Premiums
Health insurance premiums for the overall U.S. average scenario are from the Current Population Survey (CPS) and represent the average premium paid by non-elderly families (including families of one) regardless of insurance coverage source. Health insurance premiums for all scenarios with employer coverage were also derived from 2019 data from CPS.The employer’s contribution to premiums is not included in this part of the calculation. (More information is here).
Health insurance premiums for the individual market/exchange are from the KFF 2019 Health Insurance Marketplace calculator, which includes data from Healthcare.gov and state-run exchanges. For scenarios with incomes between 100 and 400% of poverty, the premium in the interactive represents the silver premium for 49-year-old adults (and children, if applicable) after accounting for the premium tax credit. For interactive scenarios with incomes above 400% of poverty, the premium represents the bronze premium for a 49-year-old adult (and children, if applicable) without a premium tax credit. We set age to 49-years-old because the weighted average unsubsidized silver premium in the exchange markets is most similar to that of a 49-year-old. In family scenarios, we assumed that the children of adults purchasing individual market/exchange coverage are on the family’s plan and not on CHIP (More information available here).
The Medicaid scenarios assume $0 paid in premiums, as Medicaid generally requires little to no premium payments by enrollees. However,some states charge higher premiums for adults than otherwise allowed under federal rules through waivers. Additionally, children enrolled in CHIP may also be charged a premium, depending on the state (More information available here).
Out-of-pocket health spending
Out-of-pocket health spending for the overall U.S. average, Medicaid scenarios, and employer market scenarios are from CPS and represent the average total out-of-pocket expenditures for the family or single individual, depending on the scenario.
Because the available surveys do not have a large enough sample size to examine individual market/exchange spending by income and family size, out-of-pocket health spending for interactive scenarios with non-group coverage were derived by taking the average annual premium (from KFF Marketplace Calculator) and multiplying by a 76% medical loss ratio, then applying an actuarial value (also from Marketplace Calculator). We used the actuarial values of silver plans for scenarios with incomes between 100 and 400 percent of poverty (with and without cost-sharing reductions, when applicable) and bronze plans for scenarios with incomes above 400 percent of poverty. For example, in the scenario of a single individual with non-group coverage making $20,000 per year (165% FPL in 2019), we take the weighted average silver exchange premium before subsidies; multiply by a 76% medical loss ratio (from our analysis of Mark Farrah Associates datahere); divide by a 70% silver actuarial value; and multiply by 13% (the enrollee’s share of a 87% actuarial value CSR plan). For all scenarios, our approximation of out-of-pocket spending does not include the cost of over-the-counter medications.
Health Status
We used 2019 data from CPS to categorize individuals and families based on health status. Survey respondents who label their health as “Excellent,” “Very Good,” or “Good” were classified as having better health for the purpose of the interactive. Respondents who consider their general health to be “Fair” or “Poor” were classified as having worse health.Families with at least one person in worse health were classified as being in worse health.
Premiums and out-of-pocket expenses for better and worse health scenarios were calculated by applying a multiplier to corresponding average health scenarios. The multipliers for insurance types were derived from CPS data by calculating the ratio between average expenses (premiums or out-of-pocket) and the expenses for individuals or families who fell into our better or worse health categories. Because the CPS sample for individual market/exchange coverage was not large enough, we used the employer market multiplier corresponding to the same family size.
Federal Taxes
For the estimate of federal taxes that go toward health-related government spending, we begin with the individual or family’s overall tax liability using TaxSim from the National Bureau of Economic Research, then separate out Medicare Part A and social security (FICA), and then apply a percentage (29.4%) that goes toward health spending to the remainder. More detail is below:
In TaxSim, for the overall average scenario, we use the median income for families (including families of one) where no one in the family is over the age of 64 using CPS. For single-person average scenarios by insurance type, we use the median income for non-elderly single-person households and secondary individuals also using CPS. For family scenarios in TaxSim, we split couples’ incomes evenly between the two earners and assume children are between the ages of 13 and 18 years old.
To arrive at the percentage of federal income tax revenue that goes toward health spending, we took the overall federal budget, removed Medicare Part A and Social Security Old Age and Survivors Benefits and Disability Insurance (the funding for which comes from FICA), and then estimated the share of non-FICA federal budget spending that goes toward health programs. We estimate federal health spending using the total budgets for Medicare (without Part A and net premiums, from Congressional Budget Office); Medicaid (federal spending only, also from CBO); CHIP (federal spending only), Veterans Affairs, and DOD health spending (from National Health Expenditure Accounts); Marketplace subsidies and Basic Health Plans (from CBO). This yields an estimate of 29.4% of non-FICA federal tax dollars that go toward health programs.
We then apply the 29.4% to the person or family’s non-FICA income tax liability and add back in FICA Medicare Part A contributions (employee only) to arrive at the individual’s total federal tax spending that goes to support health programs. We do not add in the employer’s FICA contribution for Medicare in this stage, but discuss it later (in relation to the person or family’s potential income). For the purpose of the interactive, we assume the share of corporate taxes that go towards health is the same as the share of individual taxes that go towards health. In the individual market or exchange scenarios, we assume that the adults are not self-employed, in which case they would be liable for an additional self-employment tax on their income to cover the FICA contributions that an employer would have paid.
In 2017, the IRS allowed taxpayers to deduct certain medical expenses in excess of 7.5% of their adjusted gross income. We do not make an adjustment for this deduction in the calculations.
State Taxes
We begin by estimating each person or family’s total state and local tax liability using the 2019 ITEP Who Pays report. We then separate out local tax liability (as there is no reliable way to estimate the share of local spending that goes to health) by removing property tax liability, which we estimate using the 2018 ITEP report. (We are essentially assuming that all property taxes are local and that all sales taxes are at the state level, which is a necessary assumption due to the lack of available estimates of local tax spending on health programs). We use 2018 property tax rates due to the unavailability of data for property tax by income group for 2019. By removing local taxes, we are only showing state tax dollars that go toward health programs and therefore missing some local tax spending that likely goes toward public health.
We then estimate the share of state tax dollars that go toward health at 17.3%, based on data from the 2020 State Expenditures Report published bythe National Association of State Budget Officers (NASBO). This 17.3% represents the share of state (non-federal) spending on Medicaid, CHIP, and Part D.
Employer contributions
In addition to the tax and premium liability of individuals, employers contribute additional tax dollars to the Medicare Part A program (and Social Security) through payroll taxes and often contribute toward the employee’s health insurance premiums. For example, in the scenario of a single individual with employer coverage making $50,000 per year, we estimate that the employer contributes an additional $725 to Medicare Part A (based on TaxSim), as well as $5,946 to the employee’s health insurance premium (which we estimate using the Employer Health Benefit Survey). Economists generally believe that employer contributions offset wages. Note that we are not including the employer’s contribution to Social Security through payroll tax.
