Socialized Medicine: Only 13.3% of Americans Purchase Their Own Health Insurance

Despite the cries of "socialized medicine" that have permeated debates over health care reform, Gallup has released polling data that provides a useful context for analyzing this rhetoric. The survey shows that 56.5% of Americans receive health care through employer-sponsored plans, 30% rely on government-sponsored plans, and only 13.3% receive health care through "some other means," including self-purchasing. Generously assuming that all of the persons in the "some other means" category purchase their own insurance coverage still means that only 13.3% of Americans purchases their own health insurance.

A closer look at the largest share of health insurance -- the employer-sponsored plan -- reveals that the government already greatly subsidizes or directly covers the utilization of health care in the United States. Employer-sponsored plans masquerade as "private" plans, but they are closely linked with public policy -- particularly federal and state tax policy. Favorable tax treatment for employers and employees allows this system to work.

The federal government does not tax health care benefits"earned" as a part of employment, even though these benefits would ordinarily meet the definition of "income" contained in the tax code. Furthermore, employers can deduct health care expenses just as they deduct the payment of wages or other business expenses. Accordingly, the government subsidizes employee health plans by immunizing the payments to employees from taxation and by allowing employers to deduct these payments as business expenses.

A 2007 study by the Office of Management and Budget found that the beneficial treatment of employer health insurance benefits in the tax code represented the single largest category of "tax expenditure" by the government (see analysis of this issue here and here). "Tax expenditures" are "revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability." When the benefits from state tax treatment are added to the federal policies, the magnitude of public expenditures for "private" insurance becomes even larger.

According to a study by health care researchers Thomas Selden and Bradley Gray, federal and state governments funded over 1/3 of all employer-sponsored family health plan expenditures in 2006. Furthermore, as the Gallup survey indicates, 30% of Americans are already directly covered by a government plan. Accordingly, the notion that the health care industry in the United States is purely private -- even excluding Medicare and Medicaid -- is absolutely false. This fact does, however, not tell us how health care reform should look. Nevertheless, as I have argued previously, the extent of public sponsorship of health care makes the socialist versus private rhetoric completely unhelpful and bankrupt.