The Future of Children, Princeton - Brookings: Providing research and analysis to promote effective policies and programs for children.

In 1987, approximately two thirds of total modified personal health care expenditures for children were paid for by third-party payers, private health insurance and government programs (Figure 3). Direct patient payments (typically by adult family members for children) including insurance co-payments and deductibles, as well as out-of-pocket payments for uninsured services, financed 27% of expenditures on children's health care. Other private sources, including philanthropy and services provided free from provider (uncompensated care), accounted for the remaining 6%.

The share of health care expenditures funded by third parties varied considerably by type of service. For hospital care, which accounted for almost 49% ($24.3 billion) of expenditures for children, third-party payments accounted for 81% of all expenditures in 1987 (Table A1). Out-of-pocket expenditures financed about 11% of hospital care for this group. As compared with inpatient care, a somewhat higher percent of outpatient hospital care was paid for out-of-pocket (15% versus 10%). The proportion of hospital care paid for by government programs (about 33%) differed little by type of service.

On a per capita basis, out-of-pocket expenditures for physician services totaled about $53 (Table Al). Altogether, more than 32% of the $11 billion expended on physician services for children 0 to 18 years old was paid for directly out-of-pocket. This was three times the proportion of hospital services paid for out-of-pocket. Moreover, the proportion of physician charges paid directly by families for their children varied considerably with the kind of service: almost 43% of charges for ambulatory physician services were paid out-of-pocket as compared with 19% of charges for inpatient care.

Private insurance paid for approximately 41% of physician services regardless of where the service was delivered, but there was considerable difference in the proportion of these services financed by public programs. Public programs paid for 37% of inpatient physician expenditures; 9% of these expenditures were financed by Medicaid and 28% by other public programs (including state and local programs and hospitals which provide services directly and the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS-the health insurance program for dependents of military personnel). In contrast, public programs paid for only 15% of expenditures for ambulatory physician visits: 11% was paid by Medicaid, and more than 3% was paid by other public programs.

Families spent $788 million out-of-pocket for nonphysician ambulatory care (home health care, optometric care, and the like) for children in 1987. This amount represented almost 33% of all expenditures on these services. Out-of-pocket payments financed a smaller proportion of nonphysician ambulatory services (33%) as compared with ambulatory physician services (43%) because a larger proportion of expenditures on nonphysician services were paid for by Medicaid and other government programs (16% and 10%, respectively, of expenditures on nonphysician services versus 11% and 3% of expenditures on ambulatory physician services).

Out-of-pocket payments accounted for more than 50% of all expenditures on prescription drugs and dental care for children in 1987. However, there were considerable differences in the distribution of sources of payment for these services among the other payers. Private health insurance paid more than 37% of expenditures on dental care but only 28% of expenditures on prescription medications. Public programs paid more than 14% of prescription drug costs but less than 5% of dental expenditures. On a per capita basis, annual expenditures on dental care for children are large, $129 or 17.5% of all modified personal health care expenditures. Because almost 53% of dental care expenditures are paid out-of-pocket, out-of-pocket expenditures on dental care ($68 per child per year) are the largest service-specific component of direct family expenditures on health for children, accounting for more than one third of all out-of-pocket expenditures for children's health care. Out-of-pocket expenditures on dental care were 28% larger than out-of-pocket expenditures for physician care and 74% greater than out-of-pocket expenditures on hospital care.

Variation in Source of Payment Among Children of Different Ages

There is considerable variation in the distribution of sources of payment for children's health care according to the age of the child (Figure 4 and Tables A2-A4). The proportion of health care expenditures financed out-of-pocket is twice as large for children 13 to 18 years old (34%) as it is for 0- to 2-year-olds (17%). Conversely, Medicaid and other public programs paid for 42% of health care costs in the 0- to 2-year-old age group, but for only 12% of the expenses of those 13 to 18 years old. The distribution of expenditures for 3- to 12-year-old children among the various payers generally falls between the distributions for older and younger groups with the exception that Medicaid accounts for a slightly higher proportion of expenditures in this group than it does in the 0- to 2-year-old age group.

Variation in the sources of payment for health care by age reflect (1) variation in the sources of payment for different health care services and (2) age-specific differences in the utilization of different health care services. For example, for all children 0 to 18 years old, government programs pay for more than 33% of expenditures on hospital care, but less than 5% of expenditures on dental care. Expenditures for hospital care account for almost 68% of all expenditures for 0- to 2-year-olds but only 39% of expenditures for 13- to 18-year-olds, while dental care accounts for 30% of expenditures for 13- to 18-year-olds but is not a factor in expenditures for 0- to 2-year-olds. Thus, government programs pay for a larger proportion of the total health care expenditures for 0- to 2-year-olds than for 13- to 18-yearolds. Similarly, government programs that target particular age groups, such as the 1989 expansion of Medicaid eligibility for children under 6 years old (see the Hill article in this journal issue) will affect health care providers differently depending on the utilization of different health care services by children of different ages.

Differences in Sources of Payment Between Children and Adults

The distribution of sources of payment for health care services for adults (19 years and older) differs from the distribution of sources of payment for children in several ways (Figure 3). Approximately 37% of adult modified personal health care expenditures are paid for by government programs including the 21% of expenditures financed by Medicare.¹³ The balance of public expenditures is divided almost equally between Medicaid and other public programs. Including Medicare, public programs paid for 62% of expenditures for those 65 and over (not shown). For those 19 to 64 years old, the 22% share of MPHCE paid for by public programs is shared approximately equally by Medicaid and other public programs with almost 4% of funding coming from Medicare. While the proportion of MPHCE for 19- to 64-year-olds financed through public programs was quite similar to the proportion of children's health care financed publicly, the $42 billion public expenditure on adults 19 to 64 years old was almost 3.5 times the size of aggregate public expenditures on children in 1987. In the aggregate, expenditures on modified personal health care for adults are more than five times as great as expenditures on children. Because the share of adult health care financed by public programs is much greater than the share of children's health care financed by public programs, public expenditures on adult health care ($116.7 billion) were almost 10 times as great as the public expenditures on children's health care ($12.2 billion).

Within the population aged 0 to 18 years, the proportion of health care expenditures financed by public programs tends to fall and the proportion financed privately, both out-of-pocket and through private insurance, tends to rise with advancing age (Figure 4). This tendency is reversed after early adulthood with the result that the proportion of health care expenditures paid directly out-of-pocket is highest for school-age children, teenagers, and young adults (not shown). It is not unreasonable to speculate that policies designed to increase access by expanding health insurance coverage could substantially increase the utilization and cost of health care in these age groups.