What are the 3 largest sources of funds for health care expenditures?

Foreign exchange subsidies are expected to nearly double in the next decade due to large increases in short-term premiums and the increase in overall health care costs in later years. While Medicare spending is on a slower upward trajectory now than in recent decades, total and per capita annual growth rates tend to be higher than their historically low levels in recent years. The creditworthiness of the Medicare hospital insurance trust fund, with which Part A benefits are paid, is one way of measuring Medicare's financial situation, although since it focuses only on the status of Part A, it doesn't present a complete picture of the total spending of the program. Medicare Part A is funded through the Hospital Insurance (HI) trust fund, which is funded primarily by a 2.9 percent payroll tax divided between employers and employees (an additional 0.9 percent overtax on high incomes and partial taxation of Social Security benefits provide additional funding).

This estimate does not include the costs of insurers in managing Medicare Advantage and Part D private drug plans, which are significantly higher. Each year, Medicare actuaries provide an estimate of the year in which the asset level is expected to be completely exhausted. By contrast, in Vermont, the state was responsible for 98 percent of direct health and hospital spending. When expenses exceed income and assets are completely exhausted, Medicare won't have enough funds to pay for all Part A benefits.

Medicare beneficiaries can enroll in some or all of these parts or in private insurance known as “Medicare Advantage” while still receiving a similar federal subsidy. Because health care spending is central to the federal budget, it's important to understand how those expenses are distributed and how they will grow. Another notable change in Medicare spending over the past 10 years is the increase in payments to Medicare Advantage plans, which are private health plans that cover all the benefits of Part A and Part B and, generally, also the benefits of Part D. In years when annual trust fund revenues exceed spending on benefits, the level of assets increases and when annual spending exceeds income, the level of assets decreases.

Census data on health and hospital expenditures include government revenues and charges related to health and hospitals, such as when a public hospital charges patients, private insurance companies, and public insurance programs (such as Medicare) for care or other services (e.g., this growth is due both to the automatic increase in enrollment and health care costs, and to the expansion of health care in the form of the Medicare prescription drug program and the Act of Affordable Health Care). In the past, several changes have been proposed in Medicare to address the fiscal challenges posed by an aging population and rising health care costs.

Lily Prach
Lily Prach

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