Government Spending on Health Care Benefits and Programs: A Data Brief

Government Spending on Health Care Benefits and Programs: A Data Brief

Order Code RS22898
June 16, 2008
Government Spending on Health Care
Benefits and Programs: A Data Brief
Jennifer Jenson
Specialist in Health Economics
Domestic Social Policy Division
Summary
In a country where health spending accounts for more than 16%1 of gross domestic
product (GDP), health care costs and spending are often described as a problem for
consumers and their families; for employers that provide (or seek to provide) health
benefits; and for government, which finances a mix of health care services, health
research and training, and health safety programs.2
To describe government spending on health care benefits and programs, this report
presents data from the Office of Management and Budget (OMB), the Congressional
Budget Office (CBO), and the Centers for Medicare and Medicaid Services (CMS).
Spending estimates vary slightly across these sources, but differences in the data do not
change the overall story.
! Health spending accounts for a large and growing share of federal
spending.
! Medicare and Medicaid account for the bulk of federal health spending,
but other programs and tax expenditures for health insurance also
account for billions of dollars in spending and forgone revenue.
! Public spending accounts for a growing share of national health
expenditures, and private spending for a shrinking share.
1 According to estimates from the Centers for Medicare and Medicaid Services, health spending
accounted for 16.3% of GDP in 2007 and is expected to account for 16.6% in 2008. See Keehan
et al., “Health Spending Projections Though 2017: The Baby-Boom Generation is Coming to
Medicare,” Health Affairs — Web Exclusive, February 26, 2008, p. w146.
2 For more information on consumer and employer spending, see CRS Report RL34295,
Spending by Consumers on Health Care and Health Insurance: A Data Brief, and CRS Report
RS22735, Spending by Employers on Health Insurance: A Data Brief, both by Jennifer Jenson.

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Federal Spending on Health Programs
According to data from OMB, in FY2007, federal spending for health programs
totaled $808.6 billion (see Figure 1). This amount is the sum of gross outlays for health
care benefits and public health programs. More than three-quarters (77.1%) of the
spending was for Medicare and Medicaid. Health care benefits for military personnel and
retirees, federal employees and retirees, and veterans together accounted for 13.4% of
gross outlays; the remaining 9.5% was for other health programs.
Figure 1. Federal Outlays for Health Programs (in billions), FY2007
$76.8
$32.3
Medicare
$33.6
Medicaid
$42.7
Defense health programs
$432.6
Federal Employees Health Benefits
Veterans medical care
$190.6
Other health programs
Source: Executive Office of the President, Office of Management and Budget, Historical Tables, Budget
of the United States Government, Fiscal Year 2009 (Washington: U.S. Government Printing Office, 2008),
Table 16-1, p. 328.
Notes: “Other health programs” includes spending for the State Children’s Health Insurance Program,
public health agencies (such as the National Institutes of Health and the U.S. Food and Drug
Administration), and other health programs under budget function 550 (Health).
After accounting for premium payments under Medicare and the Federal Employees
Health Benefits (FEHB) program, in 2007, net outlays for health programs totaled $716.8
billion. This amount was 26.3% of federal outlays and 5.2% of GDP (see Table 1). In
1967, two years after Medicare and Medicaid were created, health programs accounted
for 4.8% of federal outlays and 0.9% of GDP.
Table 1. Federal Outlays for Health Programs, as a Share of Federal
Outlays and GDP, 1967-2007
Fiscal Year
1967
1972
1977
1982
1987
1992
1997
2002
2007
Share of
federal
4.8%
8.1%
10.1%
11.7%
13.5%
17.2%
21.6%
23.5%
26.3%
outlays
Share of
0.9%
1.6%
2.1%
2.7%
2.9%
3.8%
4.2%
4.6%
5.2%
GDP
Source: Executive Office of the President, Office of Management and Budget (see Figure 1).
Notes: Reported shares are based on the sum of net outlays (gross outlays, less offsetting receipts) for the
health programs shown in Figure 1. The values for 1967, 1972, and 1977 do not include spending for
defense health programs.

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Medicare, Medicaid, and the Federal Budget
According to data from CBO, in FY2007, federal outlays for Medicare and Medicaid
were $627.6 billion, compared with $581.4 billion for Social Security and $549.2 billion
for national defense (see Figure 2). Total outlays were $2.7 trillion.
Figure 2. Federal Outlays for Selected Programs and Major Spending
Categories (in billions), FY2007
$237.1
$627.6
Medicare and Medicaid
$492.6
Social Security
Other mandatory
Defense
Other discretionary
$581.4
$549.2
Net interest
$242.3
Source: Congressional Budget Office, Historical Budget Data, “Outlays for Major Categories of Spending,”
“Outlays for Mandatory Spending,” and “Discretionary Outlays,” as released on March 3, 2008, at
[http://cbo.gov/budget/historical.shtml].
Notes: The amount shown for “Other mandatory” outlays is the sum of outlays for mandatory programs
other than Medicare, Medicaid, and Social Security, less offsetting receipts for mandatory programs.
Offsetting receipts include Medicare premiums, payments by states from savings on prescription drugs
under Medicaid, employer contributions for employees’ retirement benefits, and other receipts. The amount
shown for “Other discretionary” is the sum of spending for domestic and international programs.
Figure 3. Outlays for Selected Programs and Major Spending Categories,
as a Share of Federal Outlays, FY1967-FY2007
50%
40%
e
g
30%
ta
20%
rcen
e
P
10%
0%
Medicare and
Social
Other
Defense
Other
Net interest
Medicaid
Security
mandatory
discretionary
1967
1977
1987
1997
2007
Source: Congressional Budget Office, Historical Budget Data, as released on March 3, 2008.
Notes: See Figure 2.

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Medicare and Medicaid accounted for 23.0% of federal outlays in 2007, up from
2.8% in 1967 (see Figure 3). Over the same 40-year period, federal spending for Social
Security increased from 13.5% of outlays in 1967 to 21.3% in 2007, while defense
spending decreased as a share of federal outlays, from 45.7% in 1967 to 20.1% in 2007.
The changing composition of federal outlays does not itself imply that entitlement
programs in general, and health entitlements in particular, are unaffordable for the federal
government. On the one hand, to the extent that change represents public priorities for
the use of government resources, it might be both appropriate and desirable to dedicate
a growing share of federal spending to Medicare and Medicaid.
On the other hand, if health care costs continue to grow faster than the economy,
growth in spending for Medicare and Medicaid is expected to lead to a growing gap
between federal spending and federal revenues. Absent significant changes in spending
policy, revenue policy, or both, growing annual deficits will increase federal debt, which
in turn could harm the economy.3
Tax expenditures for health insurance and health care expenses. In
addition to spending for Medicare, Medicaid, and other health programs, tax subsidies for
health insurance and health care expenses affect the federal budget outlook by reducing
revenue from personal income taxes.
By far the largest health-related tax expenditure is for employer-provided health
benefits. According to estimates from the Joint Committee on Taxation (JCT), because
such benefits are excluded from federal income and employment taxes, tax receipts were
$106 billion lower in FY2007 that they would have been otherwise.4 Other health-related
tax expenditures include the itemized deduction for unreimbursed medical and dental
expenses above 7.5% of adjusted gross income, the deduction for health insurance for the
self-employed, and the deduction and exclusion for health savings accounts.5
Public and Private Spending on Health Care
In calendar year 2006, National Health Expenditures (NHE) were $2.1 trillion (see
Table 2).6 Of this amount, just over $1.1 trillion in spending came from private funds,
including private health insurance and consumer out-of-pocket payments. Just under $1.0
trillion came from public funds, including federal, state, and local funds.
3 See, for example, U.S. Government Accountability Office, The Nation’s Long-Term Fiscal
Outlook: April 2008 Update, GAO-08-783R, April 2008; and U.S. Congressional Budget Office,
The Long-Term Budget Outlook, December 2007.
4 JCT Joint Committee on Taxation (JCT), Estimates of Federal Tax Expenditures for Fiscal
Years 2007-2011, Joint Committee Print #JCS-3-07, September 24, 2007, pp. 33-34.
5 For more information on tax expenditures, see CRS Report RL33505, Tax Benefits for Health
Insurance and Expenses: Overview of Current Law and Legislation, by Bob Lyke and Julie
Whittaker.
6 2006 is the latest year for which actual data are available. According to CMS estimates, NHE
exceeded $2.2 trillion in 2007 and are expected to approach $2.4 trillion in 2008. Keehan et al.,
p. w146.

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Table 2. National Health Expenditures (in billions), by Source of Funds, 1966-2006
1966
1971
1976
1981
1986
1991
1996
2001
2006
National Health Expenditures
$46.4
$83.3
$152.5
$293.6
$471.3
$781.6
$1,068.8
$1,469.6
$2,105.5
Private funds
$32.5
$51.2
$89.3
$171.0
$277.5
$456.1
$580.3
$807.6
$1,135.2
Consumer payments
$28.8
$44.1
$77.9
$146.6
$239.1
$394.6
$494.8
$697.8
$980.0
Out-of-pocket payments
$18.5
$26.3
$40.6
$65.2
$103.2
$140.1
$152.1
$199.8
$256.5
Private health insurance
$10.3
$17.8
$37.3
$81.3
$135.9
$254.5
$342.7
$489.0
$723.4
Other private funds
$3.7
$7.1
$11.4
$24.4
$38.4
$61.5
$85.5
$109.8
$155.3
Public funds
$13.9
$32.1
$63.2
$122.6
$193.8
$325.5
$488.6
$662.0
$970.3
Federal funds
$7.6
$20.6
$42.8
$83.1
$132.6
$233.3
$348.1
$464.1
$704.9
Medicare
$1.8
$8.4
$19.7
$44.5
$76.4
$120.6
$198.7
$247.4
$401.3
Medicaid & SCHIP
$0.6
$3.8
$9.2
$17.1
$25.4
$56.7
$92.1
$134.7
$180.0
VA & Dept. of Defense
$2.2
$3.7
$6.7
$10.8
$16.3
$23.2
$27.3
$36.3
$60.2
Research
$1.3
$1.7
$3.1
$4.8
$7.1
$10.8
$13.5
$22.3
$32.7
Public health activity
$0.3
$0.8
$1.1
$1.2
$1.3
$2.6
$3.8
$5.6
$9.7
Other federal
$1.3
$2.1
$3.1
$4.8
$6.1
$9.4
$12.7
$17.9
$21.1
State and local funds
$6.4
$11.5
$20.4
$39.5
$61.1
$102.1
$140.5
$197.9
$265.4
Medicaid & SCHIP
$0.7
$2.9
$6.0
$13.2
$20.0
$36.5
$60.1
$93.6
$136.9
Public health activity
$0.5
$0.9
$2.3
$6.3
$11.0
$19.6
$28.7
$41.4
$49.0
Other state and local
$5.2
$7.7
$12.1
$19.9
$30.2
$46.0
$51.6
$62.8
$79.5
Source: Office of the Actuary, Centers for Medicare and Medicaid Services, historical data on national health expenditures, as published
January 2008, at [http://www.cms.hhs.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp#TopOfPage].
Note: Numbers may not add to totals because of rounding.
Table 3. Percentage of National Health Expenditures, by Source of Funds, 1966-2006
1966
1971
1976
1981
1986
1991
1996
2001
2006
Private funds
70.0%
61.5%
58.5%
58.2%
58.9%
58.4%
54.3%
55.0%
53.9%
Consumer payments
62.0%
52.9%
51.1%
49.9%
50.7%
50.5%
46.3%
47.5%
46.5%
Out-of-pocket payments
39.8%
31.5%
26.6%
22.2%
21.9%
17.9%
14.2%
13.6%
12.2%
Private health insurance
22.2%
21.4%
24.5%
27.7%
28.8%
32.6%
32.1%
33.9%
34.4%
Other private funds
8.0%
8.5%
7.5%
8.3%
8.1%
7.9%
8.0%
7.5%
7.4%
Public funds
30.0%
38.5%
41.5%
41.8%
41.1%
41.6%
45.7%
45.0%
46.1%
Federal funds
16.3%
24.7%
28.1%
28.3%
28.1%
28.6%
32.6%
31.6%
33.5%
Medicare
4.0%
10.1%
12.9%
15.2%
16.2%
15.4%
18.6%
16.8%
19.1%
Medicaid & SCHIP
1.4%
4.6%
6.0%
5.8%
5.4%
7.3%
8.6%
9.2%
8.6%
VA & Dept. of Defense
4.8%
4.5%
4.4%
3.7%
3.5%
3.0%
2.6%
2.5%
2.9%
Research
2.9%
2.0%
2.0%
1.6%
1.5%
1.4%
1.3%
1.5%
1.6%
Public health activity
0.6%
0.9%
0.7%
0.4%
0.3%
0.3%
0.4%
0.4%
0.5%
Other federal
2.7%
2.6%
2.0%
1.6%
1.3%
1.2%
1.2%
1.2%
1.0%
State and local funds
13.7%
13.9%
13.4%
13.5%
13.0%
13.1%
13.1%
13.5%
12.6%
Medicaid & SCHIP
1.4%
3.5%
4.0%
4.5%
4.2%
4.7%
5.6%
6.4%
6.5%
Public health activity
1.0%
1.1%
1.5%
2.2%
2.3%
2.5%
2.7%
2.8%
2.3%
Other state and local
11.2%
9.3%
7.9%
6.8%
6.4%
5.9%
4.8%
4.3%
3.8%
Source and Note: See Table 2.

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Within the public category, in 2006, federal spending was $704.9 billion, with most
of this amount for Medicare and Medicaid, as discussed already. State and local spending
was $265.4 billion, including $136.9 billion for Medicaid and SCHIP, and $49.0 billion
for public health activity. State and local spending for public health was about five times
the federal amount.
Over the 1966-2006 period, private spending fell, and public spending rose, as a
share of National Health Expenditures (see Table 3 and Figure 4). In 2006, private funds
accounted for 53.9% of NHE, down from a 70% share in 1966. Within the private
category, private heath insurance payments accounted for a growing share of spending
(34.4% in 2006, compared with 22.2% in 1966), while consumer out-of-pocket payments
accounted for a shrinking share (12.2% in 2006, compared with 39.8% in 1966).
Figure 4. Public and Private Spending as a Share of National
Health Expenditures, 1966-2006
80%
70%
60%
e
g 50%
ta
n 40%
e
rc 30%
Pe 20%
10%
0%
Private funds
Public funds
Federal funds
State & local funds
1966
1976
1986
1996
2006
Source: Office of the Actuary, Centers for Medicare and Medicaid Services (see Table 2).
Public spending accounted for 46.1% of NHE in 2006, up from 30.0% in 1966.
Within this category, the federal government took on a growing share of spending (33.5%
of NHE in 2006, compared with 16.3% in 1966), while state and local governments spent
proportionately less (12.6% of NHE in 2006, a 40-year low).
Much as the changing composition of federal outlays does not itself imply that health
care entitlements are unaffordable, the changing distribution of National Health
Expenditures is not itself a problem. Among developed countries in the Organization for
Economic Cooperation and Development (OECD), public spending generally accounts
for the majority of national health spending. In 2005, public spending accounted for
72.7% of health spending, on average, in OECD countries. Luxembourg had the highest
public share (90.7%), Greece had the lowest (42.8%), and the median share was 76.2%.7
Of course, both public and private expenditures can be problematic to the extent that
spending exceeds available revenue or displaces preferred uses of limited resources.
7 OECD, OECD Health Data 2007-Frequently Requested Data, October 2007, at
[http://www.oecd.org/document/16/0,2340,en_2649_37407_2085200_1_1_1_37407,00.html].
The average and median values reported here were calculated using data for most OECD
countries (2005 data were not available for Australia, Hungary, Japan, and the Netherlands).