How US Healthcare Works, Part 1: Members, Patients, Providers and Payers

The United States spent $5.3 trillion on healthcare in 2024, 18% of its economy and $15,474 per person. Very little of that money goes straight from a patient to a doctor. Most of it passes through a third party, a payer, that collects money from employers, governments and households and pays the people who deliver care.

That third party is the reason US healthcare has so many terms, codes and forms. This series follows the system end to end, from who pays for what, through prior authorization and claims, to how providers get paid and how the data moves. This first part draws the map: the players, their numbers, and the path one doctor's visit takes.

1. Four roles, often the same person

The words below get mixed up, and the difference matters once you read a claim or a contract.

• Member: a person covered by a health plan. The payer's word. A member exists even if they never see a doctor all year.
• Subscriber: the member whose job or application the coverage comes through. Their spouse and children on the same plan are dependents. All of them are members.
• Patient: a person receiving care. The provider's word. A patient can be uninsured, so not every patient is a member.
• Provider: whoever delivers the care and bills for it: a doctor, a hospital, a lab, a pharmacy, a physical therapist, an ambulance company.
• Payer: the organization that pays the provider on the member's behalf: an insurance company, an employer's self-funded plan, or a government program.

So when Maria, who works at a retailer and has family coverage through her job, takes her son to a paediatrician, she is the subscriber, her son is a dependent, a member and a patient, the paediatrician is the provider, and her plan is the payer.

2. The numbers

The coverage rows overlap. A person can be in Medicare and Medicaid at once (about 12 million are), or have employer coverage and Medicare. So the rows don't add up to the population.

Among the 5,121 community hospitals, 2,984 are not-for-profit, 1,224 are investor-owned and 913 are run by state or local governments. Physicians are increasingly employed by hospital systems or larger groups rather than running their own practices, which matters later when we look at how contracts get negotiated.

3. Where the money comes from, and where it goes

Here is 2024's spending by who funded it:

And by what it bought: hospital care $1.63 trillion (31%), physician and clinical services about $0.83 trillion for physicians alone (16%), and prescription drugs $467 billion (9%).

Notice how small the out-of-pocket line is. About 89% of the money reaches providers through someone other than the patient. That one fact explains most of what follows in this series: when a third party pays, it wants to know what was done, why, and whether its rules allowed it, before it pays.

4. The three kinds of payer

Government programs. Medicare covers people 65 and over and some younger people with disabilities. Medicaid covers people with low incomes and is run by each state with federal money. The military (TRICARE), veterans (VA) and the Indian Health Service have their own systems. Part 2 covers these in detail.

Insurance companies. They sell coverage to employers and individuals, and they also run large parts of the government programs. More than half of Medicare members are in a Medicare Advantage plan run by a private insurer, and about three quarters of Medicaid members are in a state-contracted managed care plan. The largest national insurers include UnitedHealthcare, Elevance, Aetna (owned by CVS Health), Cigna, Humana and Centene, alongside the Blue Cross Blue Shield companies, each of which operates in its own region.

Self-funded employers. A large employer often doesn't buy insurance at all. It pays its employees' medical bills from its own money and hires an insurer or a third-party administrator (TPA) to run the plan: process claims, provide a network, answer member calls. In 2026, 71% of covered workers were in self-funded plans. The member's card may say "Aetna" or "Cigna", but the money is the employer's. This is called an administrative services only (ASO) arrangement.

So "the payer" means two things that are easy to confuse: the party whose money is at risk, and the party that runs the plan. In a fully insured plan they are the same company. In a self-funded plan they are not.

5. The organizations in between

Several kinds of organization sit between payers and providers. You will meet each again in later parts.

6. One visit, end to end

Let's follow Maria's son's visit, because each step is a part of this series.

 1. Enrollment     Maria picks a plan at work; the employer sends the plan her family's details
 2. Eligibility    Paediatrician's office checks, before the visit, that her son is covered today
 3. Authorization  (for some services only) the provider asks the plan to approve in advance
 4. The visit      Care happens; the doctor documents it
 5. Coding         The visit becomes codes: a diagnosis code (ICD-10) and a procedure code (CPT)
 6. The claim      The office sends a claim, through a clearinghouse, to the payer
 7. Adjudication   The payer checks the claim against eligibility, benefits, rules and the contract
 8. Payment        The payer pays the provider its share and sends a remittance explaining it
 9. Patient bill   The member gets an explanation of benefits; the office bills her the rest

Say the paediatrician's list price for the visit is $250. The plan's contract with that practice sets the allowed amount at $140. Maria's plan has a $30 copay for office visits, so the plan pays $110 and Maria pays $30. The other $110 of the list price is written off: an in-network provider has agreed not to bill the member for it. Part 3 covers how deductibles and coinsurance change this arithmetic.

Two things make the US system different from many others, and you can see both in this example. First, the price isn't one price: the same visit has a list price, a negotiated price per payer, and a member share. Second, each step produces a standard electronic transaction, and most of the work in healthcare technology happens in those transactions: steps 2, 3, 6, 7 and 8 each have their own standard format.

7. Why it got this way

Employer coverage became common during the Second World War, when wage controls limited pay rises but allowed benefits, and a 1954 tax rule made employer premiums tax-free for workers. Medicare and Medicaid were created together in 1965 for the groups the employer system left out: older people and people with low incomes. The Affordable Care Act of 2010 added the marketplaces for people without either, and let states expand Medicaid.

Each piece was added to fill a gap, not designed as one system. That is why a person's coverage can change when they change jobs, turn 65, move states, or their income rises.

8. What this map leaves out

This picture is simplified. Hospitals often own physician practices and sometimes their own health plans. Some insurers own large physician groups, pharmacies and PBMs, so the "payer" and the "provider" can be the same company. And the 26.7 million uninsured people get care too, from emergency departments that must treat them, community health centres, and charity care. Later parts come back to these where they matter.

Remember

Next, in part 2: the public and private sources of coverage, Medicare and its four parts, Medicaid and how states run it, and employer and marketplace plans.

Sources

• CMS, National Health Expenditures 2024 highlights
• American Hospital Association, Fast Facts on U.S. Hospitals, 2026
• Federation of State Medical Boards, Census of Licensed Physicians in the United States, 2024
• US Census Bureau, Health Insurance Coverage in the United States
• Medicaid.gov, Medicaid and CHIP enrollment data
• KFF, Employer Health Benefits Survey