The Economic Efficiency of Universal Health Care: Lower Costs through Taxation vs. Premiums

In 2021, the total healthcare expenditure in Oregon was approximately $45 billion (~$10,000/pp; OECD average USD 5,000; US average 12,000). This figure has been part of an upward trend in spending, reflecting the broader challenges and costs associated with healthcare management and provision within the state​ (

Universal health care systems are a cornerstone of equitable and accessible health services in many countries around the world. By ensuring that every citizen has access to necessary medical care without financial hardship, these systems embody a commitment to public health and well-being. A key argument in favor of universal health care is its cost-effectiveness compared to systems heavily reliant on private health insurance premiums. In this blog post, we’ll explore how universal health care systems are funded and why they often result in lower total costs for individuals and governments alike.

Each of the universal health care systems in OECD nations has its unique funding mechanisms and the cost per person can vary significantly based on numerous factors, including the level of services provided, local economic conditions, and government policy decisions. Here’s an overview of the funding mechanisms and average cost per person for the health care systems of the United Kingdom, Canada, France, and Japan:

  1. United Kingdom – National Health Service (NHS):
    • Funding: The NHS is primarily funded through general taxation and National Insurance contributions. A smaller portion comes from patient fees (for certain prescriptions, dental care, and eye care) and from other charges.
    • Average Cost per Person: As of recent data, health care spending in the UK averages about £3,000 per person per year.
  2. Canada – Medicare:
    • Funding: Canadian Medicare is funded through a combination of federal and provincial taxes, including income taxes, sales taxes, and payroll levies. Provinces may also charge premiums, which vary by province and income level.
    • Average Cost per Person: The average health spending per capita in Canada is approximately CAD 7,000 per year.
  3. France – Health Insurance Fund:
    • Funding: France’s health care system is funded through employer and employee contributions to health insurance funds, supplemented by significant state subsidies. General social contributions (CSG) and income-related contributions also finance the system.
    • Average Cost per Person: Health spending in France is around €4,000 per person per year.
  4. Japan – Universal Health Insurance System:
    • Funding: The Japanese system is funded through health insurance premiums, which are split between employers, employees, and the self-employed, with substantial government subsidies to ensure affordability. Premiums are income-based and adjusted according to the local municipality policies.
    • Average Cost per Person: In Japan, the average expenditure on health per person is roughly ¥420,000 per year (approximately USD 3,800).

These costs reflect a combination of direct public spending on health care services and indirect costs such as insurance and out-of-pocket expenses. They illustrate the significant investment that countries make to ensure health care accessibility for all residents under a universal coverage system.

Most universal health care systems are funded primarily through taxation. This method has significant advantages in terms of simplicity, equity, and administrative efficiency. Taxes used to fund health care can include income taxes, corporate taxes, and other forms of general taxation. For example, the UK’s National Health Service (NHS) is largely supported by general taxation, which ensures that funding is progressive and proportional to one’s ability to pay.

Funding Universal Health Care: The Role of Taxes

Taxation spreads the financial burden of health care across the entire population, smoothing out the cost spikes that can occur in systems dependent on private health insurance premiums. This not only helps stabilize health care financing but also ensures that no individual faces unmanageable costs due to illness.

Universal doesn’t mean free

A system of copays works to keep misuse of the system under control. Set on a sliding scale the system intends to keep the system equitable and accessible. For example there may be a copay with some medications, again based on ability to pay.  

Social Health Insurance: A Shared Responsibility

In countries like Germany and Japan, health care is funded through social health insurance schemes. These require mandatory contributions from employers, employees, and sometimes the self-employed, based on income. Such systems foster a sense of shared responsibility and solidarity among the populace. Government subsidies are also used to ensure that everyone, including those not formally employed, is covered. This method blends the benefits of direct taxation with the principles of insurance, maintaining affordability while promoting universal access.

Cost Comparison: Taxes vs. Premiums

One of the most compelling arguments for universal health care funded through taxation is its cost-effectiveness. In systems relying heavily on private insurance, premiums can be high and vary significantly between individuals and families, often based on factors like age, health status, and risk factors. This can lead to disparities in health access and financial strain.

In contrast, the tax-based funding of universal health care typically results in lower administrative costs and greater bargaining power, which helps reduce overall health care prices. It eliminates the need for multiple insurance providers to design and market various plans, thus reducing overhead costs that are otherwise passed on to consumers in the form of higher premiums.

Furthermore, studies have shown that countries with universal health care systems tend to spend less per capita on health care while achieving better or comparable health outcomes. For instance, health care spending per capita in Canada, which uses a tax-based funding model, is significantly lower than in the United States, where private health insurance is more prevalent.

Countries with universal health care systems employ various funding mechanisms to cover the costs of providing health care services to all citizens and residents. These systems aim to ensure that health care is available to everyone regardless of their financial means, and the funding methods reflect a balance between efficiency, sustainability, equity, and political acceptability. Here’s a look at the common funding approaches:

  1. General Taxation: Many countries fund their health care primarily through general taxation. This includes income taxes, corporate taxes, and other taxes collected by the government. The United Kingdom’s National Health Service (NHS) is a prime example of a health care system funded largely through general taxation, ensuring that funding is based on the ability to pay.
  2. Social Health Insurance: This method involves mandatory insurance contributions from employers, employees, and sometimes the self-employed. These contributions are typically proportional to income and are pooled together to fund the health care system. Germany and Japan utilize this approach, which balances the cost between the workforce and employers, supplemented by government funds to cover those not in formal employment or who are unable to pay.
  3. Private Health Insurance: While not a primary method of funding for universal systems, private health insurance often exists alongside public systems to cover services that may not be included in the universal package, such as dental or eye care, or to provide quicker access to certain treatments. In some systems, such as in Australia, private insurance is encouraged through tax incentives.
  4. Out-of-Pocket Payments: Almost all universal health care systems have some level of direct payment at the point of service, which can be in the form of co-payments for medications, treatments, or other health services. These are usually modest and designed to prevent overuse of services rather than to significantly fund the system.
  5. Specific Health Care Taxes and Levies: Some countries implement specific taxes dedicated to funding health care. For example, France uses a general social contribution levy (CSG) that is specifically earmarked for health insurance funds. Similarly, some countries may use taxes on tobacco, alcohol, or certain foods to help fund health care. In New Zealand they have both the national health insurance and then another system the Accident Compensation Commission, which deals with acute injuries. This is primarily paid for through a levy on work. for example, foresters pay a high levy because their work is dangerous. An office worker would have a small levy. I paid a very high levy for my motorcycle registration due to the risk of riding a bike. So it is an equitable system. It covers EVERYONE, so you don’t end up with the issues you have here in American ERs.   
  6. Government Budget Allocations: In some cases, particularly in lower-income countries, health care funding is directly allocated from the central government’s budget, which is itself funded through various forms of taxation and international aid.

These funding mechanisms are often blended together to create a robust and sustainable financial model for health care. Each country’s system reflects its economic capabilities, social values, and political structure, demonstrating the diverse approaches to achieving universal health coverage.

Conclusion: The Sustainable Choice

Universal health care systems offer a sustainable alternative to insurance-based models, ensuring that health care funding is equitable and based on the ability to pay, rather than the risk of illness and also have lower administrative costs. By leveraging taxation to fund health care, these systems minimize the financial barriers to accessing necessary treatments, promoting healthier populations and more stable economies.

As we consider the future of health care, the decades and millions of cases of evidence support a move towards universal systems as not only a morally sound choice but a financially wise one. By reducing dependency on private premiums and increasing the role of public funding, we can achieve a health care system that truly serves the needs of all citizens, offering both lower costs and improved health outcomes.

The move is underway now here in Oregon, so the issue for us is to make sure we get it right. 


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