Hiding the Cost of Healthcare

In the United States, our current system of healthcare coverage is hiding the cost of healthcare. Anyone who has to go to physical therapy, get an MRI, has a child that needs treatment for a disability, or ends up in an ER knows firsthand that healthcare is expensive, but many of them probably don’t realize just how costly our healthcare system truly is. For the most part, in our country we have a system that pulls a third party into every payment scenario for healthcare, and as a result, the cost of healthcare is not reflective of a true market.

Many argue that our current system creates too much of a moral hazard, with people living unhealthy lifestyles because they know they won’t face the full cost of care if they need it. Some argue that the current arrangement leads to unnecessary care or over-treatment because people don’t pay the full cost of care, so they seek more of it. At the same time, groups argue that insurance and healthcare coverage are still prohibitively expensive, and that the stress of possibly having to go to a doctor and spend thousands of dollars (even if one is insured) genuinely harms people’s health.

I think all of these are true in their own way, and I think they are relatable because they are things that people have seen first hand or can easily imagine, but there is still a deeper level of healthcare costs in America that we don’t discuss. Our system of taxes is also hiding the cost of healthcare. As Dave Chase writes in The Opioid Crisis Wake-Up Call, “Today, the tax break for employer-paid benefits is estimated at over $600 billion, making it the largest tax break in the tax code, the nation’s second largest entitlement after Medicare, and the primary wage suppression driver.”

During World War II, wages to employees were frozen to prevent rapid inflation in the United States during the war. To attract and retain qualified employees, businesses turned to employer-paid benefits, and congress created a law which would allow those benefits to be tax-deductible for employers. This was a way to effectively give employees a bonus without paying them more, keeping inflation down, but still giving them something that economically and socially benefited them. Today of course, you are taxed on anything of value you receive from your employer as if it was straight cash, so your healthcare benefit basically still counts as wages, but that tax break for the employers is still in place for the health benefits they provide.

This is where we are hiding the cost of healthcare in America when it comes to private insurance. Most Americans receive healthcare through their employer, and the US government loses out on $600 billion in taxes to allow employers to offer health insurance. So the plan you are on that you might lose if you are fired, the plan you have this year that might not be offered again next year if the insurer changes, the plan that still has a $1,500 deductible and $4,000 out of pocket annual max, costs you and U.S. tax payers $600 billion per year.

Because this is a hidden cost, it is not something we discuss very often. We are afraid of the cost of a nationwide healthcare system, but we don’t discuss how much money is not being collected in taxes and being sheltered by a tax break that maintains a system that very few people are actually happy about. We face high costs ourselves, even if we are covered by a plan that fits within this $600 billion tax break system, and the system has warped the way that care is payed for and provided to the point where we don’t even know what knobs and levers to try to pull to get the who thing to be more transparent, provide real value, and to be less costly. We need to be honest about the ways that our current system is hiding the cost of healthcare in America, or we will never be able to make real changes to improve the system.