Health care is an essential part of any well-functioning society. It is the support system for our overall well-being and a vital part of the American economy. Even with the scientific advances of our time, the number of people seeking healthcare—and the prices they pay for it—has risen over the past few decades. So, how do people pay for medical care today?
The healthcare industry is a complex system of medical professionals, insurance companies, and other businesses that provide or manage the support you need when you are sick. These services are provided by a mix of efforts from both the private and public sectors. About 11% of the American workforce is a part of the healthcare industry. Additionally, health care accounts for nearly a quarter (24%) of government spending.
Americans struggle with many financial issues. For those who can’t get a loan for bad credit or financing for things like cars and homes, medical care is another one of those things that they may not be able to afford.
The U.S has a health care industry—unlike many other health systems in the modern world—that holds the patient financially responsible. In this article, we’ll look at the methods and programs that help people pay for medical care.
The Basics on Health Care Spending in the United States
It is essential to understand the most crucial aspect of American health care:
There Is No Universal, National Health Care
The United States does not provide a blanket health care plan for all of its citizens. Even though government programs underwrite health care costs, taxpayer dollars fund them. Simply put, when an American receives health care, it is paid for by private insurers or another person.
Health Care Costs in the United States
In 2020, health care spending reached an estimated 4 trillion dollars!
To look at that staggering number a different way—that’s one out of every six dollars spent in the U.S was spent on health care. Health care spending per person in the U.S. is around $11,000 per person, making it the most significant spend of any other country in the world by far. That number is 46% higher than the nation with the following highest number, Switzerland.
Surprisingly, some of the highest health care costs don’t come from the actual medical services. Health care administration costs in the U.S. are higher than in many other countries. These services include insurance claims processing, billing, and testing fees.
And over the next few years, experts believe that health care spending will continue to increase—as much as 5.7 percent over the next two years alone.
Americans pay for health care using three different options. A person’s use of any choice is based mainly on their income. Let’s take a look at each of them.
Private Health Insurance
The majority of Americans cover health care costs with private insurance. Private health insurance refers to health insurance plans intended for private individuals instead of public-run health plans. These plans are paid through monthly installments.
Employers sponsor most private health insurance plans and typically share the cost of the plan with the employee. People may also supplement their employer’s plans with additional coverage (typically for services like vision and dental). Employee-sponsored plans are subsidized by the government and are usually available as a pre-tax benefit, much like a 401k plan.
There are different types of insurance plans that manage health care in various ways:
Health Maintenance Organization (HMO) Plan
Health Maintenance Organizations provide comprehensive health care services through a specific network of different doctors and medical services. For most health care issues, HMO participants will see their primary care provider— a doctor or nurse practitioner that conducts exams, refers specialists, and prescribes medications. HMO premiums are usually among the most affordable when it comes to private health care options. However, HMO members are covered only for care received from their primary care provider and other “in-network” professionals.
Preferred Provider Organizations (PPO) Plan
A Preferred Provider Organization plan uses a network of providers to serve their participants, just like an HMO. The difference is that PPO patients can choose to seek care from providers outside of the network. But, out-of-network services will cost higher than in-network providers. And unlike HMOs, PPO’s often have a deductible—an amount of money you pay on your medical costs before your insurance plan starts to pay.
Exclusive Provider Organization (EPO) Plan
For those who like to see specialists without a referral, an EPO is a good choice. Even if you plan to stay within your network, you can often see any doctor you want. But, if you go outside of your network, you will have to pay the total cost.
Government Insurance Plans
Some people are eligible for health care benefits from the federal government. Medicare and Medicaid are the two programs that serve most Americans.
Medicare and Medicaid were created in 1965 to help Americans cover health care costs. They receive funds from taxpayer money, so every citizen pays into the plan and can receive assistance if they meet the qualifying criteria.
Although their names are similar, these two programs serve different purposes for different sectors of the population:
Medicare is an insurance plan that provides health care coverage to citizens aged 65 years and up. The program also covers people with select disabilities. It is a four-part program, identified with letters:
Medicare Part A guarantees coverage regardless of income and can be used in addition to private insurance. Part A coverage is available to qualifying people who have paid into Medicare via income taxes for at least ten years.
If you qualify for Part A, you also are eligible for Medicare Part B. Part B coverage handles medical equipment, like walkers and crutches. It also covers lab work, x-rays, screenings, doctor’s visits, and other medical services.
Private companies offer Medicare Part C. Approved by Medicare; these companies provide vision, hearing, and dental services. Like an HMO, Part C gives its users a network of specialists to address their needs.
With Medicare Part D, participants receive benefits for prescription drugs. It is an optional program that requires out-of-pocket expenses. These expenses include monthly premium payments and an annual deductible. Part D is something to consider if you have no other drug benefits from a health insurance plan.
Unlike Medicare, Medicaid assists low-income individuals of all ages. Medicaid’s program for children is known as CHIP (Children’s Health Insurance Program).
Medicaid is a program funded by state governments and the federal government. Because of that fact, the size and scale of Medicaid coverage vary from state to state. While most plans cover hospitalization, treatments, and doctor visits, additional services like vision, mental health, and benefits to lower prescription drug costs may be available.
As of 2020, Medicaid covers nearly 25% of the US population, with over 80 million participants. It is also the largest source of long-term care for Americans, often covering the cost of nursing facilities and care for the elderly.
Affordable Care Act (ACA)
However, even though the U.S. spends more on health care per person than any other country, many Americans do not have health insurance. Many people struggle with making enough money to pay their bills, which makes medical care a low priority. The Affordable Care Act exists to address this problem.
The Affordable Care Act (ACA) is the revolutionary health care reform signed into law by President Barack Obama in March 2010. While it is formally known as the Patient Protection and Affordable Care Act, it is often called “Obamacare.”
Like Medicare and Medicaid, the federal government funds the ACA with tax revenue.
The act expands Medicaid eligibility, creates health insurance exchanges, and prohibits insurance companies from denying coverage (or charging more) due to pre-existing conditions. It also allows children to remain on their parent’s insurance plan until age 26. In the beginning, the ACA required that Americans purchase or otherwise obtain health insurance, but Congress eliminated that mandate in the Tax Cuts and Jobs Act of 2017.
More than just extending health insurance coverage to millions of uninsured Americans, the ACA prohibits insurance companies from denying coverage or charging different prices to those with pre-existing conditions.
The Affordable Care Act created a pathway for people without employer-sponsored health plans to buy private insurance for themselves and their families. The law made subsidies and reductions to primary market insurance that would not be accessible to those eligible for ACA assistance. This act serves people who earn less than 400 percent of the federal poverty level. However, people above that level may still be able to deduct the cost of their health insurance premiums at tax time.
Out-Of-Pocket (Personal Funding)
There are many instances where a health insurance plan won’t cover a necessary medical service or piece of equipment. For those times, patients must come “out-of-pocket” and pay for those things. And it leaves many people wondering what happens to unpaid medical bills if they can’t afford them.
Out-of-pocket costs are standard in the American health care industry. Virtually every health care plan will have some price above the premium payments, like deductibles and copays.
Health Savings Accounts
Another way to pay out-of-pocket for health care is through a health savings account (HSA).
An HSA is an account that holds pre-tax earnings to pay for qualified medical expenses such as deductibles, copayments, coinsurance, and some other costs. To get an HSA, you have an insurance plan with a high deductible.
An HSA kind of works like a 401k plan in the sense that you can decide what amount you want to contribute each year. Once you turn 65, Medicare coverage will no longer allow you to contribute to your HSA, but you can still use the funds to cover health care for qualifying conditions.
Health care in America is an expensive necessity. But, some plans can cover basic needs for nearly everyone. While private insurance can provide the most coverage, it’s essential to understand all options available to you. And if you have more questions like “I need glasses but can’t afford them, what are my options?” then check out the rest of our blog!