What is Healthcare Financing?

By Michael Feng. Edited by Arjun Chandrasekar.


According to the US Institute of Medicine, the lack of adequate insurance is the cause of an estimated 20,000 excess deaths per year in the USA. Despite spending the most money as well as the highest percentage of its GDP on healthcare, the US still falls behind in the efficacy of its healthcare system. Therefore, when comprehending your options when it comes to healthcare insurance, something that may just end up saving your life, it is essential to consider all options.

Who Funds Healthcare?

In general, healthcare is funded by 3 groups: private insurance, government insurance programs, and people themselves. Different forms of funding can each have their own benefits, but come with their own drawbacks as well. To explain, each of these 3 groups have their own goals in mind, and will only subsidize or pay for something that would benefit them, leaving out other groups that would lack funding and create an imbalance in allocation of healthcare funds.

Private Insurance

First, private insurance, which can be purchased by corporations or from an individual; however, corporations contribute the majority of payments to private insurance companies. Healthcare is often provided by corporations in order to entice talented workers as a “free” perk of working with them, but a portion of that cost is cut off from an employee’s salary. In addition, payments from both employers and the employee to health insurance is tax-free income, so the government, indirectly, encourages private insurance options.

Government Funding

Next, government funding, which is when healthcare is allocated to numerous projects, but, according to merckmanuals.com, the two most funded are Medicare, which funds health care for the elderly, the disabled, and people receiving long-term treatment with dialysis Medicaid, which funds health care for certain people who are living below the poverty level and/or who have disabilities. Overall, about 35% of the population is covered by government insurance or government-provided care.


Lastly, the least common way of payment for healthcare comes from an individual’s own pocket, often from their savings account, or in the worst case, from credit card debt. However, individuals do have options to mitigate their risk of debt from healthcare. Employers may offer flexible spending accounts where employers will take a small cut of paychecks to pay for out-of-pocket health care expenses. The account does not earn interest on balances, and if any money is unused at the end of the year, the employee does not get it back.

High-deductible Healthcare

In addition to flexible spending accounts, individuals may also choose high-deductible health plans. Deductibles, in terms of health care, is how much you pay before the insurance company steps in to cover the rest of the charges. For instance, if, throughout the month, you’re accrued $5,000 worth of healthcare charges and your deductible is $2,000, you’ll pay $2000 and then your insurance company will pay the remaining $3,000. Charges are usually reset every month. In terms of what a high-deductible health plan entails, “high-deductible” means that you pay a higher amount of your healthcare charges before the insurance company covers the rest. Because you’re expected to pay more as a deductible, monthly premiums, or how much you pay your insurance company, will decrease compared to other health care plans.


While this article is focused on the consumer standpoint, understanding where your payment to insurance companies, the government (through taxes), or directly to hospitals also helps explain the efficiency of your healthcare system. ScienceDirect has a great article that further explains the simplicities illustrated in this article. Ultimately, you never want to end up with a major health issue and without funds to cover the pay, as having to pay for health care out-of-pocket contributes significantly to many bankruptcies in the United States, and being proactive rather than reactive is an indispensable choice!

Related Posts

Leave a Reply