Healthcare in America — The Next Conversation Part 5 – Where Does the Money Come From?
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Part 5 – Where Does the Money Come From?
In any healthcare system, sooner or later we have to ask the big question: where does the money come from?
It’s easy to say, “From the taxpayers,” and yes, ultimately that is true. But that’s not really an answer. The more useful question is how the money gets from all of us into the healthcare system, because as we’ve already seen, there isn’t one answer.
We already have several healthcare systems operating in the United States, and they don’t all get their money the same way.
Veterans Healthcare
Veterans’ benefits and healthcare are funded primarily by the federal government. The Department of Veterans Affairs administers those programs, while Congress provides the funding through the federal budget.
Some veterans’ benefits, such as disability compensation and pensions, are generally treated as mandatory spending, meaning that the government is obligated to pay eligible recipients under the law. VA medical care, including hospitals, clinics, medical research and administration, is funded primarily through congressional appropriations.
There are other sources of revenue, including some insurance reimbursements, copayments and third-party billing, but those are relatively small compared with the federal funding that supports the Veterans Health Administration.
So, for practical purposes, veterans’ healthcare is a federal responsibility, paid for through the federal government.
Medicaid
Medicaid is different.
Medicaid is jointly funded by the federal government and the states. The federal government provides matching funds to the states, with the federal share determined in large part by the Federal Medical Assistance Percentage, or FMAP. Wealthier states generally receive a smaller federal match, while states with lower per-capita incomes receive a larger federal share.
The states provide the remaining portion of the funding, and in some states local governments also contribute.
The states administer their own Medicaid programs within federal requirements, while the federal government provides funding and oversight.
So Medicaid is essentially a partnership between the federal government and the states.
Medicare
Medicare is different again.
Medicare is federally administered and has several different funding streams.
Medicare Part A, which covers hospital care and related services, is funded primarily through the Medicare payroll tax. The familiar 1.45 percent Medicare tax withheld from an employee’s paycheck is matched by another 1.45 percent from the employer, for a combined 2.9 percent. Higher-income workers can also pay an additional Medicare tax.
Parts B and D work differently. They are funded primarily through general federal revenues and beneficiary premiums, with additional sources of revenue involved in the prescription drug program.
And there is an important distinction here because people sometimes think the Social Security tax and Medicare tax are one big pot of money because both appear on the same paycheck under FICA.
They aren’t.
The Social Security payroll tax funds Social Security. The Medicare payroll tax funds Medicare’s Hospital Insurance Trust Fund. They are legally and financially separate programs, although there are some interactions between the two systems, including revenue from the taxation of Social Security benefits that contributes to Medicare.
So, in very simplified terms, we already have three different answers to the question “Who pays?”
Veterans’ healthcare is primarily federally funded.
Medicaid is jointly funded by the federal government and the states.
Medicare uses dedicated payroll taxes, general federal revenues and beneficiary premiums, depending on which part of Medicare we’re talking about.
Three major programs. Three different funding structures.
And somehow the lights stay on.
That is worth sitting with for a minute, because it means the idea of creating another funding stream isn’t nearly as radical as it might sound.
The question isn’t whether we can create another stream.
The question is how.
The Obvious Answer
The obvious answer is the one nobody particularly wants to hear: another line item in the payroll tax, paid by both employees and employers.
We already know how that mechanism works. Medicare is partly funded that way, and a new healthcare program for the people currently living in the middle could theoretically be financed through another payroll contribution.
It would be relatively straightforward.
It would also be another tax.
And while that may eventually be part of the answer, I don’t think it should automatically be the first answer we reach for.
There is another idea worth considering.
I brought up Norway earlier because of something more important than its healthcare system. Norway made a decision about the wealth generated from its natural resources. Rather than treating that wealth simply as an opportunity for whoever extracted it, the country created a mechanism through which a substantial portion of that wealth could benefit the country as a whole.
We have a smaller example of that idea right here at home.
Alaska has the Alaska Permanent Fund, created from the state’s oil wealth. The fund is designed to preserve a portion of the value generated from Alaska’s natural resources for the benefit of future generations rather than allowing all of that money to simply disappear into the annual operating budget.
That brings me to an idea I have been thinking about.
What If the Resource Belongs to the People?
I’m not talking about nationalizing the oil companies.
The companies that explore for the oil, drill the wells, build the pipelines, operate the equipment and take the enormous risks involved in extraction deserve to make a profit. I’m not arguing otherwise.
But profit and ownership are not necessarily the same thing.
The company can own the equipment. It can employ the workers. It can invest billions of dollars. It can take the risks and earn a return on that investment.
But the oil, natural gas, minerals and other resources were underneath the ground before the company arrived.
So perhaps we should ask a different question.
What if the natural resources of the United States were treated as a public asset, with the American people receiving a return when those resources are extracted?
I’m not suggesting that we simply tax the companies more heavily.
I’m suggesting something conceptually different: a public return on a public resource.
The resource would remain available for private companies to develop. They would still make money. They would still compete. They would still own their businesses and equipment.
But a portion of the value of the resource itself would be returned to the public.
And rather than allowing that money to become another pot of money for politicians to spend every year, perhaps it could be placed into a protected national investment fund, similar in principle to what Norway has done and, on a smaller scale, what Alaska has done.
The purpose wouldn’t be to fund every government program that happens to need money. It would be an investment in the country itself. Healthcare could be one use. Infrastructure could be another. Education, disaster preparedness, retirement security or other long-term national needs could eventually be considered.
The important part would be that the money belongs to the people, not to whichever administration happens to occupy the White House or whichever party happens to control Congress. It would be protected, as much as anything created by government can be protected, from being raided whenever politicians need money for the next political priority. The purpose would be to build something that lasts beyond an election cycle.
And before someone labels the idea socialist, let’s be clear about what I’m actually suggesting.
I’m not suggesting public ownership of corporations.
I’m not suggesting that the government take over the oil companies, mining companies or energy companies.
I’m suggesting public ownership of the natural resource itself and a public return when someone extracts it.
That’s a very different proposition.
Whether it is a good idea is another question entirely.
I’m not presenting it as the answer to healthcare.
I’m presenting it as something worth thinking about.
Back to Healthcare
Healthcare is expensive, and the costs aren’t distributed evenly across the country. Providing healthcare in a rural community can be considerably different from providing it in a mid-sized city or a major metropolitan area. There are differences in hospital availability, physician shortages, transportation, demographics, wages and the cost of maintaining facilities.
The variables are endless.
That means whatever system we eventually design is going to have to account for those differences. A funding formula that works perfectly in Portland isn’t necessarily going to work perfectly in rural Oregon, Montana or Mississippi.
And that brings us back to where we started.
There is no magic pot of money sitting somewhere waiting for us to discover it.
Ultimately, healthcare is paid for by the people of this country, whether that money reaches the system through payroll taxes, income taxes, employer contributions, premiums, state budgets, federal appropriations or some other mechanism.
The question is how we collect it, how we distribute it and whether we can build a system that spends it wisely.
Maybe the answer is another payroll tax.
Maybe it is some combination of existing taxes and contributions.
Maybe a national resource investment fund could eventually provide part of the answer.
Maybe it is something we haven’t thought of yet.
What I don’t think we can do is look at the complexity, decide it’s too confusing and walk away.
Because if we do that, nothing changes.
And if we are serious about healthcare for all, then eventually we have to be willing to sit down, put all the numbers on the table and figure it out.
It won’t be easy.
But “it’s too complicated” isn’t really an answer.
It’s just another way of saying we decided not to try.
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