**3. How health care is paid for in the U.S.**

Before looking at the role of private health insurance in U.S. health care, it is helpful (though still confusing!) to ask who really pays for health care. The late Dr. Uwe Reinhardt, Professor of Political Economy at Princeton University and author of *Priced Out: The Economic and Ethical Costs of American Health Care*, has summarized the complex transactions between enrollees in private households and providers of care in **Figure 1**. He makes the case that all health care spending originates from private households by paying premiums into public or private insurance pools as well as through taxes. The government accounts for about two-thirds of health care spending through taxpayer funding [12].

Today's system of paying for health care works against most of the working population through what economists call "labor income"—what people earn in their everyday jobs— that is taxed higher than "capital income" (accumulated wealth). As a result, billionaires today pay lower tax rates than their secretaries, steel workers, school teachers, and retirees [13].

**Figure 1.**

*Who pays for health care, and how is it paid (Figure 9.6, CAF 128).*
