National Information Center on Health Services Research and Health Care Technology (NICHSR)
Health Economics Information Resources: A Self-Study Course
Module 2 - Sources and Characteristics of Information Relating to Health Care Financing in the US
Sources of Health Care FundsThis section will cover who pays and who are the major funders. It will also explore how the system works and possible future trends. Before looking at sources of U.S. health care dollars, it is important to keep in mind the following quote on the subject of health care costs and spending. Jonas and Kovner’s book, Health Care Delivery in the United States, states:
The nation’s health dollar comes from the taxes and insurance premiums we pay, as well as from our co-payments and out-of-pocket expenditures. And perhaps this is one of the most compelling reasons that health care reform is of such vital interest to researchers and the general public alike.
Let us continue and look at routes those health care dollars taken from consumers to providers. As we do so, we will address three basic questions:
The Nation’s Health Dollar: 2000
Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group
What is the largest slice of the health care dollar pie? It is clear from this slide that monies from private insurance comprised the largest category of funds in 2000 - 34%.
Think about Medicaid and Medicare costs at 33%. Who pays for those receiving health care through those programs? All of us do through the taxes we pay. This is indirect out-of-pocket expenditures.
Where does the 15% out-of-pocket costs come from? Again, the money comes directly from our checkbooks or pockets. Out-of-pocket costs include paying for services not covered by your health plan or insurer. Examples include paying for services from a chiropractor not on the approved provider list of your health plan and co-payments.
In fact, 60% of the total health care dollar comes directly or indirectly from our pockets, directly from our pockets or indirectly paid for through taxes.
How does this scenario work?
Insurance is like a club.
From the inception of health insurance (in 1847, when the first commercial plan was organized) to the 1930’s, the purpose of such insurance was to offset income losses resulting from disability, usually due to accidents. Since that time, however, health insurance has evolved greatly and is now a mechanism for defraying costs of illness, not just accidents, and for financing routine and preventative health care.
Whether private insurance is an employee compensatory benefit and thus purchased for individuals by companies and organizations or purchased directly by the individual, it operates in similar fashion. A premium is paid by employers or individuals to an insurance company, which pays the doctors, hospitals and other health care providers for care and services administered to the eligible patient.