Ask a Scholar: Who Pays for America's Health Care?

King Banaian

Dear Ask a Scholar,

I've read that 60% of all health care in this country is paid for by the government (and I'm assuming that means the federal government). If that number is correct, I'd like to know the distribution of those payments (e.g., Medicare, VA, health insurance tax credits to businesses and so forth) and how much of that money goes to private insurance companies. The ultimate question is: Are health insurance companies really free enterprise businesses, or are they just another pig at the federal handouts trough? Also, of the 40% not paid for by the federal government, how much of that amount is paid out-of-pocket by private citizens, businesses or whatever?

- Larry Stark, Metropolitan State University

Answered by King Banaian, professor and chairman of the Economics Department of St. Cloud State University. He holds a Ph.D. in economics from the Claremont Graduate School.  He has consulted at the central banks of Ukraine, Egypt and Macedonia and the ministries of finance of Indonesia, Macedonia and Armenia.  He is author of The Ukrainian Economy Since Independence (Edward Elgar, 1998), co-editor of The Design and Use of Political Economy Indicators (Palgrave, 2008) and more than thirty-five articles and book chapters discussing monetary policy and political economy. He directs the Center for Economic Education at SCSU. He was recently elected to the Minnesota House of Representatives. 

According to the Centers for Disease Control, 47% of spending on health care in 2008 was from public funds. 34.9% was federal spending, 12.4% state and local spending. See at Table 122 for more. Private health insurance paid 35.4%, and out-of-pocket expenditures were 14.2%. (ibid, Table 126.) The remainder is paid by private funds, including charities. Medicare was 22.8%, Medicaid 16.2%, of all spending (ibid.). The connection between health insurance companies and the federal government is complex. Insurance company reimbursement rates are dependent on rates paid by Medicare and Medicaid. All states require many services to be included in health insurance policies. It's hard to talk about one market for health insurance -- there are really 51 of them.

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