The U.S. Healthcare SystemThe U.S. Healthcare System

Prepared by

Norma Perry

Reform Occurs When and Where Reform Occurs When and Where Problem, Policy, and Politics MeetProblem, Policy, and Politics Meet

• Kingdon’s Model of Agenda Setting says:

Political Stream Policy

Stream

Problem Stream

Window of Opportunity

Reform Occurs When and Where Reform Occurs When and Where Problem, Policy, and Politics MeetProblem, Policy, and Politics Meet

• Kingdon’s Model of Agenda Setting says:

Political Stream Policy

Stream

Problem Stream

Window of Opportunity

Grassroots mobilization

Cost Crisis, Economy,Rising Unemployment

The Health Care System is Broken: The Health Care System is Broken: There is a Cost to Doing NothingThere is a Cost to Doing Nothing

Costs are out-of-control:• $2.4 trillion spent on health care in 2008

– Represents 16.6% of Gross Domestic Product– By 2015, it is projected be 20% of GDP

Health Insurance Coverage is in Crisis:• 47 million people are uninsured (15.5%)

– 52 million people are considered medically disenfranchised (i.e. they do not have a usual source of care, even if they are insured)

– 13.2 million (28%) of the uninsured are aged 19-29

The Delivery System is Strained:• Disparities in quality and access

– Medical errors, birth weight outcomes, hospital readmit rates, and waiting times for ER visits and specialty care indicate that we do not have the best health care system in the world.

Health Care Costs in the U.S.Health Care Costs in the U.S.

Source: The Commonwealth Fund, calculated from OECD Health Data 2006.

Health Care Spending per Capita,1980-2004

- adjusted for cost of living differences - U.S.: $12,357 per person, 20% of GDP

by 2015

Health Spending in the U.S. Compared to Health Spending in the U.S. Compared to Other Industrialized Countries, 2003Other Industrialized Countries, 2003

Source: Organisation for Economic Cooperation and Development Health Data (OECD), 2006

1,551

1,053

1,114

1,056

2,473

843

670

666

675

709

509

467

581

454766

- 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500

U.S.

Japan

Germany

France

Canada

Per Capita Health Spending (in U.S. Dollars)

Inpatient Outpatient Ancillary

Home Health Pharmacy Nursing Home

Source: Yu & Ezzati-Rice, Medical Expenditure Panel Survey Statistical Brief #81, AHRQ, May 2005.

22%

49%

64%

97%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Top 1% Top 5% Top 10% Top 50%

Percentage of Population Ranked by Spending

Per

cen

tag

e o

f E

xpen

dit

ure

s

Half of the Population Uses Very Little Health Care:Half of the Population Uses Very Little Health Care:97% of all health spending is concentrated in half of the population!

Health Care Coverage Health Care Coverage

in the U.S.in the U.S.

Do We Even Have a “System”:Do We Even Have a “System”:Filling in the GapsFilling in the Gaps

• Financing and Structure of the System are Intertwined• Different Components of the Health Care System are

financed and regulated in different ways

– Public Health Activities– Care for the Uninsured– Government Programs– Hospitals– Community Health Centers– Free Clinics– Private Physician Offices– Medical Groups– TriCare/CHAMPUS/Military

– Employer-based Insurance– Individually-Purchased

Insurance– Indian Health Services– HIV/AIDS-related care– Insurance Companies– Veterans’ Affairs (VA)

Health Care– Workers’ Compensation– Children’s Health Care

The Challenges of Basing a System The Challenges of Basing a System on Employer Provided Insuranceon Employer Provided Insurance

• As health care costs increase, employers are faced with difficult choices:– Reducing benefits or not offering– Reducing choice of potential plans– Offering high deductible, catastrophic plans– Establishing different requirements for health benefit

participation• Minimum hours, waiting periods, workers must higher

percentage of employer-negotiated premium

• Employers negotiate directly with insurers for benefits and premiums– Smaller employers have less leverage due to smaller risk pool– Can represent a significant cost when workforce and retirees

age, get sicker, and ultimately use more health care

Sources of Commercial InsuranceSources of Commercial Insurance

• Group (Employer-Based)– In the past, commercial insurance was known

as “Major Medical” – Benefits similar to Medicare Part A

– Currently, employer-based insurance benefits are more comprehensive

• Individually Purchased (Non-Group Market)– Premium and Benefits based on risk profile of

the individual policyholder– Tends to be more expensive for the individual– Limitations due to pre-existing conditions

Insurance Status in the U.S., 2007Insurance Status in the U.S., 2007

Type of Coverage Number (millions) Percent

Private 201.7 67.9% Employment Based 177.2 59.7% Individual 27.1 9.1%Government 80.3 27.0% Medicare 40.4 13.6% Medicaid/SCHIP 38.3 12.9%Uninsured 47.0 15.8%

Note: Percentages exceed 100% because type of coverage is not mutually exclusive; individuals can have more than one category of coverage.Source: U.S. Census Bureau Analysis of March 2007 Current Population Survey

Main Governmental Sources of Main Governmental Sources of Health Health InsuranceInsurance Coverage Coverage

• Two programs were voted into law in June of 1965 and implemented in July of 1966.– Title XVIII (Medicare) and XIX (Medicaid) of the Social

Security Act– Medicare is “social insurance”

• Designed for people with disabilities or the elderly who meet specific requirements, lifetime benefit

– Medicaid is a “welfare program”• Designed for needy people who are categorically eligible (not

a guaranteed benefit)

• State Children’s Health Insurance Program (SCHIP)– Created in 1997 as part of the Balanced Budget Act

The Uninsured: At Serious RiskThe Uninsured: At Serious Risk• The uninsured in the U.S. face huge obstacles when

attempting to access health care:– Many private providers will not accept them

• The burden is placed on community health centers, public hospitals, and emergency rooms

– Difficult to find medical home– Some are considered uninsurable due to pre-existing

conditions, but cannot qualify for Medicaid– Cannot afford full cost of visits

• This can lead to medical bankruptcies and foreclosures• There is some evidence that cost-shifting has resulted in the

uninsured being billed for full charge, even higher than commercially insured patients

Source: Kaiser Family Foundation, 2006

Note: All respondents are under age 65

Health Care DeliveryHealth Care Delivery

U.S. Life Expectancy in 2003 Lower U.S. Life Expectancy in 2003 Lower than Countries that spend far lessthan Countries that spend far less

Organisation for Economic Cooperation and Development Health Data (OECD), 2006

74.878.6 78.4 76.7

72.768.6

75.278.180.1

85.682.7 83.8

77.6 76.979.9

83

0

10

20

30

40

50

60

70

80

90

U.S. Japan Sweden France Mexico Hungary Denmark Australia

Lif

e E

xpec

tan

cy i

n Y

ears

Male Female

The U.S. also faces problems The U.S. also faces problems related to:related to:

• Health Care Disparities– Racial/Ethnic, Language, and Gender differences in outcomes

and access– These differences persist even with insurance coverage

• Medical Errors– 44,000 to 98,000 preventable deaths

• Emergency Room overcrowding– Waiting Times– Throughput, Discharge Planning, Staffed Bed Supply

• Some areas do not have appropriate numbers of primary care and specialty physicians (i.e. physician maldistribution)

• Hospital Re-Admission Rates

The Intersection of Costs, The Intersection of Costs, Coverage, and Delivery Coverage, and Delivery

of Health Careof Health Care

The Flow of the Dollar • Costs, Payment, Delivery, and Insurance Coverage are completely

intertwined in our system!

Insurance Company

Individually Insured

Government

Insured Employees

Uninsured

Physicians

EmployerPublicly Insured

Payment made to this entity

Service provided by this entity to individuals

Source: Roby DH. 2009 (forthcoming). Impacts of Being Uninsured in Handbook of Health Psychology (edited by Suls, Kaplan, Davidson), Guilford Publications: New York, NY.

Controlling CostsControlling Costs• Government has been a major proponent of cost

controls– Prospective Payment

• Use of Diagnosis Related Groups

– Managed Care• Capitation (HMO and POS)• Discounted Fee-for-Service (PPO and POS)

• How do differential cost controls impact hospitals, clinics, and physician providers?– Lower payments for Medicaid and Medicare– Insurance companies have increased leverage to

negotiate prices due to managed care contracting– Cost Shifting impacts delivery and coverage

Impacts of Medicare Prospective Impacts of Medicare Prospective Payment System (PPS): 1985-2006Payment System (PPS): 1985-2006

Cost Shifting

Hospital Payment Per Dollar of Care

Medicare Medicaid Private

1985 $1.020 $0.943 $1.171

1990 $0.895 $0.801 $1.278

1998 $1.019 $0.966 $1.158

2004 $0.919 $0.899 $1.289

Source: American Hospital Association/The Lewin Group, Trends Affecting Hospitalsand Health Systems, TrendWatch Chartbook, April 2006.

Government Spending Outpaces Private Government Spending Outpaces Private Company Spending in our SystemCompany Spending in our System

Source: National Health Expenditures, Centers for Medicare and Medicaid Services, 2007

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Sp

end

ing

(in

th

ou

san

ds)

Total Spending Out-of-Pocket Spending Commercial Health Insurance Public Funds

Billions spent to close the ‘gaps’ in Billions spent to close the ‘gaps’ in Medicaid/Medicare payment and Medicaid/Medicare payment and

Uncompensated CareUncompensated Care• Disproportionate Share Hospital (DSH) Payments

– Medicaid and Medicare DSH– Based on percentage of caseload from uninsured, Medicaid, and

Medicare– “Safety Net Financing”– Medicaid DSH administered by states and subject to federal

match (FMAP)– Often public/county, teaching facilities, large trauma centers

• Community Health Centers (Section 330) Funding– Comprehensive Primary Care (FQHC) clinics receive grant

subsidy based on uninsured and Medicaid– Sliding fee scale– Administered by the Bureau of Primary Health Care– 40% of patients are uninsured

Source: Stan Dorn, Bowen Garrett, John Holahan, and Aimee Williams, Medicaid, SCHIP and Economic Downturn: Policy Challenges and Policy Responses, prepared for the Kaiser Commission on Medicaid and the Uninsured, April 2008

Impact of Unemployment Growth on Medicaid and SCHIP and the Number Uninsured

1%

Increase in National

Unemployment Rate

=1.0 1.1

Increase in Medicaid

and SCHIP Enrollment

(million)

Increase in Uninsured(million)

&$2.0

$1.4

$3.4

Increase in Medicaid and

SCHIP Spending(billion)

State

Federal

Why Does the U.S. Spend So Why Does the U.S. Spend So Much More on Health Care?Much More on Health Care?

• Compared to other Industrialized countries, the U.S. has:– Fewer physician office visits per capita– Fewer hospital inpatient admissions per capita– Lower Average Length of Stay (ALOS) per admission– Fewer hospital inpatient days per capita– Higher (but not the highest) use per capita of selected high-

tech procedures (MRI, CT, angioplasty, dialysis)• If expenditures = prices x quantity, and quantities are not higher in

the U.S., then prices must be higher!

Profits for Health InsurersProfits for Health Insurers

• Profits for health insurance companies and pharmaceutical companies continue to increase– In 2006, the top 18 health insurers made $15 billion in profits– In 2006, pharmaceutical industry profits were 19.6%

• 2nd most profitable industry, behind the oil industry• Insurers profit from privatized government programs

– The Medicare Advantage (Part C) program results in $18 billion in overpayment to insurance companies when compared to traditional Medicare Fee-for-Service (FFS)

• Outcomes are not better for Medicare HMO enrollees• Rates paid to private insurers are much higher than cost of

Medicare FFS claims

What are we doing wrong?What are we doing wrong?• We are the only major industrial nation that does not

provide comprehensive health benefits to all its citizens• We have the largest private market for health care financing

of any nation• We spend more per capita than any other nation, but allow

greater disparity in spending for different portions of our population

• Our political system favors incremental changes, based on market-oriented solutions, rather than fundamental reform– From the inception of Medicare/Medicaid, to SCHIP, to present, we

are often working within the existing framework and accomplishing smaller, incremental changes

Opportunities and the Opportunities and the Need for ReformNeed for Reform

Possible Reforms and Possible Reforms and Future FinancingFuture Financing

• Restructure our Current System– Indirect Subsidies and Consolidation could be used to insure

Uninsured– There is enough money in the system to care for everyone, but it

is not being used efficiently and effectively! (Obama and Baucus)

• Market-Based Approach– Consumer Choice – high deductible plans, health savings

accounts, provider fee transparency (McCain)

• Complete Dismantling of Current System– Can universal health care survive in a for-profit system?

(Conyers)

• Is Universal Insurance required, or Universal Access?– President G.W. Bush’s health care reform efforts were based

upon expanding the safety net (Community Health Centers), rather than insuring the uninsured.

Current Reform ModelsCurrent Reform Models• Policy Choices are numerous, if there is political

will and priority given to health care:– Individual Mandate – Employer Mandate – Pay-or-Play Provision– Tax Credits for Health Insurance– Expansion of Safety Net Providers– Health IT (EMR) and Comparative Effectiveness

• Designed to create efficiencies and save money on services, avoid duplication

– Introduction of Public Health Insurance Plans• Benchmark Plan• Based on community rating, risk adjustment/reinsurance• Will insure those who cannot get other coverage

– Pre-Existing Conditions

Where is Reform Occurring?Where is Reform Occurring?• Since Clinton’s failed attempt at universal health care in

1994, most efforts have been at the state-level– Massachusetts’ recently passed a universal health care reform

• Individual Mandate – requires all residents to have insurance coverage, while providing subsidies to those who cannot afford to buy on the private market

• Health Insurance Connector• Expansion of state Medicaid and SCHIP eligibility plans

• Other states have tried and failed– California was close to a compromise to allow for an individual

mandate, similar to Massachusetts– Budget problems derailed the reform effort– Hawaii was able to enact an employer mandate in 1974– States are considered “laboratories of democracy”

Problems with State-Level ReformProblems with State-Level Reform• Complications due to:

– State Budgets• Current economic situation can derail efforts

– ERISA• Employee Retirement and Income Security Act• Federal Law that preempts state laws mandating employer

provision of specific benefits

– Centers for Medicare and Medicaid Services (CMS)• Changes to Medicaid or SCHIP state plan require approval

of waiver or change in federal regulations• G.W. Bush was not supportive of changes in eligibility

requirements• Obama administration is supportive and actively pursuing

expansions

Obstacles to ReformObstacles to Reform• Frequently, universal reform efforts have been led by

elites– Clinton’s health care plan was written in a “vacuum”, rather than

seeking consensus from political figures• Even proponents of universal health care opposed Clinton’s plan

• Interest groups, especially business, are powerful• Campaign financing is loosely regulated• Political Parties are weak and de-centralized• Pharmaceutical companies, the American Medical

Association, and other special interest groups have interest in maintaining status quo Health Care = $$$$

• Major Stakeholders and Politicians cannot agree on the best solution– Universal coverage can have many different forms– Grassroots mobilization could turn the tide

• This economic downturn, with its rising unemployment, could create class of uninsured and underserved that is vocal, motivated, and in serious need of reform

Senator Baucus’ ProposalSenator Baucus’ Proposal• Individual Mandate: All Americans will be required to purchase

coverage if it is available to them• Creation of purchasing pool or “health insurance exchange”• Requirement that carriers accept all applicants regardless of pre-

existing health problems. – By bringing everyone into the system, Senator Baucus believes the

average cost of insuring each American will be reduced. • Allows those between the ages of 55-and-64 to purchase Medicare

if they lack access to public insurance programs or a group health plan.

• Expansion of the State Children’s Health Insurance Program to include children in families at or below 250 percent of the federal poverty level ($44,000 for a family of three)

• Lift the ban preventing legal immigrants to enroll in SCHIP until they’ve been in the country for five years.

• Like President Obama, Senator Baucus supports tax credits for small businesses that provide health insurance coverage and for individuals and families, below 400 percent of the federal poverty level, who purchase their own coverage.

President Obama’s ProposalPresident Obama’s Proposal• Employer Mandate – Large employers would be required to pay

portion of payroll tax into fund (Pay-or-Play) – 5% or more– Lower costs for businesses by covering a portion of the catastrophic

health costs they pay in return for lower premiums for employees. • Require insurance companies to cover pre-existing conditions so all

Americans regardless of their health status or history can get comprehensive benefits at fair and stable premiums.

• Create a new Small Business Health Tax Credit• Establish a National Health Insurance Exchange to allow individuals

and small businesses to buy affordable health coverage. • Subsidy through personal tax credits based on income • Additional steps to create efficiencies and reduce costs:

– Health Information Technology (HIT) investment– Disease Management for chronic illness– Limits on overhead; greater transparency– Allow safe pharmaceuticals from other countries– Prevent insurers from overcharging doctors for their malpractice

insurance – Reduce preventable medical errors.

Reform Occurs When and Where Reform Occurs When and Where Problem, Policy, and Politics MeetProblem, Policy, and Politics Meet

• Kingdon’s Model of Agenda Settting says:

Political Stream Policy

Stream

Problem Stream

Window of Opportunity

Reform Occurs When and Where Reform Occurs When and Where Problem, Policy, and Politics MeetProblem, Policy, and Politics Meet

• Kingdon’s Model of Agenda Settting says:

Political Stream Policy

Stream

Problem Stream

Window of Opportunity

Grassroots mobilization

Cost Crisis, Economy,Rising Unemployment

Are we there yet?Are we there yet?• It appears that the window of opportunity may be open

– Economy is in crisis– Unemployment and loss of insurance are big problems– Reformers need to take advantage of these opportunities

• Obama has made health care reform a priority in his federal budget plan

• Various Interest Groups are getting involved– Coalitions are being developed around different proposals– Broad Based Coalition and Grassroots support will be vital– Those impacted by the health care system (i.e. nurses,

physicians, the underinsured and uninsured) need to be involved, empowered and given a voice.

• Obama has expressed interest in signing health care reform that comes out of the legislative process– Different from President Clinton’s approach