Medicare and Medicaid spending, amplified by the nation's deficit woes, has emerged as a top priority in the politicized and rancorous debate over U.S. fiscal restraint and economic recovery.
The high cost of healthcare—especially for the poor
Now new research raises questions about who would bear the greatest burden should Congress significantly change financing for Medicaid, which places a disproportionate burden on low-income households, and Medicare, which is more progressive.
In the latest all-finance issue of Health Affairs, a health policy journal, researchers estimated the percentage of income households spend on healthcare. The poorest households saw healthcare absorb the greatest share of their income, roughly 22% compared with 15% for the wealthiest families.
Spending included premiums, deductibles and other out-of-pocket costs; households' local, state and federal taxes for health spending; and an estimate of household burden from other federal subsidies, such as deductions for employers.
State budgets draw on sales taxes more than the federal budget. Sales taxes place a lopsided burden on low-income households. States contribute significantly to financing Medicaid (federal taxes pick up half to about three-quarters of costs based on a percentage that varies by state).
So poor households pay a greater share of their income to finance Medicaid than middle-class and wealthy families, based on 2004 figures, the researchers said. For the poorest families, state and local taxes to support healthcare accounted for 3.3% of income, or $444, compared with 2.1% for the wealthiest families, or $4,202.
Republican presidential candidate Mitt Romney revived a proposal for Medicaid block grants put forward by Rep. Paul Ryan (R-Wis.). Block grants would award states a lump sum to finance Medicaid, rather than cover a percentage of Medicaid spending.
During an economic downturn, should Medicaid enrollment surge, block grants would limit federal funding as demand for Medicaid grows. States would be left to finance the difference or cut Medicaid enrollment, benefits or rates. The Health Affairs study also suggests a greater burden for low-income households should Medicaid rely more heavily on state financing.
The analysis found premiums and out-of-pocket costs also disproportionately affected low-income households.
Combined, low-income households spent $2,187 on premiums and out-of-pocket costs, or 16.2% of their income. That compares with $8,175 among wealthy households, or 4.1% of income.
Of note: Researchers labeled premiums as lost revenue. (Not hard to believe based on another Health Affairs study.) The analysis assumed households paid an entire premium, not merely the share typically paid by health plan enrollees.
Medicare financing was more equitable, the analysis found.
For more reporting on the Health Affairs finance edition, you can also read Jessica Zigmond's coverage of how physician fees drive health spending. Or check out this brief about hospital market clout and prices.
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