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Health and Human Services: bhg-article-04

Health and Human Services: bhg-article-04

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Published by: HHS on Jan 30, 2008
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This article provides estimates of healthcare expenditures by businesses, households,and governments for 1987-2003. Sponsorsthat finance public and private healthinsurance programs and other payers faceincreasing challenges as health care cost rise. Their capacity to support rising costswas particularly strained during the recent economic recession, with the FederalGovernment’s burden measured against revenue available for this purpose growing faster than for other sponsors.
In this article, we present a view of health care spending in the U.S. that focus-es on the sectors that finance or sponsorhealth care. The three broad categories osponsors are businesses, households, andgovernments. This view allows us to exam-ine each of the sponsor’s ability to pay fortheir health care obligations. The basis forthese estimates is the national healthexpenditure accounts
, the official FederalGovernment estimates of total U.S. healthcare spending (Centers for Medicare &Medicaid Services, 2005).The NHEA structure is a matrix com-prised of expenditures for health caregoods and services and of funding sourcesthat pay for these goods and services.These sources of funds are classified intoprivate health insurance (PHI), out-of-pocket spending, other private revenues,and specific government programs such asMedicare and Medicaid. For nationalaccounting, this structure is useful in mea-suring changes in spending trends associ-ated with policy initiatives in the govern-ment and private sectors, along with theamounts paid by each source.The analysis in this article is based on asubset of the National Health Expen-ditures. This subset, health services andsupplies (HSS), represents spending forhealth care provided during the year,including personal health care, govern-ment public health and program adminis-tration. In 2003, HSS was about 96 percentof National Health Expenditures, whichalso include investment, research, and con-struction expenditures.To determine where the responsibilityfor financing health care falls, we reorga-nize spending into business, household,and government sectors. This reallocationto the sponsors of health care is as follows:PHI—Allocated to businesses, Federal,and State and local government employ-ers and employees (or households) whopay for employer-sponsored healthinsurance premiums, and to individuals(or households) who purchase healthinsurance directly.Medicare—Distributed between employ-ers (businesses, Federal, and State andlocal governments), and employees(households) are the payroll taxes
Volume 1, Number 2
Financing Health Care: Businesses, Households, andGovernments, 1987-2003
Cathy A. Cowan, M.B.A. and Micah B. Hartman
The authors are with the Centers for Medicare & MedicaidServices (CMS). The statements expressed in this article arethose of the authors and do not necessarily reflect the views orpolicies of CMS.
National Health Expenditures Accounts (NHEA) replacesNational Health Accounts (NHA) as the name for the health careexpenditure accounting structure that is used to estimate totalhealth care spending in the U.S. The change was made to clari-fy that we are measuring the amount spent on health care, nottrying to measure the health of U.S. citizens.
through the Federal Insurance Contri-butions Act (FICA) and the Self-Employment Contributions Act (SECA)for the Hospital Insurance (HI) fund.Supplementary Medical Insurance(SMI) premiums paid by beneficiariesare allocated to households and the cor-responding SMI general revenues areallocated to the Federal Government.Medicaid “buy-ins” (payments by StateMedicaid Programs and matched by theFederal Government of HI and SMI pre-miums for individuals who are eligiblefor both Medicaid and Medicare)areclassified with the Medicaid Program.• Medicaid—Distributed to Federal andState and local governments.Workerscompensation spending, tem-porary disability insurance, and industri-al inplant health services—Allocated toemployers who sponsor these benefits.A small portion of the health spending isestimated for other private revenues—phil-anthropic giving and revenues received bysome health care providers from non-health services (for example, cafeteria, andgift shop revenues).After the NHEA sources of funds areallocated to these sponsor categories, weconstruct ways to compare sponsor’shealth care financing amounts with mea-sures of their overall income or revenues.These relative measures help track thechanges in the sponsors’ ability to financehealth care. In the private business sector,we compare health care spending to totalemployee compensation and to aggregatewages and salaries. The burden measurefor households is defined as the proportionof personal income spent on health care.Federal, State, and local government bur-den is measured by comparing spendingon health to tax receipts.Although we categorize sponsors intobusinesses, households, and governments—direct financers of health insurance—individ-uals ultimately bear the full responsibility of paying for increasing health care coststhrough higher taxes, reduced wages, andhigher product costs (Pauly, 1995).More information regarding the meth-odology and definitions is available at theCMS Web site: http://www.cms.hhs.gov/statistics/burden-of-health-care-costs/ 
Businesses, households, and govern-ments are sponsors of health care, andtherefore pay the costs of consuming med-ical care. The changing obligations placedon each of these sponsors can result inchanges to the types of health insurancethat is offered or selected, scope of bene-fits and cost-sharing arrangements. In thisarticle, we have constructed measures totrack the changes in the ability to financehealth care faced by these sponsors.In 2003, spending growth for health ser-vices and supplies decelerated for the firsttime in 7 years (Smith et al., 2005). Evenwith this slowdown, the burden placed oneach of the sponsors continued to grow.The portion of health spending as a shareof total compensation continued to groweven as businesses passed on more of thegrowth in health care costs to employeesby increasing their portion of PHI premi-ums and raising copays and deductibles.Household income did not keep pace withthe increased premiums and out-of-pockethealth care spending. For Federal pro-grams, while health care costs slowed dueto legislative changes, Federal revenuesdeclined in 2003. States are also strugglingwith ways to pay for health costs despiteseeing this cost growth slow in 2003.In the near future, there could be a shiftin the burden among the sponsors. Stateshave had a slight increase in the growth of revenues in 2004 (National Governors
Volume 1, Number 2
Association and National Association of State Budget Officers, 2004). The MedicarePrescription Drug, Improvement,andModernization Act of 2003 expands theMedicare Program to include prescriptiondrug coverage that lessens the burden thathouseholds face in paying for health costs.This legislation also provides subsidies toemployers to help them offset the costs of providing health insurance coverage forretirees and is intended to reduce States’contributions to prescription drug spend-ing for dually eligible beneficiaries.However, a few of these changes will shiftthe health care financing to governments,particularly the Federal Government,which raises long term sustainability ques-tions for the Federal Government pro-grams as highlighted in The 2005 AnnualReport of the Board of Trustees of theFederal Hospital Insurance and FederalSupplementary Medical Insurance TrustFund (2005).
Volume 1, Number 2

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