Social Security Bulletin

Role of the private sector in financing social welfare programs, 1972-1992.

The private sector continues to play an increasingly important role in financing the Nation's aggregate social welfare programs. This note provides estimates of private spending for social welfare programs in the United States, from 1972-92, and complements the public social welfare expenditures series.(1) Private outlays include a large share of health and medical care expenditures, as well as income-maintenance benefits, the latter in areas of employment-related pensions, group life insurance, and group sickness payments. The private sector is also an important source of financing for education and social services.

Viewed as a share of gross domestic product (GDP) as shown in table 1, private sector support of social welfare has gradually but substantially increased from 8.0 percent in 1972 to 13.7 percent in 1992. In calendar year 1992, total expenditures were 824.9 billion compared with $767.6 billion in the previous year (an increase of 7.5 percent). During relatively the same period, public expenditures for social welfare programs increased from 16.6 percent of GDP in fiscal year 1972 to 20.5 percent in 1991, Total spending for social welfare programs, both public and private, increased from 23.8 percent of GDP in 1972 to a 3 2.4 share in 199 1.

Private expenditures can be grouped into four major program categories: Health and medical care, welfare and other services, education, and income maintenance. In 1992, the health and medical care expenditures category claimed the largest dollar amount--billion $462.9 (table 2)--56.1 percent of the total. Private sector funds paid 57.1 percent of all personal health care expenditures, mostly private health insurance and out-of-pocket expenditures of individuals and private health insurance. From 1972-92, health expenditures as a percent of total private social welfare spending declined slightly from 59.0 percent to 56.1 percent.


The "welfare and other services" category includes individual and family social services, residential care, child day care, recreation and group work, and job training and vocational rehabilitation services. In 1992, expenditures for these items were $75.8 billion, 9.2 percent of the year's total private social welfare spending.

Private expenditures for education in 1992 were $100.5 billion-12.2 percent of all private social welfare expenditures for that year. Of this amount, $51.2 billion was spent on higher education, $27.8 billion on elementary and secondary education, and $16.8 billion on commercial and vocational schools. Since 1972, private sector outlays for education have declined from 15.6 percent of total private sector spending to 12.2 percent in 1992.

Private income-maintenance expenditures are payments made under employee benefit plans in the private sector.

These expenditures include private pension plans, group life insurance, cash disability insurance, paid sick leave, and supplemental unemployment benefits. Of the $185.7 billion in private income-maintenance expenditures in 1992 (table 1). private pension plan benefits accounted for $157.3 billion.

Health and Medical Care

The Health Care Financing Administration (HCFA) prepares annual estimates of health and medical care expenditures from both public and private sources.(2) HCFA's estimates are based on the National Health Accounts, which provide a schema for understanding the nature of health care spending. In 1988, the benchmark was revised to incorporate information from more reliable data bases, such as the Survey of Service Establishments conducted by the Bureau of the Census, and the Consumer Expenditure Survey by the Bureau of Labor Statistics. …

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