Health Care Spending and Financing
The United States is one of the richest and most powerful nations in the world--one which currently spends more of its resources on health care than any other nation on Earth. In 2000, the United States spent more on health care than any other country in the world. Figure 2 indicates an average life expectancy of 77.5 in the United States (ranked 27th in a global comparison). The United States also has a per capital health expenditure more than double that of Denmark (ranked 26th) and Cuba (ranked 28th), which have equivalent life expectancy averages. Higher expenditures are directly associated with slow economic growth from the recession in March 2001.
Figure 2. The Cost of a Long Life
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Spending Trends and Projections
Fiscal year 2011 federal health care spending reached 23 percent, which is the second largest spending item to national defense at 25 percent. The long-term outlook of national health expenditures (see Figure 3) suggests that in the absence of changes to national federal laws, federal spending on Medicaid will rise to 7.5 percent in 2019, reaching $674 billion by 2017. Cumulative spending on Medicaid benefits is projected to reach $4.9 trillion over ten years. Spending on health care will also rise to 49 percent of gross domestic product (GDP) by 2082.
Figure 3. National Health Expenditures, Average Annual Percentage Growth from Prior Year Shown and over the Projection Period, by Source of Funds, Selected Calendar Years 2007-2019
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Medicaid was initially designed to insure low-income women and children and low-income disabled and elderly individuals. Given our current economic climate, uninsured individuals are now eligible to receive Medicaid benefits. The number of uninsured individuals is steadily rising along with the cost of health care. As a result, public health care spending will be highly influenced by rising rates of unemployed and uninsured individuals, which would increase federal spending on health care. A $7 billion increase in federal funds was allocated to Medicaid. If these trends proceed, equilibrium won't be reached, and slow, private spending will accelerate public spending growth and force it to climb to an estimated $4.5 trillion by 2019, accounting for 20.3 percent of the GDP.
This has the potential to disproportionately impact low-socioeconomic individuals who are unable to secure high paying jobs and rely solely on publicly funded insurance programs. In some instances, medical providers are reluctant to service Medicaid patients since they are reimbursed at a much lower rate than private insurance plans. This has the potential to crowd-out health care providers that serve medical coverage to gain better access to quality care (low-socioeconomic individuals).
Health Care Financing
Classifications of health care systems are delineated within the dimensions of financing, service provision, and regulation. Who finances, provides, and regulates health care services has a remarkable effect on the effectiveness of the health care system. Health care can be financed through a mixture of four prominent sources: taxes, social insurance, private contributions, and out-of-pocket payments, and justified in terms of progressivity. A desirable health care financing is progressive where the system depends on the proportion of total revenues raised from each source and the degree of progressivity of each of these sources.
The United States is not committed to any form of universal health care or equal access to health care. Health care is distributed according to need and financed according to ability to pay. The need and cost of health care directly influence an individual's ability and willingness to pay for health insurance. This health care system has a multiple scheme financial system in which the state, non-governmental, and the market offer insurance contributions and benefits. Broadly speaking, in terms of progressivity of financing sources, direct taxes are progressive; indirect taxes are regressive; social insurance is progressive; private insurance is highly regressive; and out-of-pocket payments are regressive. The public health care system in the United States, is tax-financed through direct taxes (personal income taxes and payroll), which give the appearance of a progressive health care system. However, the majority of the population purchases private insurance or pay out-of-pocket payments for health care and public funds are heavily tax subsidized from private contributions.
Overall, the United States health care system is regressive in terms of the proportion of income spent on health care. As individuals' income increases, the proportion that is spent on health care decreases rather than increases. This forces middle-income and lower-income persons to bear the brunt of the financial burden of health care financing--progressive at low incomes and regressive at higher incomes.
Financing Options for Public Health Care
Three financing options are currently available in the United States:
1. Income-related;
2. Health-related; and
3. Income/health-unrelated, also known as risk-related premiums.
The content in this article is particularly interested in income-related financing. Income-related options are financed through direct and indirect taxes and based on two equity principles: benefits and ability to pay. The benefits principle is essentially stating that those who benefit more should pay more. In other words, the consumption level of medical services determines the costs of services rendered. The application of this principal discriminates against low-income and chronically ill individuals. These persons pay more for health care, which jeopardizes the consumption of goods (food, housing, and education).
The ability to pay principle allows everyone to pay for medical services within their economic capacity. The application of this principle provides an avenue for equal access to health by decoupling payments for utilization and protecting low-income populations against high out-of-pocket payments. This principle raises the concern on the quality of health care delivered. Government-provided tax subsidies have the potential to incentivize the medical profession to deliver quality health services. The lack of tax subsidies increases the vulnerability of disadvantaged populations because health care providers will be less willing to serve their health needs.
Health-related options are financed through coinsurance, deductibles, and no claims, and are generally used as measures of risk sharing. This option can be considered equitable in the sense that health care users are required to pay the same amount across the board (regardless of income or wealth). This however has a huge impact on individuals with low incomes and chronic illnesses who rely on frequent health care usage. Risk-related premiums are not associated with equity principles by any measure because they are not designed to redistribute income from rich to poor and healthy to sick. These premiums are mainly utilized in competitive insurance markets and justified because they help protect private insurance industry from asymmetric information of insurer and the insured.
Our health care system should be designed within the basis of equality. Equality, in a sense that all Americans, regardless of a person's race/ethnicity, class/socioeconomic status, or geographic location, have the birth right to a quality-healthy life. There is a well-established relationship between socioeconomic status and health status, which makes premium averages too high for those with the fewest economic resources and the greatest need. In a perfect world, resources would be allocated efficiently and we would only need subsidies to increase health care status for disadvantaged populations. We live in a world plagued with adverse selection, moral hazard, and asymmetric information, making it hard to determine cost sharing and health care consumption to create an efficient financing system. For this very reason, it is imperative for federal, state, and local government to consider all possible intervention strategies to alleviate health disparities and improve the financial health care system.
