Health Care Finance in the United States


HealthCare Finance in the United States

HealthCare Finance in the United States

TheUnited States is one of the leading countries in terms of health carespending. According to a report by Weinberg (2013), US budget is veryhigh when measured both per person and as a share of GDP.Surprisingly however, the quality of the overall healthcare offeredis still lacking in some parameters. Exploring the health care’sfinances in the country, with more focus on the California State,will be of immense significance towards gauging the status of mosthealth care centers.

Distributionof National Health Spending by type of Financing Source

Americahas experienced a major shift in the way its health care is financed.According to a report by the California Health Care Foundation(CHCF), much of the financing is now done by private payers andpublic insurance (Cochran, 2015). This is unlike 50 years ago wherepatients had to foot medical bills including hospital care, long termcare, physician care, and prescription drugs from their pockets.Today however, out-of-pocket spending has significantly gone down toless than 15% (Cochran, 2015).

CHCFprojects that Private Insurance, Medicare and Medicaid pay $362.1B,$250.3B and 168.0B respectively of the hospital care which isestimated at $971.8B (Cochran, 2015). This represents 37%, 26% and17% of the total budget. Out-of-pocket patients only pay $31.4B whichis 3%. Regarding physician and clinical services, the three combined(Private Insurance, Medicare and Medicaid) pay a total of $457.1Bwhich is 76% of the $603.7B budget. It is the same case withprescription drugs where they pay $241B which is 81% of the 297.7Bbudget (Cochran, 2015).

Distributionof Health Insurance Coverage among the U.S. Population

A2011 report, by Center for Medicare and Medicaid Services, projectsthat more than 66.7% of the US population is covered by privatehealth insurance (Center for Medicare and Medicaid Services, 2014).Out of this, employment-based health insurance covers 58.5% whileindividual health insurance covers 11.2%. The government on the otherhand covers close to 29% of the entire population. Its Medicare andMedicaid programs cover 14.3% and 14.1% respectively, leaving only15.4% of population uninsured (Center for Medicare and MedicaidServices, 2014).

Regardlessof the all the above the US still struggles with a high number ofpeople without health insurance cover actually, Weinberg (2013)notes that this is one of the leading concerns raised by advocates ofhealth care reforms in the country. The number is, however, fallingas indicated in multiple surveys. This has largely been attributed toexpanded Medicaid eligibility and the enactment of the PatientProtection and Affordable Care Act (Obamacare) that has seen theestablishment of the health insurance exchanges.

TheImpact of the Patient Protection and Affordable Care Act

Oneof the biggest gains of PPACA (Patient Protection and Affordable CareAct) has been the access to affordable, high-quality health insuranceby tens of millions of people who were previously uninsured. Ideally,this has significantly diversified the health insurance marketplace.Through Medicaid expansion, the US government has managed to offermore protections to its citizens. According to Weinberg (2013),unlike in the past, one cannot be dropped from coverage simplybecause he made an honest mistake on his application more so,hospitals cannot charge more based on gender or because an individualfalls sick often.

Onthe contrary, the same Obamacare has come under harsh criticism formandating participant to new taxes to fund the ever-growing healthinsurance bill. Apparently, these taxes are directly affectingeveryone either as an individual mandate or employer mandate.Individual mandate directs that every American capable of affordinghealth insurance should obtain coverage. Employer mandate, on theother hand, states that starting 2015/2016 fiscal year, all firmsthat have more than fifty full time employees must ensure that healthcoverage is covered (Cochran, 2015).

Originof Employment-Based Health Insurance

Thehistory of health insurance (employment-based) dates back to theWorld War II, during this time, Schumpeter (2013) notes that therewas a decreased supply of labor due to war effects. In an effort tocontrol the market, the Federal Government imposed wage and pricecontrols that ideally prohibited employers from raising compensationsso as to attract workers. Manufacturers counteracted this directionby significantly increasing fringe benefits for the same objective.These included sick leaves and employer-sponsored health insurance.Labor Unions took up the model and fiercely campaign for itscountrywide acceptance in the 1950s and the dawn of the 20thcentury, most employers had been compelled to cover their workers.

Differencebetween Fully Insured and Self-Insured Health Plans

Inthe United States and in most countries across the word, there aretwo types of health insurance plans that an employer group canchoose: self-insured and fully-insured. According to Cochran (2015),these two plans primarily differ in terms of who bears theresponsibility of settling health care bills incurred by employees.In a fully insured health plan for instance, this responsibilityrests with the insurance company to which the employer pays thepremiums for his employees. In a self-insured plan on the other hand,the employer or the organization takes up the risk by literallypaying for all or majority of the health claims made incurred byemployees.


Centerfor Medicare and Medicaid Services. (2014). NHEFact Sheet.Retrieved from

Cochran,J. (2015). USHealth Care Spending: Who Pays?Georgia: Georgia Institute of Technology.

Schumpeter,J. (2013). Originsand Evolution of Employment-Based Health Benefits.New York: The National Academy of Sciences.

Weinberg,J. E. (2013). Perspective: Addressing variations: Is there hope forthe future? HealthAffairs, 3(4),614-617.