The ABCs of Health Finance

Warren Buffet has it all wrong on the estate tax.

Consumption by worthless heirs creates positive externalities for the rest of us. Remove the idle rich and most of Manhattan’s finest restaurants would have to close. There would be half as many Broadway shows. Granted, the cost of a pied-a-terre in New York City would probably be a third of its current price. But what’s the point of having a Manhattan condo if there’s nothing to do once you get there?

By contrast, the estate tax encourages people like Buffet to leave their fortunes to foundations, which can create negative externalities as well as positive ones. Conceivably, such gifts can do more harm than good.

What brings all of this to mind is a Commonwealth Fund study which claims people feel “financial stress” if their health expenditures exceed 10% of income (5% if you’re poor), and measures the amount of stress people endure from community to community . . . (pause to take that in) . . . . I’m not kidding. They actually did this.

[Note to Reader: The remainder of Dr. Goodman’s views on this study have been deleted by the NCPA’s internal editorial censor on the grounds that they were lacking in taste and grace. There was also an objection lodged against paragraphs 2 and 3 above, but we decided to let them slide.]

Here are the ABCs of health care finance:

  1. The nation is spending 16% of its national income on health care – not 5%; not 10%; but 16%.
  2. A better measure, however, is health care consumption as a percent of personal income. On this basis, the average household is spending more than 17% of its income on health care.
  3. Better still is to focus just on consumption. The average household is spending 19% (almost one out of every five) of all its consumption dollars on health care!

Some people are above the average; others are below it. Seniors, for example spend more than 40% of their consumption on health care. For people over age 75, it averages more than half!

Are these senior citizens maxing out on the stress-o-meter? I have no idea. But given Commonwealth’s constant reminders of how wasteful the whole system is, here is a statistic that may warrant scrutiny: For every dollar we spend on our own health care, we are spending close to another dollar on someone else’s health care, thanks to the taxing power of the state!

In dollars and cents, health care consumption equals $6,342 per person, or $16,300 for an average size household. However, of that amount more than $7,000 goes to pay for other people’s care.

Is the money the government is taking out of your income to spend (wastefully, as fate would have it) on other people putting you in a financial bind? The very thought of it stresses me out.

Have a Merry Christmas


P.S. This is my last Alert for the holiday season. On January 3, I will solve all of the nation’s most important health care problems in no more than six pages – just in time for the Iowa caucuses.

For the Commonwealth Fund study of financial stress go to:

For the NCPA’s study on health care consumption by the elderly, go to:

Comments (9)

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  1. Good stuff, John. I love the thinking that it is “stressful” (or a “burden,” as a recent study in JAMA put it) to spend 10%+ of your income on health care expenses, but somehow not stressful to spend 10%+ on taxes so that the government can pay for the same services.

  2. Charles Gregory says:

    Another example of having fun while doing the Lord’s work đŸ™‚
    Thanks for it – – & Merry Christmas indeed!

  3. Mary Young says:

    Nice Health Alert…I always enjoy receiving these.

  4. David Lenihan says:

    Merry Christmas John………you are……….as always……..a hoot!!

  5. Ed Harper says:

    My message [for the censor] is Let John Goodman be John Goodman!!!

  6. Uwe Reinhardt says:

    What a great Christmas message, John! If Jesus were grown up like you and I, would this be the season he’d worry about the fact that some Americans pick up the tab for the health care of poorer fellow citizens — even if Jesus were as well to do as you and I.

    This is a wondrous post, John, one worth saving. But tell me this: were you quite sober? You make Scrooge look generous by comparison.

  7. Lucy says:

    Your writing is just amazing — so informative, concise, and witty. You ought to write a book. Oh, that’s right; you already have!

  8. Ron Bachman says:

    John, I read your article with some interest. I recall Milton Friedman pointing out the unfairness of the Death Taxes with the analogy that we only tax inheritance on money and not other inherited assets such as athletic ability, music talent, or intelligence. Why is it fair to tax money made through hard work that can assist the next generation of family to enjoy life and position them to better contribute without as strong a need to resolve financial concerns. Maybe the inheritance class can invent something new, form a charity to minimize government programs, or have time to think and/or write great works, fund a think tank!

    Of course the argument on small business and and family farms shows the large destructive impact of taxing accumulated family wealth. But I would suggest another value that is important. Growing up, my father and mother made it clear that they were sacrificing and working hard so that we the children could have a college education, get ahead ahead in life, and be better positioned to contribute to community. The Baby Boomer “Me generation” seems to have lost that desire to make life better for their kids. The Death taxes reinforce the selfish nature of the liberal Boomers by establishing that all money earned is really the governments to be taxed during your lifetime and if not used for self then the residual goes to the government even though it has already been taxed multiple times.

    The image of inherited wealth being nothing other than spoiled brats belies the truth for most of America and the values of hard work and savings that should be the foundation of our future and our families’ future.

    You have some good points. Younger people should not have to pay for older people’s health (Medicare taxes) and then go uninsured themselves! I think your good points get lost in the harshness of the surrounding language.

    I am puzzled by the “Bah Humbug” tone of the message during the season of good will and good cheer for others. You are a respected and “good man” who I am sure will soon return to being a “Goodman.”

  9. Steven Bassett says:

    Terrific! One thought re Reinhard comments: Jesus certainly wasn’t advocating for socialism. Read and think about what Jesus said in context and you’ll see he is the ultimate libertarian. I tell my 2 year old “you have a choice” and let him deal with the consequences. We are creations that operate most effectively NOT under coersion, but with the freedom to choose. Jesus advocates for love, mercy, and grace – without choice these things are dead.