The US HealthCare System – How Much Personal and Federal Funds Are Spent?

The US HealthCare System - How Much Personal and Federal Funds Are Spent

The expenditures on health care in the United States are much more in comparison with any other country worldwide. A large share of those expenses is covered by the federal budget. 2017 saw haw the United States threw at on health expenditures, about $3.5 trillion or 18% of the gross domestic product. It counts more than twice the median among developed countries.

$1.5 trillion out of that $3.5 trillion, is directly or indirectly financed by the federal budget. Which is to say, the federal government allocates resources of almost 8% of the economy on healthcare system. By 2028, these costs are estimated to rise to $2.9 trillion, or 9.7% of the US economy. Over time, these expenditures will continue to level up and absorb the lion’s share of federal resources.

Over the long term, the increasing rate of federal health care expenditures is clearly untenable. Without a correction of this tendency, the total outcome will bring non-creditworthiness, subordinating an important public priorities, and an increase in the federal debt.

Considering how central health care expenditure relates to the federal budget, it is significant to understand how that spending is allocated and how it will level up. This article will give you an access to the important healthcare programs in the federal budget.

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The increase of federal health expenditures

Federal health expenditures have increased considerably over the past several decades and is predicted to grow in the near future. Expenditures on the main federal health programs – Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and the health insurance exchange subsidies released under the Affordable Care Act – has leveled up from 0.8% of the economy in 1970 to 3.1% by 2000 and 5.4% in 2017.

2000 saw the major federal health expenditures that have been up by 230%, while economy-wide rates have only 40%-increased. In general, the economy has only grown by 90%. This growth is explained by both automatic growth in enrollees and health care rates as well as health care advancements in the form of the Medicare prescription drug program and the Affordable Care Act.

Nearly all predictions show that federal health care spending will continue to run up. According to Congressional Budget Office (CBO) projects, the greatest federal health expenditures will run up from 5.4% of GDP in 2017 to 6.8% in 2028 and 8.4% by 2040.

Meantime, health care will eat up a bigger federal budget share over a long period of time. 1970 showed major health programs consumed only 5% of the federal budget. That share grew up to 20% by 2000 and 28% by 2017, respectively. By 2028, 1/3 of federal budget share not imposed by interest will be spent on health expenditures nearly 40% by 2040.

Where does the funds spend?

Most federal health care funds finance 4 main systems:

  • Medicare;
  • Medicaid;
  • the tax exclusion for employer-sponsored health insurance;
  • the exchange subsidies established under the Affordable Care Act.


Medicare is a federal health insurance program for people aged 65 and over, some young people with disabilities, and people with end-stage renal failure (persistent kidney failure requiring dialysis or transplantation, sometimes referred to as ESRD).

You are eligible for Medicare at age 65 and older if:

  • you are a US citizen or a permanent resident of the USA;
  • you have lived in the USA for at least 5 years;
  • you or your spouse have worked long enough to be eligible for Social Security or railroad retirement benefits, even if they are not yet receiving those benefits;
  • you or your spouse are a government employee or retiree who did not pay into Social Security, but paid Medicare payroll taxes while working.

The cost of insurance consists of what type and tariff plan was chosen. The average cost of a medical policy for an adult is $250 — $400 per month. For a family, monthly insurance premiums will be from $1,000.

Medicare costs will rise dramatically in the coming years. Net costs are predicted to grow more than twice over the next decade. It will count $1.3 trillion in 2028. This growth is due to both the aging of the population – the number of beneficiaries will rise from 58 million to 77 million – and growth in per-capita health spending – cost per beneficiary is predicted to run up from $10,200 to $16,400.

Medicaid and CHIP

Medicaid is a federal program that helps pay for medical services for low—income U.S. citizens. This program provides benefits that are not normally included in Medicare, including home care services. Medicaid gives benefits for both acute and long-term care, helping almost 100 million Americans annually.

The Children’s Health Insurance Program (CHIP) is a program that provides assistance to families with children. The program is aimed at uninsured children in low-income families where incomes are modest but higher than Medicaid requirements. This program is a similarly created program that helps almost 10 million children annually.

The federal government covers 50% to 75% of base costs Medicaid. The exact rate depends on the state. The federal government, on average, gives an opportunity to cover about 65% of total supply for Medicaid and 88% for CHIP. There is a tendency that CHIP’s share will decrease to 65% by 2021. These insurance programs cost $391 billion in 2017 and are predicted to cost $670 billion by 2028.

Exchange subsidies and other expenditures

In 2017 other health insurance or health care expenditures amounted $167 billion. This part contains subsidies for insurance bought on:

  1. $48 billion – the exchanges;
  2. $70 billion – veterans’ health care provided through the Department of Veterans Affairs;
  3. $49 billion – health care for active-duty military and their dependents.

The exchange subsidies are predicted to increase nearly twice over 10 years. It is explained by big premium increases in the near time and general healthcare rates’ increase in later years. Both military and veterans’ health care are discretionary indicators, implying that they are allocated annually rather than allowed to function in an automatical basis.

The employer-sponsored health insurance exclusion and other tax benefits

The tax code also gives an opportunity for several subsidies to cover health care and insurance. In 2017 The Office of Management and Budget (OMB) assesses to have cost about $340 billion. The exclusion is indirectly constricted by the 40% “Cadillac” tax on high-cost insurance plans, but that tax will not be affected until 2022 and has already had its start date delayed twice.

Other tax subsidies amounted about $25 billion in 2017 and by 2028 will run up to nearly $55 billion. The largest of these benefits is the medical deduction expense, accessible only to taxpayers who systemize their deductions and have medical expenses that are over 7.5% of their income (or 10% after 2018).

This deduction cost was $10 billion in 2017 and will grow to $20 billion by 2028. Other subsidies contain:

  • the premium deduction for the self-employed humans ($8 billion in 2017, $12 billion in 2028);
  • the deduction for contributions to Medical or Health Savings Accounts ($8 billion in 2017, $20 billion in 2028);
  • tax-free distributions from retirement plans to pay for premiums (less than $1 billion per year).

Running up health rates poses a threat to the trust fund solvency and sustainability

Medicare Part A is sponsored through the Hospital Insurance (HI) trust fund. It is financed predominantly with a 2.9% payroll tax, shared between employers and employees (an extra 0.9% high-income surtax and partial taxation of Social Security benefits provide additional funds). In a current moment, Medicare Part A rates and revenues are almost equal, but the rates are running up more quickly.

Guaranteeing Medicare payment capability will require covering a gap in excess of $100 billion annually by the end 2020s. It will become equal to 0.64% of payroll over 75 years. That’s the equivalent of immediately leveling up revenue by 16% or decreasing expenditures by 14%.

Failure to cover the costs of the Medicare Part A program will eventually lead to a reduction in benefits by 10-15%, since payments are limited by the trust fund income. Other federal health programs do not have similar restrictions. Instead, rising healthcare costs will result in the increased federal borrowing and is a key driver of unsustainable federal debt growth.

Summing up

Healthcare costs already are a significant part of the federal budget and are predicted to long-term grow. Medicare, Medicaid, CHIP, military medical care, individual insurance and tax preferences for employment-based health insurance have already amounted for 7.9% of GDP in 2017 and will grow to 9.7% by 2028. This increase has significant implications for the budget, as health care spending will become a greater part of the budget and, at least in part, will contribute to the growth of debt predicted in the future. Taking under contol the healthcare rates should be one of the most central parts in order to take control of the federal debt.

Category: General

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