INTRODUCTION
Health care is not free. Someone must pay. But how? Does each person pay when receiving care? Do people contribute regular amounts in advance so that their care will be paid for when they need it? When a person contributes in advance, might the contribution be used for care given to someone else? If so, who should pay how much? Should people’s spending on health care differ based on their health care needs or level of income?
Health care financing in the United States evolved to its current state through a series of social interventions. Each intervention solved a problem but in turn created its own problems requiring further intervention. This chapter will use an historical framework to discuss the evolution of health care financing, tracing the development of private insurance as well as major government programs such as Medicare and the Patient Protection and Affordable Care Act (ACA).
MODES OF PAYING FOR HEALTH CARE
The four basic modes of paying for health care are out-of-pocket payment, individual private insurance, employment-based group private insurance, and government financing (Table 2–1). These four modes can be viewed both as an historical progression and as a categorization of current health care financing.
Table 2–1Health care financing in 2020
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Table 2–1 Health care financing in 2020
Type of Payment | Percentage of National Health Expenditures, 2020 |
Out-of-pocket payment | 10% |
Individual private insurance | 9% |
Employment-based private insurance | 29%a |
Government financing | 42% |
Other | 10% |
Total | 100% |
Principal Source of Coverage | Percentage of Population, 2020b |
Uninsured | 9% |
Individual private insurance | 10% |
Employment-based private insurance | 49% |
Government financing | 32% |
Total | 100% |
Sources: Data extracted from U.S. Census Bureau: Health Insurance Coverage in the United States: 2020, September 2021. https://www.census.gov/content/dam/Census/library/publications/2021/demo/p60-274.pdf; Hartman M, Martin AB, Washington B, Catlin A. National health care spending in 2020: growth driven by federal spending in response to the COVID-19 pandemic. Health Aff (Millwood). 2022;41:13–25.
aBecause private insurance tends to cover healthier people, the percentage of expenditures is less than the percentage of population covered. Public expenditures are higher than the percent of the population covered because older adults and persons with disabilities are concentrated in the public Medicare and Medicaid programs.
bBecause many people have more than one source of coverage, these numbers are estimates.
Out-of-Pocket Payments
Fred Farmer broke his leg in 1919. His son ran 4 miles to get the doctor, who came to the farm to splint the leg. Fred gave the doctor a couple of chickens to pay for the visit. His great-grandson, Ted, who was uninsured, broke his leg in 2019. He was driven to the emergency department, where the physician ordered an x-ray and called in an orthopedist who placed a cast on the leg. The cost was $11,800.
