Recent government data shows that the government directly funds one-quarter of private health insurance expenditures. The Centers for Medicare and Medicaid Services (CMS) regularly publishes estimates of National Health Expenditures (NHE). The latest publication estimates 2023 total health care spending at $4.9 trillion. These estimates slice and dice the cashflow three ways.
CMS’ latest release indicates private health insurance accounted for 30 percent of NHE in 2023. However, we have to be careful not to misunderstand what CMS means by defining “private health insurance” as the “source of funds” of 30 percent of U.S. health spending. Although “private” health insurance excludes government programs like Medicare and Medicaid, an increasing share is actually taxpayer funded.
This becomes clear through CMS’ third method of categorizing NHE, which identifies spending by sponsor. This Paragon Pic demonstrates that over one quarter of “private” health insurance is actually paid for by the government as a sponsor.
First, all levels of government are significant employers, offering health benefits. This share of “private” health insurance has actually come down in the last decade, from 23 percent of private health insurance spending to 19 percent.
However, Affordable Care Act (ACA) subsidies, paid to induce otherwise unwilling subscribers to sign up for coverage in the ACA exchanges, have more than offset this decline. (There is also a small amount of government spending on subsidies for private-sector retirees’ drug benefits.)
In 2023, subsidies now account for 6 percent of “private” health insurance. When added to government-provided health benefits for their employees, government funding accounts for 25 percent of “private” health insurance. And, of course, government policy—particularly the tax exclusion for employer-provided health insurance—influences almost all of the remaining three-quarters.
