Health Care Financing in the United States

Instructor: Alyssa Campbell

Alyssa is an active RN and teaches Nursing and Leadership university courses. She also has a Doctorate in Nursing Practice and a Master's in Business Administration.

Both private and public insurance programs provide Americans with healthcare options, but require significant financial support and backing. Read this lesson to learn about the healthcare system, cost of coverage, and different means of financing the American healthcare system.

American Healthcare

The United States operates in a largely free-enterprise system, meaning that the healthcare economy is competitive and capitalistic in nature. Numerous options exist for individuals and companies to finance healthcare, which in turn provides excellent variety in services and products. Other than public healthcare programs (state or federally-governed), many private healthcare organizations (private insurance companies) and the recent development of healthcare exchange programs exist to address the need for health coverage.

The United States healthcare system relies on many means to financially support its mission of providing quality care to all Americans. Regardless of program, location, and population, the American healthcare systems largely relies on:

  • Individual tax deductions
  • Government subsidy (federal funding)
  • Private insurance companies
  • Personal payments for services

Bill is an entrepreneur attempting to leave his current construction job to start his own business. He is working on developing a business plan and is researching all the details on how to make his dreams actually happen. Because Bill has always cared a lot about his own health and the wellbeing of his family, he is reading about his options as a business owner and considering offering insurance to his future employees.

The Basics of Coverage

Through the use of existing healthcare coverage systems, companies and individuals alike have the opportunity to select plans that best meet their needs. This practice of choosing a plan as an individual or through the organization in which you work is not mandatory to be a part of, but may be offered as an additional incentive of employment. People often choose to adopt their workplace's healthcare options because it allows them to pool their contributions with a larger sum of coverage funds. This pooling of funds benefits the individual by allowing access to a larger amount of funds if the unfortunate need for catastrophic care (high acuity/high cost) ever arises.

Where Bill currently works, he chooses one of several coverage options provided by his company each year. Not only is obtaining insurance through his company tax free, the cost of participating in this healthcare program is much less expensive than if he were to go out and seek coverage as an individual, because the healthcare insurance company takes on less risk with larger groups. Through the pooling of financial resources, like regular pay check deductions that contribute to the plan, Bill's insurance plan is able to offer more services and reduce the high costs related to care because there are more funds available to cover the healthcare costs of a particularly large group.

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Practice:
Health Care Financing in the United States Quiz

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You are having a discussion with a friend about how healthcare is financed in the United States. You explain that _____.

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