Health care in the US is technologically advanced but expensive, costing about $2.2 trillion dollars in 2007. For decades, health care spending in the US has increased more than the rate of growth for the overall economy; it increased from about 6% of the gross domestic product (GDP) in the 1960s to 16.2% in 2007. The percentage of GDP spent on health care in the US is significantly higher than that in any other nation. The next highest are 11.6% for Switzerland and 11.1% for France; the percentage is 9.8% for Canada and 8.0% for Japan. Also, the amount of money spent per capita on health care in relation to GDP per capita is also higher than that in other countries (see Fig. 1: Financial Issues in Health Care: 2006 health care spending per capita compared to gross domestic product (GDP) per capita.). The absolute amount and the rate of increase in the US are widely regarded as unsustainable. Consequently, US health care is currently in flux, as the government attempts to find ways to provide universal health care and reduce its costs.

Fig. 1
2006 health care spending per capita compared to gross domestic product (GDP) per capita. Dollar values are expressed as purchasing parity power in dollars (PPP$), which adjusts for the differences in purchasing power of different currencies for real goods and services. The data points in the graph represent 24 developed countries from the Organization for Economic Cooperation and Development (OECD). Health care spending per capita varies greatly among these countries. But there is a strong linear relationship between the ability to pay (GDP per capita) and per capita spending, except for the US outlier. If GDP per capita were the only factor influencing health care spending, the trend line suggests the US would have spent $4,819 rather than $6,714. Thus, the difference in GDP per capita accounts for only $1,141 (38%) of the difference between US and Canadian spending. The remainder ($1,895) is accounted for by such factors as more widespread use of costly equipment and procedures, higher costs for the same goods and services, and higher administrative costs. Adapted from Reinhardt UE: Why does US health care cost so much? (part I). Economix November 14, 2008. Available at http://economix.blogs.nytimes.com/2008/11/14/why-does-us-health-care-cost-so-much-part-i/. Accessed January 20, 2010; used with permission.

Consequences of increased US spending on health care include the following:

• Increased government spending (resulting in higher national debt, decreased funding for other programs, or both)
• Slowed growth or a real decline in workers' earnings due to higher payments for health insurance premiums
• Increased costs to employers (resulting in increased product cost and movement of jobs to countries with lower health care costs)
• Increased numbers of people without health insurance (resulting in large increases in uncompensated health care, shifting of cost burden, and poor health outcomes)

Even though US health care spending per capita is the highest in the world, about 46 million people in the US do not have health insurance, whereas other developed countries, despite lower per capita expenditures, ensure universal access to health care. Furthermore, the high spending may not lead to correspondingly superior outcomes; the US ranks comparatively low on many health care outcome measures, such as the following:

• Infant mortality: 30th
• Life expectancy at birth: 23rd for males and 25th for females
• Healthy life expectancy: 24th

Funding

Health care providers in the US are paid by the following:

• Private insurance
• Government insurance programs
• Individual out-of-pocket funds

In addition, the government directly provides some health care in government hospitals and clinics staffed by government employees. Examples are the Veteran's Health Administration and the Indian Health Service.

Private insurance: Private insurance is purchased from for-profit and not-for-profit insurance companies, which are accredited separately in each state. Thus, although there are many health insurance companies in the US, a given state tends to have a limited number.

Most private insurance is purchased by corporations as a benefit for employees. Premiums are typically shared by employers and employees. But because the cost of employer-provided health insurance is not considered taxable income for the employee, the government in effect provides some subsidization.

People may also purchase private health insurance themselves. However, unlike in employer-provided policies, applicants for privately purchased policies typically undergo extensive evaluation (underwriting) to identify and reject applicants likely to require costly care, including those with preexisting conditions or a high likelihood of developing disorders. Many applicants are denied policies. Some cannot purchase private insurance at any price. For applicants who do qualify, costs can be much higher for a given policy than when it is purchased through a company or another large group, partly because of administrative costs (often > 30% of the total).

Government insurance programs: The main government insurance programs include

• Medicare (see Funding Health Care for the Elderly: Medicare), which funds the elderly, the disabled, and people receiving long-term dialysis therapy
• Medicaid (see Funding Health Care for the Elderly: Medicaid ), which funds certain people living below the poverty level

Other government programs include

• State Children's Health Insurance Program, which provides matching federal funds to states for health insurance for families with children and which was designed to help ensure coverage for uninsured children when family income was below average but too high to qualify for Medicaid
• Tricare, which covers about 9 million active duty and retired military personnel and their families (some Tricare subscribers use government-provided care)
• Veterans Health Administration (VHA), which is a government-operated health care system that provides comprehensive health services to eligible military veterans (about 8 million veterans are enrolled)
• Indian Health Service, which is a system of government hospitals and clinics providing health services to almost 2 million American Indians and Alaskan natives living on or near a reservation

Overall about 30% of the population is covered by government insurance or government-provided care.

Out of pocket: People pay for care not covered by other sources out of their own funds, often using their savings for small expenditures and borrowing (including using credit cards) for large expenditures.

Flexible spending accounts (FSAs) are offered by some employers. Through these accounts, employees can choose to have a limited amount of money deducted from their paychecks to pay for out-of-pocket health care expenses. The money deducted is not subject to federal income taxes. However, the account does not earn interest, and any unused money is forfeited at the end of the year.

Health savings accounts can also be used to pay out-of-pocket expenses; these accounts earn interest, and unused balances need not be forfeited. Most people who are eligible for these accounts are eligible because their health insurance plans limit their reimbursements enough to be classified as high-deductible health plans.

About 17% of health care costs in the US are funded out-of-pocket. Out-of-pocket expenditures for health care contribute significantly to a large number of bankruptcies in the US.

Last full review/revision February 2010 by Amal Trivedi, MD, MPH

Content last modified February 2012