NCPA - National Center for Policy Analysis

Who Pays For Health Care?

February 1, 2001

"Do Americans have a right to subsidized health care?" and "How much health care do citizens deserve to receive?" are the most important questions to ask regarding Medicare reform says Angela Ritzert, a member of the staff of the Joint Economic Committee of Congress. The solution to Medicare's projected financial shortfall and to rising costs throughout the health care system lies in shifting the burden of health care expenditures from the government and other third-party payers (such as insurance companies) back to the actual consumers of the health care services.

The current demand for health care services cannot possibly reflect the optimal level of health care because consumers are not bearing the full burden of their consumption choices. Over time, who pays the bills has shifted:

  • In 1960, private out-of-pocket expenditures accounted for about 50 percent of all health care spending.
  • By 1997, private out-of-pocket spending was reduced to only 17 percent of total health expenditures.
  • Public expenditures increased from 25 percent of total health expenditures in 1960 to 46 percent in 1997.
  • Private insurance accounted for only 22 percent of all health care expenditures in 1960, but more than 32 percent by 1997.

In order to save Medicare all health care consumers need to be more responsible for their health care choices. With employees having private insurance that requires only a $5 co-pay for a doctor's visit, workers do not learn to economize on their use of medical services during their working years, resulting in over-consumption that may continue at even higher rates during retirement. This could be changed by requiring consumers to pay a percentage of the average market cost of services.

Source: Angela Ritzert (Joint Economic Committee), review of Andrew J. Rettenmaier and Thomas R. Saving, eds., "Medicare Reform: Issues and Answers (University of Chicago Press, 1999)," Public Choice, October 2000.


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