An understanding of the organization of the health care system enables the clinician to better navigate the system on behalf of the patient. It provides important insights that improve the ability of health care professionals to continue to operate in their chosen profession, increasing the likelihood of succeeding and surviving financially. The United States health care system is frequently described as “broken.” To understand how it can be improved, it is useful to have an appreciation of how it presently is configured and how it evolved. The purpose of this chapter is to provide an overview of fundamental principles of financing health care and insurance. The most relevant programs for the elderly, Medicare and Medicaid, are addressed. There are multiple complex and interacting segments that comprise the health care delivery and financing system. Where the money comes from, where it goes, and why so much is spent will be examined. Possible responses to a system under stress that is facing the challenges of changing demographics and relentless cost trends are presented.

THE HEALTH CARE “SYSTEM”

It is useful to remember that the care of the elderly patient occurs in a system that is complex and provides and finances for care for well children, disabled adults, the uninsured, that is, the entire population. The many elements of the financing and delivery system are interdependent. Cross-subsidization occurs. This results in all elements being relevant to the elderly patient. It is Medicare, however, that has come to symbolize the health care system for the geriatric patient.