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What Comprises This Spending & Where Does it Go

Health care spending comes from a number of sources including public insurance, namely Medicaid, Medicare, and SCHIP; private insurance, including employer-sponsored as well as individual insurance; and out-of-pocket expenditures, which include premiums and deductibles paid by those with insurance and full medical payments paid by those without insurance. Figure 1 shows the distribution of these costs from data collected by the Centers for Medicare & Medicaid Services in 2005. The chart shows that the majority of health spending came from private sources (55 percent) as opposed to public sources (46%).[1] What isn’t evident, however, is the fact that the 46 percent of spending we consider “public” actually comes from the taxes average citizens pay – so, citizens pay more out-of-pocket to sustain the current health care system than may be obvious.

Figure 1: The Nation’s Health Dollar, CY 2005: Where it Came From

Source: Centers for Medicare & Medicaid Services, Office of the Actuary. National Health Expenditure Data, 24 July 2007 <http://www.cms.hhs.gov/NationalHealthExpendData/downloads/PieChartSourcesExpenditures2005.pdf>.

Where this spending goes is also varied, with a sizeable portion going to hospital care, a little more than a fifth going to physician and clinical services and a tenth concentrated in prescription drugs.[2] The chart in Figure 2 depicts this distribution of spending.

Figure 2: The Nation’s Health Dollar, CY 2005: Where it Went

Source: Centers for Medicare & Medicaid Services, Office of the Actuary. National Health Expenditure Data, 24 July 2007 <http://www.cms.hhs.gov/NationalHealthExpendData/downloads/PieChartSourcesExpenditures2005.pdf>.

High hospital care costs are also associated with the fact that many who are uninsured often seek services in emergency rooms at a point where their medical problems are much more serious and costly to treat. Without insurance, these individuals do not receive medical care when health issues are preventable or curable with low cost interventions.

Each of the various sources of health care spending has also been contributing to the overall growth of spending within this system. The graphic depiction of these contributions to health care growth in Figure 3 point out how out-of-pocket expenditures contribute both the fastest growth and the largest share of health care spending.[3]

Figure 3: Relative Contribution to National Health Expenditures by Source of Funds, 1999-2015 (in Billions)
Source: “Comparing Projected Growth in Health Care Expenditures and the Economy,” Kasier Family Foundation, May 2006, 25 Jan. 2007 <http://www.kff.org/insurance/snapshot/chcm050206oth2.cfm>.