Healthcare in the United States is funded through a mix of government programs, private insurance, businesses, and individual payments. The federal government and households each cover the largest shares, at 31 percent and 28 percent of total spending respectively. Private businesses account for 18 percent, state and local governments 16 percent, and other private sources about 6 percent. In total, the U.S. spends more per person on healthcare than any other developed nation.
The Big Picture: Where the Money Comes From
In 2024, private health insurance accounted for $1.64 trillion in spending, roughly 31 percent of all healthcare dollars. Out-of-pocket costs added another $557 billion, or 11 percent. The federal government matched private insurance at 31 percent, primarily through Medicare and Medicaid. State and local governments contributed 16 percent, mostly through their share of Medicaid and public employee health benefits.
Healthcare spending is projected to grow at an average of 5.6 percent per year through 2032, outpacing the broader economy’s 4.3 percent growth. That trajectory would push health spending from 17.3 percent of GDP in 2022 to 19.7 percent by 2032.
Federal Programs: Medicare and Medicaid
Medicare, which covers Americans 65 and older along with certain younger people with disabilities, draws from two trust funds held by the U.S. Treasury. The first, the Hospital Insurance Trust Fund, is financed mainly through payroll taxes that employees, employers, and self-employed workers pay on their earnings. It also receives income from taxes on Social Security benefits and interest on its investments.
The second, the Supplementary Medical Insurance Trust Fund, covers doctor visits, outpatient care, and prescription drugs. This fund relies on money authorized directly by Congress and on monthly premiums paid by people enrolled in Medicare Parts B and D. Together, Medicare covered 25 percent of all hospital spending in 2023.
Medicaid, which serves low-income individuals and families, is jointly funded by federal and state governments. The federal government sets a minimum matching rate, and states contribute the rest from their own budgets. Medicaid accounted for 19 percent of hospital spending in 2023.
Private Insurance and Employer Contributions
Most Americans under 65 get their coverage through an employer. In 2022, the average premium for single coverage was $7,590 per year, while family coverage averaged $21,931. Employers pick up the majority of the tab. For single coverage, the average employee contribution was $1,637, meaning the employer covered roughly 78 percent. For family plans, employees paid about $6,492 on average, with the employer covering the remaining 70 percent.
Private insurance as a whole was the single largest payer for hospital care in 2023, accounting for 37 percent of hospital spending. That’s more than Medicare and Medicaid combined. The premiums funding these payments come from a combination of employer contributions, employee paycheck deductions, and individual marketplace plans purchased through the Affordable Care Act exchanges.
What You Pay Directly
Out-of-pocket spending covers copays, deductibles, coinsurance, and any services not covered by insurance. In 2024, Americans collectively spent $557 billion out of pocket, a 5.9 percent increase from the previous year. While that’s 11 percent of total national health spending, it only accounts for about 3 percent of hospital spending specifically, since most hospital bills are large enough that insurance covers the bulk.
The real financial exposure for individuals goes beyond those direct payments. You also fund healthcare through payroll taxes withheld from your paycheck, the insurance premiums your employer deducts, and general federal and state taxes that finance government programs. Economists also point out that employer spending on health benefits effectively comes out of worker compensation, meaning higher premiums can translate to lower wages.
How Medical Research Gets Funded
The funding question extends beyond patient care to medical research. The National Institutes of Health invests roughly $47 billion annually in biomedical research, supporting over 400,000 jobs and forming the scientific foundation for the pharmaceutical and biotech industry. That industry is now valued at $1.55 trillion.
The relationship between public and private research funding is tightly linked. Between 2010 and 2019, 354 out of 356 drugs approved by the FDA traced their origins to NIH-funded science. Public funding typically covers the early-stage discovery work, identifying biological pathways and potential drug targets, which is enormously expensive to conduct from scratch. Private companies then build on that foundation to develop, test, and bring drugs to market. Without that publicly funded knowledge base, pharmaceutical companies would need to perform all the foundational science internally, driving costs far higher.
How the U.S. Compares Globally
The United States is a clear outlier among wealthy nations. It spends approximately 150 percent more on healthcare per capita than the average developed country while achieving middling health outcomes. Most peer nations rely on one of two models: either direct government financing (common in the United Kingdom and Nordic countries) or compulsory insurance systems managed through regulated private insurers (the approach in Germany, France, and Japan).
The U.S. is a hybrid. About half of spending flows through compulsory insurance, both public programs like Medicare and private plans required under the Affordable Care Act. Another third comes directly from federal and state programs. In most other developed countries, public funds cover between 70 and 90 percent of total health spending. Switzerland is the only country where the public share dips below 50 percent. The U.S. falls well below the norm for public financing while spending dramatically more overall, a combination that makes its system unique among high-income nations.