy family activities. Moreover, 10% is a completely reasonable goal: It's still higher than almost every other country in the developed world.