Report: 12 cents of every federal dollar spent on medical bills

A substantial portion of federal dollars goes to paying medical bills to physicians, hospitals and other healthcare providers. 

According to new data from Third Way, a centrist think tank in Washington D.C., 12 cents of every federal dollar is paid to healthcare providers for the care Americans receive. The think tank added that no portion of that spending accounts for administering programs like Medicare, Medicaid and CHIP or any government salaries. 

The U.S. government directly pays physicians, hospitals and other providers for medical care and medications through public health insurance programs. Just paying for these medical bills and prescription drugs for about 61 million people in 2024 totaled $820 billion, the report stated.  

The majority of that spending covered the medical bills of the elderly through Medicare Parts A, B and D. About half of Medicaid and CHIP spending also covered medical bills and provider reimbursements, the report added. 

Additionally, 14 cents of every dollar goes to helping Americans purchase their own health insurance or manage their benefits.  

Combined, about a fourth of federal spending goes to healthcare activities, including claims reimbursement for care delivered to patients and assistance with health insurance. 

Third Way conducted the analysis of federal spending in the 2024 fiscal year to explore where the dollars are going at a time when the federal government is looking to make deep cuts to the U.S. budget. They found over half of what the federal government spends helps more than 100 million Americans afford everyday things, like groceries, rent and healthcare. 

Overall, 74 cents of every federal dollar goes to direct checks for benefits like Social Security, wages for the military, costs of federal law enforcement including border control, interest on national debt and healthcare-related activities.  

The remaining 26 cents cover what Third Way considers "federal bureaucracy," including public safety functions (e.g., food inspection), nuclear reactor safety and disaster response, weapons systems maintenance, national park support, patent approvals, medical and scientific research, road repairs and foreign aid. 

The Department of Government Efficiency (DOGE) under the Trump administration is focused on tightening the purse strings, already making massive cuts to the healthcare industry. However, healthcare stakeholders have expressed concerns about the severity of budget reductions for healthcare-related activities, particularly federal grants for medical research and the HHS workforce. 

That being said, there is a lot of administrative waste in the healthcare system. The U.S. healthcare system is an incredibly complex, multi-payer system, meaning there are many administrative processes behind patient care. Medical billing is also a burdensome process riddled with many manual processes, outdated technologies and excessive reporting and documentation. 

Research estimates administrative waste in the U.S. healthcare system costs between $285 billion to $570 billion annually, accounting for 7.5% to 15% of all national healthcare spending. 

"In all of these programs and categories, there can be greater efforts at government efficiency and elimination of waste and fraud," Third Way stated. "But far more government money goes to people for benefits they feel they are entitled to than people think." 

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.