Answer
Where the money to purchase health care will come from?
There are two broad categories or sources of financing: public resources and private resources.
Public Resources are the pooled resources (i.e. taxes, fees) which come from the general public and – in most cases – are used for services that benefit the entire population – things like education, infrastructure and public safety. There are two ways in which public resources can be raised and spent.
- Direct Taxation and Legislative Appropriation
The traditional way – and the one with which we are all most familiar – is raising money through direct taxation and then allocating the resources through legislative appropriations. This is the way in which Medicare and Medicaid are financed. Medicaid is financed through general tax revenues. Medicare is financed through a dedicated tax that is supposed to go into a Medicare “Trust Fund” to be available for financing the medical needs of the retiree when he or she reaches 65 years old. (In reality, however, the money is spent as fast as it comes in. Furthermore, since people live much longer after retirement than they did when Medicare was established – and since health care costs are so much higher -- many people over the age of 65 will draw far more out of the Medicare “Trust Fund” than they paid in. These two facts account for the projected $ 65 trillion unfunded entitlement in Medicare when the Baby Boom generation becomes eligible for this program). - Tax Expenditures
The other way to raise public funds is through what is referred to as a “tax expenditure” (public spending administered through the tax code)which is essentially what Congress did when it gave preferential tax treatment to employer sponsored health insurance coverage. By allowing employers and employees to deduct the cost of employee health care from their taxable income, the amount of general fund revenue available for other public purposes is reduced. The impact on public resources is no different than if Congress had directly appropriated public funds to give each employer and employee a check to cover these costs.
Private Resources are the “after tax dollars” – or discretionary income – that belongs to individuals after they have paid their taxes.
Public/Private Financing
Health care in the U.S. is financed with a combination of public and private resources. Medicare, Medicaid and the tax benefit for employer sponsored coverage are all financed with public resources. Private resources are used to pay for private commercial insurance premiums, co-payment and deductibles and services not covered by either public or private third party payers.
Making the Distinction between Public and Private Resources
Making this distinction between public and private resources in the design of a new health care system is important because it gives us some useful things to think about along the way.
- Public resources are raised from the public at large – they are shared resources that are held in common and should be allocated in a way that benefits the larger population from which they flow.
- Private resources, on the other hand, can be spent at the discretion of those who have them. There is no requirement that they be spent in a way which benefits the larger public.
- Therefore, we need to demand a different standard for that part of the health care system that is financed with public resources than for that part that is financed with private resources. In other words, we are not trying to dictate how private, after tax dollars will be used in a new system but rather simply ensuring that the allocation of public resources meets two standards:
1. That we get a health benefit (outcome) from the public dollars we allocate for health care; and
2. That the allocation of public dollars benefits all of us, not just some of us; that it does not leave over 600,000 Oregonians behind. - The public resources spent on health care offset – or subsidize -- the cost of that care for individuals. Therefore, in designing a new health care system these public subsidizes should be explicit and based on a clearly articulated policy that is consistent with maximizing the health of the population. In addition, the public financing component of the system must not be artificially sustained by shifting costs to the private component through hidden subsidies.
- Public resources are finite and since all public resources cannot be spent on health care at the expense of education, public safety and other social priorities, it follows that the public resources available for health care are also finite.
- If the public resources that we can spend on health care are limited – and thus we are unable to purchase everything that might possibly benefit each individual – then it follows that people who depend solely on public resources to finance their health care will necessarily have limits imposed on how much health care will be paid for. In other words, the “floor” – the “core benefit” to which everyone will have access – is, by definition, what we are willing to pay for with public resources.
- Nothing prevents individuals from using their private resources to purchase additional health services that are not financed with public resources.
- Since private resources represent discretionary income, those with more income will always be able to purchase more health services than those with less income. In other words, we will always and inevitably have at least two tiers of health care based on income.
