Over the past two decades, government financing of health care has increased fourteenfold.

The focus of this paper is twofold: I will examine both medicare and madicaid and indirect health care subsidy, namely tax expenditure. This expenditure consist of losses in federal revenue resulting from tax saving for certain group of taxpayers allowed by the tax code. In the case of health, losses in federal revenue (and thus savings to tax payers) result from exclusion of employer-paid health insurance premiums from their employees taxable income, and from the deductibility of certain medical expenses for the purpose of computing personal income tax liabilities. I.The Programs A. Medicare Medicare, is a federally administrated scheme providing hospitalization and medical insurance for the population 65 years and older who receive cash benefits from social security or railroad retirement fund. Medicare consist of two parts: a compulsory hospital insurance scheme (part A) and a voluntary supplementary insurance scheme (part B) which pays for physician services and some services and supplies not covered under part A. B. Medicaid Medicaid, is the primary government program of medical assistance to the low-income population. It is federal-state funded and administered at the state level, but subject to federal requirements and guidelines. There is mandatory set of services which must be covered and a broad range of services which may be covered. Similarly, there is mandatory coverage of specific groups in the population; cash assistance under aid to families with dependent children program. C. Tax Expenditure As stated before, the tax expenditures on health result from the exclusion of all employerprovided insurance contributions from their employees taxable income and from deductibility of certain medical expenses. The deductable applies to individuals who itemize deductions on their tax returns; they are allowed a deductions of 50 percent of the amount they pa for health insurance premiums, up to maximum of $150, and a deduction of other medical expenses in excess of 3 percent of taxpayers adjusted gross income (AGI), including all expenditures on drugs to the extent they axceed 1 percent of AGI. II. Distributional Effects of Government Health Programs With the exception of the tax expenditures, the growth of the major federal health programs has been well documented.what has not been well documented is their distributional effects. Bruce struart and roger bair estimated that as of 1968, nearly half of medicare expenditure went to the poor and one-third of the remainder went to the near poor.

A. A Comparison of estimates form selected sources N B. A summery Examination of Distributional Effects C. Summary of findings Government expenditures one health care have increased fourteenfold from 1960 to 1979. In addition, there has been a major shift in the level of government involvement, and federal expenditures are now twice as high as state and local expenditures. There are two major direct programs for the aged and poor, medicare and Medicaid. An additional but indirect program is tax expenditures on health, that is, revenue losses (and thus individual tax savings) from exclusion of employer-paid insurance premium from taxable income and from the tax deductibility of certain medical expenses. Preliminary analysis of these data has produced two important findings. First, erlier estimates of that portion of tax expenditures which result from exclusion of employer-provided insurance premiums from personal income were too low. Second, when major government outlays on health care for the noninstitutionalized population include these tax expenditures, per capita expenditures decline with income but , over all, the government spends about the same on the poor and near poor as it does on the middle-income and high-income population. These result suggest that attempts to curb government expenditure on health must focus on tax expenditures as well as on medicare and Medicaid, sice this component plays an important part in determining the distributional effect of overall government expenditures.