Financing the American Health Care System

The burgeoning cost of health care in the United States is a source of great concern to the federal government, private citizens, and health practitioners. Expenditures for health care are the second largest item in the federal budget, even larger than defense appropriations. These costs have increased at an alarming rate during the past three decades, accounting for a larger share of the gross domestic product than that of any other major industrialized country in the world. National health care expenditures are now almost $1 trillion annually, over one-third of which goes for hospital care and another 20% for physicians' services (National Center for Health Statistics, 1995).

As seen in Figure 3-7, a major portion of the cost of health care is paid from private funds, including private insurance, out-of-pocket expenses, and other private sources. In addition, 13% of the population is covered by Medicare, 12% by Medicaid, and 4% by military health care. Be that as it may, over 40 million Americans, or 15% of the total U.S. population and 29% of the poorer segment, had no type of health insurance at all in 1994. Not surprisingly, the uninsured included over twice as many unemployed persons and part-time workers as full-time workers (U.S. Bureau of the Census, 1996).

Due in large measure to its complex, multifaceted nature and the vested interests of physicians, pharmaceutical supply houses, and insurance providers, reforming the American health care system has proved to be extremely difficult. Certain piecemeal reforms, such as the portability of health insurance from one place of employment to another, have been accomplished, but the system as a whole remains mired in dispute and paperwork.

The greater expense of fee-for-service as contrasted with managed care has led to the rapid growth of health maintenance organizations [HMOs) in recent years. Unfortunately, the adequacy of the services provided by many HMOs has become another source of contention. A related problem is that, unlike other sectors of the economy in which an increase in supply relative to demand lowers cost, in the health sector, an increase in the supply of physicians, hospitals, and other services has been accompanied by ever-increasing cost of treatment. It seems that, rather than settling for merely adequate supplies and services, when it comes to their personal health, people opt for the most successful doctor, the best-equipped hospital, and whatever other superior supplies and services they can obtain.

Another matter of continuing debate in the U.S. Congress and a cause for worry among older Americans in particular is the status of Medicare and Medicaid. In 1993, the Medicare program cost $150 billion and the Medicaid program, $102 billion (National Center for Health Statistics, 1995). Part A of Medicare is financed by a portion of the Social Security tax, and Part B (Supplemental Medical Insurance) is paid for by a monthly deduction from the applicant's Social Security check. However, a number of different services and supplies (custodial care, dentures, and routine dental care, eyeglasses, hearing aids, examinations to prescribe and fit them, nursing home care, prescription drugs, routine physical checkups and related tests) are not paid for by Medicare. In addition, a deductible amount and a percentage of the remaining cost of treatment must be paid by private insurance or from other private sources. Because Medicare pays less than half of the medical bills of older Americans, patients who cannot pay the remaining amount must look to either charity or Medicaid.

Medicaid is administered by local welfare departments using federal and state funds. The program is designed for poor people, who are required to pass a financial "means test" in order to qualify. Medicaid covers the same services and supplies as Medicare, in addition to prescription drugs, eyeglasses, long-term care in licensed nursing homes, and certain other items.

So far, federal entitlement programs such as Medicare, Medicaid, and Social Security have resisted the contemporary zeal for large cuts in governmental services. However, concerns continue to be voiced by older Americans and their advocates that these programs will not remain immune to the federal budget axe. Although seniors tend to be fairly independent, when it comes to federal programs that benefit them, bloc voting is much more likely to occur. For this reason, politicians who wish to be reelected must often walk a tightrope between exercising fiscal responsibility and attentiveness to the social and political realities of taking accustomed benefits away from a large and powerful group of constituents.

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