Five huge US economic issues that are trivial compared to healthcare costs

Key talking points for one-upping your conversation partners this Thanksgiving

Executive summary

We’ve all heard that Americans pay twice as much for healthcare, but the scale of that overpayment is hard to fathom. To give it context, we can compare it to other common economic concerns: student debt, military spending, corporate tax cuts, immigration, and income taxes. 

• With respect to student debt, the amount Americans pay towards federal student loans in an entire year is roughly equivalent to what they overpay for healthcare every two weeks. 

• For the US military to spend as much as Americans overspend on healthcare each year, it would have to invade about 19 Afghanistan-sized countries and occupy them in perpetuity. 

• For every $1 of federal corporate tax revenue lost from the Trump TCJA tax cuts, ~$15 is lost to the overspending of the US healthcare industry. Handouts to the (largely corporate) healthcare industry dwarf other corporate handouts.

• For every $1 in net fiscal burden created by unlawful immigration (per the Heritage Foundation), the US overspends ~$27 on healthcare. By this metric, if literally every household in Mexico moved to the US, the tax burden would still be less than the burden of excess US healthcare costs.

• For every $1 in federal income tax that the IRS takes from the paychecks of the typical American worker with family health coverage, the health industry takes ~$6. Half of that $6 is excess payment to the healthcare industry.

Introduction

I’m sure you’ve been looking for ways to be more irritating in casual conversation this Thanksgiving. Don’t worry - I’m here to help.

Not a day goes without a friend / acquaintance / grocery store clerk asking me, “How do you manage to twist every conversation into a rant about healthcare spending?”

“It’s easy,” I say. I then promptly launch into another healthcare rant, since they foolishly gave me another opening.

But there’s a reason why I rant about healthcare spending. I rant because I genuinely believe it’s the socially responsible thing to do. 

As concerned as Americans are about healthcare costs, I’d argue that very few are concerned enough. I’d argue that very few are fully aware of how supremely destructive our wasteful healthcare industry is to the median American worker’s economic viability. And I believe this lack of economic opportunity - this demise of the American dream - is a foundational, root-cause issue in American society which then surfaces as a variety of societal ills.

So, I rant about healthcare costs because I believe ranting draws at least a small amount of attention to a fundamental, root-cause problem in our society.

With that being said, it’s hard to rant effectively. I’ve been in healthcare for over 15 years now, but to be honest, I still struggle to communicate the scale of healthcare overpayments. 

One thing I’ve learned, though, is that concrete comparisons to other problems (“X is 5 times bigger than Y”) are more useful than abstract numbers (“X is really big”). Ergo, I’ve whipped together this quick set of comparisons to issues that are generally perceived to be “big economic issues” by one side of the political spectrum or the other: student debt, military spending, corporate tax cuts, immigration, and personal income taxes. 

First, we have to very briefly describe our point of comparison: healthcare “overpayments.” As you’ve probably heard, the US spends $3.8T a year on healthcare. You’ve probably also heard that we spend roughly twice as much as other countries. With these two basic stats alone, we can get a general sense that the US is overpaying for healthcare by roughly $1.9T. This $1.9T will be my point of comparison for the rest of the article.

This article won’t go into the reasons why we pay twice as much, and it won’t address the feasibility of reducing our expenditures down to a reasonable level. These are fascinating topics. I’d argue that the reasons are more straightforward than you’d think, and I’d argue that a $1.9T reduction in annual expenditures without a loss in quality is surprisingly feasible. Others would disagree. 

But regardless, those are topics for another time. This article is about “how our healthcare overspending compares to other issues” - regardless of why we overspend, or how hard it would be to spend less.

Enjoy, and Happy Thanksgiving.

Disclaimer: this a quick, broad-strokes analysis thrown together on the day before Thanksgiving (with some tweaks on Thanksgiving morning). I have no significant prior experience with student debt, military expenditures, immigration economics, or taxation. Whipping together quick analyses based on cursory reviews of complex topics in unfamiliar fields like this can easily lead to improper conclusions. I’m certain I’ve failed to incorporate a lot of relevant nuance. I welcome refinements/corrections from people more experienced on these topics than me.

Student loan debt

First up in our not-as-important-as-healthcare queue: student loan debt.

Student loan debt is big: total outstanding debt has reached $1.7T. That sounds like it’s almost as big as the $1.9T in healthcare waste! At least, of course, until you realize those two numbers aren’t comparable. The $1.7T in student loan debt is a cumulative number (not amortized), whereas the $1.9T in healthcare waste is an annual number. 

As far as the annual expense of student loans, this article says that the federal government collects $70.3B a year on federal student loans (which constitute the vast bulk of outstanding student loans). In other words, the annual payments made towards federal student loans are about 1.9% ($70.3B/$3.8T) of the annual payments made to the healthcare industry, or about 3.7% of the total annual overpayments to the healthcare industry. A year’s worth of student debt payments translates into about two weeks’ worth of healthcare overpayments.

Why do student loans get a significant amount of attention relative to healthcare costs? One explanation is visibility: when you pay your student loans, you see the money coming out of your bank account. With healthcare, the money just never makes it into your bank account in the first place - you don’t even realize how much income you’re missing. There’s a form of the endowment effect at play.

Military spending

Assessments of the total cost of the Afghanistan conflict ranges from $955B to $2.3T. Just to be safe, let’s use the higher estimate. For simplicity’s sake, let’s round it to $2T. Given that the US was in Afghanistan for 20 years, a total cost of $2T would imply that invading Afghanistan and maintaining a military presence there cost about $100B/year. 

If it costs $100B/year to invade and occupy Afghanistan, it stands to reason that the $1.9T in annual overpayments to the healthcare industry could finance 19 Afghanistan-style operations in perpetuity.

Note: I am NOT recommending this. This is NOT a good idea.

Obviously, cumulative annual US defense spending is much higher than just the cost of the Afghanistan operations. Assessments of total annual expenditures range from $697B to $778B. Even this much larger number is dwarfed by healthcare numbers ($3.8T annual spend; $1.9T annual overpayment), though.

Corporate tax cuts

In 2018, the Brooking Institute estimated that lost revenue from cuts to the corporate tax rate in the Tax Cuts and Jobs Act of 2017 (the “Trump tax cuts”) amounted to $135B: “Actual corporate income tax revenue in FY2018 was $135 billion lower than CBO’s projection from 2017.”

This $135B was criticized as a “corporate handout,” but at 1/15 of the size of the $1.9T in annual healthcare overpayments, the corporate tax cut pales in comparison to the annual handout to the largely corporate healthcare industry. 

Since this is a high-level article focused on cumulative overpayments, I won’t get into the myriad ways that the tax system benefits the healthcare industry (tax exemption of employer-based premiums, ACA premium tax credits, hospital non-profit status, etc) and how the $1.9T in overpayments is almost entirely a value-less, artificial fabrication of the tax system and regulatory structure. But you should know that I want to. And you should know that $135B in corporate tax cuts is obviously a lot less than $1.9T in annual healthcare overspending.

Immigration

Since we’ve only addressed economic concerns of the left so far, I think it’s only fair that we spend some time addressing a common economic concern of the right.

A 2013 paper by the Heritage Foundation (a conservative think tank) assessed “the total government benefits and services received by unlawful immigrant households and the total taxes paid.” The paper estimated the difference between these two figures - the “net fiscal burden” - to be $54.5B.

If we apply our crude 50% ratio to the 2013 US healthcare GDP of $2.9T, we get overspending of $1.45T. Dividing this number by the $54.5B in 2013 “net fiscal burden of unlawful immigration,” we get a factor of 27.

The Heritage Foundation based its $54.5B figure on an estimate of 3.7M unlawful immigrant households in the US. Wikipedia says Mexico has 34,167,462 households. If we extrapolate the costs of 3.7M households to all 34M households, we can estimate a theoretical total fiscal burden of $503.3B to service every household in Mexico. This is less than a third of the annual excess financial burden ($1.9T) of the US healthcare system. 

In other words, according to the Heritage Foundation’s net burden calculation, if literally every household in Mexico were to unlawfully move to the US, the burden to US taxpayers would be less than a third of the current burden of healthcare overpayments (which ultimately is borne by American taxpayers and premium-payers).

I’m mixing 2013 and 2019 numbers here, and I’m sure there are other metrics for the economic impact of immigration, but I hope you get my point.

Personal income taxes

Did you think the IRS taxes you? Haha, no. The healthcare industry taxes you.

As I noted in my last article, the typical American (median salary, working in a median-tax-rate state) with average-cost family health coverage has roughly $26,000 taken from their paychecks in premiums and healthcare-related taxes. Since the healthcare industry consumes twice as much money as necessary, it’s taking $13,000 extra from this worker’s paychecks. Per talent.com’s tax calculator, that same worker has $4,295 taken from their paychecks in federal income taxes. 

In other words, the median worker with family coverage gives the healthcare industry an extra $3 for every dollar paid in federal income tax ($13,000/$4,295). (Note that since some federal income taxes go towards governmental healthcare expenses, there is some overlap between the two figures.)

If you don’t believe those numbers, don’t worry - I don’t think anyone really does. The idea that the healthcare industry extracts more money from the typical worker’s paychecks than the IRS does is truly hard to accept.

I should acknowledge what is true for the “typical worker with family coverage” isn’t true for other workers, for several reasons. First (and most obviously), not every worker has family coverage - some have individual coverage, or decline their employer-sponsored insurance. See KFF’s survey for details. Second, healthcare costs are regressive - a secretary pays the same amount in premiums as an executive. Therefore, the same ratios won’t hold true for higher-income individuals. 

Additionally, I’m only talking about federal income taxes - I’m not including payroll taxes, state income taxes, sales taxes, etc. 

Regardless, $3 in overpayments (not payments, but OVERpayments) to the healthcare industry for every $1 in federal income tax paid to the IRS is still a truly galling figure, even if it only applies to the median-salary worker with family coverage.

Conclusion

I think now is the time when I write a pithy recap. However, now is also the time to leave for my Thanksgiving gathering. So, I hope the above points speak for themselves.

Enjoy your turkey.