MMHA 6050 Week 4 Health Financing Stream Trace Example

Following the Money: Tracing Five Financing Streams From Where Dollars Are Raised to What They Buy

Student Name

Walden University

MMHA 6050: Delivery of Healthcare

Instructor Name

Month Day, Year

Following the Money: Tracing Five Financing Streams From Where Dollars Are Raised to What They Buy

Introduction

U.S. health care spending reached about $4.9 trillion in 2023, about 17.6% of the economy (Martin et al., 2025). This paper traces five streams that fund it, Medicare, Medicaid, employer-sponsored coverage, the Affordable Care Act marketplaces and out-of-pocket spending, from where each dollar is raised to what it finally buys. Each stream gets the same four entries: where the money is raised, who pools it, which population it covers and what services it pays for. A final section separates the organization that writes the check from the household that ultimately bears the cost, which is often not the same.

Medicare

Raised: Medicare Part A, hospital insurance, is financed mainly by a payroll tax paid by workers and employers. Part B, covering physician and outpatient services, and Part D, covering prescription drugs, are financed mainly by general federal revenue, with enrollee premiums covering a smaller share (Boards of Trustees, 2024). Pooled by: the federal government, through two trust funds, the Hospital Insurance trust fund for Part A and the Supplementary Medical Insurance trust fund for Parts B and D. Covers: people aged 65 and older, and younger people with certain disabilities or end-stage renal disease. Buys: inpatient stays, post-acute care, hospice, physician and outpatient care and drugs; post-acute care such as skilled nursing is covered only after a qualifying hospital stay. A growing share of enrollees receive these benefits through private Medicare Advantage plans, which Medicare pays to cover them.

Medicaid

Raised: Washington and each state share the cost of Medicaid. The federal share, which varies by state and is higher in states with lower per capita income, comes from general federal revenue; the state share comes from state general revenue and, in many states, taxes on providers (Shi & Singh, 2022). Pooled by: each state's Medicaid program, within federal rules. Covers: people with low incomes, including children, pregnant women, people with disabilities and, in states that expanded eligibility, most low-income adults. Buys: a broad range of services, including hospital and physician care, and most of the nation's long-term care in nursing homes and at home.

Employer-Sponsored Coverage

Raised: from premiums paid by employers and employees. Pooled by: insurers, or by employers themselves when they self-insure and use an insurer only to administer claims. Covers: workers and their families. Buys: whatever the plan's benefits cover, typically hospital, physician and drug benefits. The stream is shaped by the tax code: what an employer pays toward a worker's health plan is not counted as the worker's taxable income (26 U.S.C. § 106), which makes a dollar of compensation paid as health benefits worth more to the employee than a dollar paid as wages. That exclusion is a large, if less visible, public subsidy of private coverage.

Marketplace Coverage

Raised: from premiums paid by enrollees, reduced for most by federal premium tax credits based on income (26 U.S.C. § 36B). The tax credits are financed from general federal revenue. Pooled by: private insurers offering plans on the marketplaces. Covers: people who buy coverage on their own, typically those without access to employer coverage, Medicare or Medicaid. Buys: plans that must cover a defined set of essential health benefits. Because the subsidy is tied to income, the government bears a larger share of the premium for lower-income enrollees.

Out-of-Pocket Spending

Raised: from households, directly. Pooled by: no one. Covers: whoever pays. Buys: deductibles, copayments and coinsurance under insurance plans, services insurance does not cover, such as some dental and vision care, and all care for people without coverage. Out-of-pocket spending is the only stream that is not pooled, which means its burden falls on whoever happens to be sick, rather than being spread across a population.

How the Streams Interact

The five streams are not separate pipes. Many people are covered by more than one. People eligible for both Medicare and Medicaid have Medicare pay first, with Medicaid covering cost sharing and long-term care Medicare does not. Workers with employer coverage still pay deductibles and copayments out of pocket. A family's coverage can shift from employer coverage to the marketplace to Medicaid within a year as jobs and incomes change, and each shift changes which stream pays for the same care. Spending also flows between streams through payment rates: when Medicaid or Medicare pays a hospital less than its cost for a service, the hospital may seek higher prices from private insurers, who in turn raise premiums for employers and families. The national spending total is therefore the sum of streams that constantly push costs toward one another, which is one reason the U.S. arrangement is often described as fragmented (Shi & Singh, 2022).

Who Writes the Check and Who Bears the Cost

The organization that writes the check is often not the one that bears the cost. Employers write the check for employer-sponsored premiums, but economists generally conclude that workers ultimately pay for much of it, since money spent on premiums is money not paid as wages. The federal government writes the check for Medicare Parts B and D, but taxpayers and, through premiums, enrollees bear it. Insurers write the check to hospitals, but they pass the cost back to employers and households through premiums. Only out-of-pocket spending is written and borne by the same party.

This distinction matters for policy. A proposal that reduces what one payer spends may simply move the cost to another, for example by shifting care from Medicare to Medicaid or from insurers to patients through higher deductibles, rather than lowering what the nation spends. The ledger above is a way to check, for any proposal, which stream it touches and who ends up paying. For a health administrator, the same ledger explains the organization's own payer mix: a hospital whose patients are mostly covered by Medicare and Medicaid depends on public payment rates set by formula, while one with more employer-covered patients depends on negotiated private prices. Knowing which streams fund the organization, and how each is raised and pooled, tells a leader where the organization's revenue is exposed to policy changes, economic downturns or shifts in coverage, and which payers' decisions matter most to its future.

References

Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. (2024). 2024 annual report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.

Contributions by employer to accident and health plans, 26 U.S.C. § 106 (2023).

Martin, A. B., Hartman, M., Washington, B., Catlin, A., & National Health Expenditure Accounts Team. (2025). National health expenditures in 2023: Faster growth as insurance coverage and utilization increased. Health Affairs, 44(1), 12-22. https://doi.org/10.1377/hlthaff.2024.01375

Refundable credit for coverage under a qualified health plan, 26 U.S.C. § 36B (2023).

Shi, L., & Singh, D. A. (2022). Delivering health care in America: A systems approach (8th ed.). Jones & Bartlett Learning.