Health Care Spending Growth and the Future of U.S. Tax Rates

Abstract

The fraction of GDP devoted to health care in the United States is the highest in the world and rising rapidly. Recent economic studies have highlighted the growing value of health improvements, but less attention has been paid to the efficiency costs of tax-financed spending to pay for such improvements. This paper uses a life cycle model of labor supply, saving, and longevity improvement to measure the balanced-budget impact of continued growth in the Medicare and Medicaid programs. The model predicts that top marginal tax rates could rise to 70 percent by 2060, depending on the progressivity of future tax changes. The deadweight loss of the tax system is greater when the financing is more progressive. If the share of taxes paid by high-income taxpayers remains the same, the efficiency cost of raising the revenue needed to finance the additional health spending is $1.48 per dollar of revenue collected, and GDP declines (relative to trend) by 11 percent. A proportional payroll tax has a lower efficiency cost (41 cents per dollar of revenue averaged over all tax hikes, a 5 percent drop in GDP) but more than doubles the share of the tax burden borne by lower income taxpayers. Empirical support for the model comes from analysis of OECD country data showing that countries facing higher tax burdens in 1979 experienced slower health care spending growth in subsequent decades. The rising burden imposed by the public financing of health care expenditures may therefore serve as a brake on health care spending growth.

Cost-Effectiveness Analysis of Ranibizumab Plus Prompt or Deferred Laser or Triamcinolone Plus Prompt Laser for Diabetic Macular Edema

“…The 104 week duration of the model was based on the time to two-year follow-up in Protocol I. 4 Subjects were assigned baseline characteristics and received monthly updated values of VA and ocular coherence tomography (OCT) measurement of macular thickness; all of these values were based on Protocol I data. Subjects accrued costs and were placed at risk for treatment complications as they progressed through the model.…”

“…The use of ranibizumab and triamcinolone were evaluated in the recently-published Diabetic Retinopathy Clinical Research Network (DRCR.net) randomized controlled trial Protocol I. 3,4 IV Ranibizumab plus either prompt or deferred laser treatments yielded greater increases in VA from baseline compared to sham injections plus laser treatment (control) and IV triamcinolone plus laser treatment. Compared to the control group, only regimens involving ranibizumab significantly increased the chance of improving by two or more lines of vision and significantly decreased the chance of losing two or more lines of vision.…”

“…4, 5 The cost of diabetic care, particularly among that of people suffering diabetic eye disease, makes a substantial contribution to this total. Although economic evaluation studies have not been heavily relied upon in this country, the information provided by this type of research is increasingly being recognized as a potentially helpful guide for policy makers, insurance companies, and other institutions responsible for allocating medical resources.…”

Medical Spending Reform and the Fiscal Future of the United States

“…The growth in this cost can be striking. A recent (though conjectural) estimate of the long run marginal excess burden cost of the subsidies in health reform indicates that, if financed wholly by surcharges on the income tax, excess burden will run up to more than 200% of taxes collected (Baicker and Skinner 2011). …”

The Changing Role of Government in Financing Health Care: An International Perspective

“…Finally, recent work by Baicker and Skinner (2011) models the efficiency of raising revenues to finance rising health care costs in the US (and elsewhere as health care costs are rising more quickly than economic growth in many OECD countries). The authors develop a macroeconomic model that accounts for increases in health care spending that improve longevity but need to be funded through increased taxation.…”