Health Care Costs and Financing

U.S. government spending on health care for seniors was five times that spent for children in 2002

U.S. health care spending is projected to near $2.4 trillion in 2008, with a large share of this sum paid by government outlays and tax subsidies. A recent analysis by economists at the Agency for Healthcare Research and Quality found that in 2002 the public sector accounted for more than half (56 percent or $752.9 billion) of all health spending within the civilian noninstitutionalized population. More than one-quarter of all public financing ($214.8 billion) took the form of tax preferences, primarily tax subsidies for private insurance and the exemption of most medical care spending from State and local sales taxes. Public spending disproportionately flowed to seniors, whose benefits were more than five times those of children despite program expansions in children's eligibility for public coverage.

These findings highlight the critical role the public sector plays in financing the care of seniors and people in poor health, as well as the role of tax subsidies in broadening the overall incidence of public spending on health care, note Thomas M. Selden, Ph.D., and Merrile Sing, Ph.D. They examined 2002 data from the Medical Expenditure Panel Survey aligned to the National Health Expenditure Accounts and augmented with simulated tax subsidies for insurance premiums and health care spending.

Public spending on health care among the civilian, noninstitutionalized population averaged $2,612 per person and tax subsidies averaged $745 per person, with public spending averaging more than half of total health spending. Public spending was strongly related to age. On average, children aged 18 and under each received $1,225 of public spending apiece, which was less than one-fifth of average public spending for seniors ($6,921). Also, public spending as a share of total spending was 10 percent higher for seniors than for children. The public sector played an especially large role in financing care for persons in poor mental or general health, accounting for approximately 80 percent of their health care consumption.

The study also examined the distribution of public financing across income groups. Whereas "means-tested" spending through Medicaid and SCHIP heavily benefited low-income families, the two largest spending categories-Medicare and tax subsidies-are not means tested, conferring benefits to families at all income levels. Indeed, the authors find that public spending in 2002 accounted for 45.8 percent of total health care spending for persons in families with incomes over four times the poverty line.

See "The distribution of public spending for health care in the United States, 2002," by Drs. Selden and Sing, in the July 2008 Health Affairs 27(5), pp. w349-w359. Reprints (AHRQ Publication No. 08-R077) are available from the AHRQ Publications Clearinghouse.

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