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Health care is not free. Someone must pay. But how? Does each person pay when receiving care? Do people contribute regular amounts in advance so that their care will be paid for when they need it? When a person contributes in advance, might the contribution be used for care given to someone else? If so, who should pay how much?

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Health care financing in the United States evolved to its current state through a series of social interventions. Each intervention solved a problem but in turn created its own problems requiring further intervention. This chapter will discuss the historical process of the evolution of health care financing.

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The four basic modes of paying for health care are out-of-pocket payment, individual private insurance, employment-based group private insurance, and government financing (Table 2–1). These four modes can be viewed both as a historical progression and as a categorization of current health care financing.

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Table Graphic Jump Location
Table 2–1. Health Care Financing in 2009a
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Out‐of-Pocket Payments

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Fred Farmer broke his leg in 1911. His son ran 4 miles to get the doctor, who came to the farm to splint the leg. Fred gave the doctor a couple of chickens to pay for the visit. His great-grandson, Ted, who is uninsured, broke his leg in 2011. He was driven to the emergency room, where the physician ordered an x-ray and called in an orthopedist who placed a cast on the leg. The cost was $1800.

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One hundred years ago, people like Fred Farmer paid physicians and other health care practitioners in cash or through barter. In the first half of the twentieth century, out-of-pocket cash payment was the most common method of reimbursement. This is the simplest mode of financing—direct purchase by the consumer of goods and services (Figure 2–1...

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