Many people think of their own health spending in terms of out-of-pocket costs and monthly premium contributions. However, a significant portion of health spending is not as visible to people in their everyday lives. This less direct health spending includes state and federal income taxes that fund health programs like Medicare and Medicaid, and Medicare payroll taxes paid by employers. Furthermore, people with employer-sponsored insurance receive additional compensation in the form of tax-preferred contributions to their health insurance premium.
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The typical non-elderly family in the U.S. spends $8,200 per year, or 11% of their income, on health care – not including employer contributions – but this can vary substantially by income, type of insurance, and health status.
For example, a person with employer coverage earning $50,000 annually spends on average $5,250, or roughly 11% of her income, on health care. This includes $800 per year in out-of-pocket costs, a $1,400 premium contribution, and $3,050 in state and federal taxes to fund health programs.
Her employer contributes even more, including an additional $5,500 toward her annual premium and $750 in Medicare payroll tax. Economists generally believe that employer spending on health benefits and payroll taxes depresses wages, but workers do not directly observe that cost.