In 1960, the private sector funded over three-quarters of the nationís health care expenditures. Individuals paid nearly one-half of the total national health care expenditures through out-of-pocket expenditures. Beginning in 1967 the way health care is purchased in the U.S. began to completely reverse itself:

• The private sector has been slowly funding less and less of the total national health expenditures; as of 2007 less than 54 percent of total national health care expenditures are paid for by the private sector.
• Reciprocally, the public sector has been slowly funding more and more of the total national health expenditures; as of 2007 public expenditures at the federal and state levels now fund nearly one-half of the total health care expenditures in the U.S.
• Total out-of-pocket expenditures have been plummeting as a share of total health expenditures at an even faster rate; today only a bit more than $1 out of every $10 spent on health care is being funded by individuals through out-of-pocket expenditures.

This has resulted in a large and growing government health care wedge — an economic separation of effort from reward, of consumers (patients) from producers (health care providers), caused by government policies. Rising government expenditures on health care are the main factor driving the growth in the wedge. The wedge is a primary driver in rising health care costs, i.e., inflation in medical costs.

President Barack Obama's principles to drastically alter U.S. health care policy-a public health insurance exchange, mandated minimum coverage, mandated coverage of preexisting conditions, required purchase of health insurance-do not address the growing wedge and its role as the fundamental driver of health care costs. In fact, they will further increase the wedge, and can thus be expected to increase medical price inflation.

• Specifically, the planned $1 trillion increase in federal government health subsidies over 10 years based on President Obamaís principles will have the following consequences:
• Overall, total federal government expenditures will be 5.6 percent higher than otherwise by 2019, adding $285.6 billion to the federal deficit in 2019.
• An increase in national health care expenditures by an additional 8.9 percent by 2019.
• An increase in medical price inflation by 5.2 percent above what it would have been otherwise by 2019.
• A reduction in U.S. economic growth in 2019 compared to the baseline scenario by 4.9 percent for the nation as a whole.

The current net present value of funding health care reform based on President Obamaís priorities would be $1.3 trillion (due to higher medical inflation and expenditures), or $4,354 for every man, woman, and child in the U.S. These figures include:

• A net present value of all additional federal government expenditures through 2019 of $1.2 trillion, or $3,900 per capita, and
• A net present value of all state government expenditures through 2019 of $138 billion, or $454 per capita.

Despite these costs, 30 million people would remain uninsured. The cost to reduce the number of uninsured by 16 million people is $62,500 in subsidy expenditures per person insured.