U.S. Health Care System:
History, status, current reform
James G. Kahn, MD, MPH
28 April 2012
Overview
1.
History
2.
Current system
3.

Profile

Performance vs OECD
Federal reform – the ACA
Major US Health Reform Efforts and Events
& Medicaid
Medical benefits to
increase compensation
during WWII salary freeze
Other Forces Affecting US Health Care

Weak cost controls
• RBRVS (a scale for outpatient care)
• DRGs (inpatient per diagnosis)

Rise of technology and specialty care

Rise of corporate form for insurers &
providers
80
007
70
006
60
005
50
004
40
003
30
002
20
1997
001
10
0
Enrollment
Source: InterStudy National HMO Census.
Plans
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
0
Number of Plans
Enrollment (in millions)
CORPORATE MEDICINE IS HERE TO STAY
(and has been for a long time)
Growth in HMO Enrollment and Plans, 1970-1997
Key features of US Health Care Financing

17.4% of GDP 2009 and rising, $2.5 T, 8,086 per capita

Public – 43% (27% federal, 16% state/local)
• CMS (Center for Medicare and Medicaid Services)

Medicare – federal, aged & disabled ($502 B)

Medicaid – state/federal, poor & long term care ($374 B)
• Veteran’s Admin, Military, Indian Health Svc, …
• State and local safety net

Private – 34%
• Employers – 21%
• Families – premium contribution – 13%

Families – uninsured services & copays etc – 15%

Other private – 7%
Martin, Health Affairs 2011
U.S. vs Other OECD countries



Spending per capita ~50% higher
Generally fewer doctor visits and hospital
days
Difference in spending due to:
• price (costs of doctor, procedure, drugs)
• use of high technology
• administrative costs (later)

Health care outcomes same or worse
Number of Uninsured in the US
Source: US Census Bureau, Current Population Surveys
50
Millions of people
45
15.8% of
population
40
35
30
25
2006
2000
1990
1985
1980
1976
20
Schoen 2005
US standing on health care outcomes
Rank of 13 industrialized nations
Low birth weight %
(U.S. in Red)
Infant mortality
Years of potential life lost
Age adjusted mortality
Life expectancy @ 1 yr
Life expectancy @ 40 yrs
Life expectancy @ 65 yrs
Life expectancy @ 80 yrs
Average for all indicators
Poorest
Best
Billing and Insurance-Related
Administrative Costs
U.S. Health Care Financing
Multi-payer health care financing
Funds
Payers
Providers
Public & Private
Employer
Premium contrib.
Many "pools"
Multiple private payers
& many benefit plans
Income taxes
PPO vs capitated,
many blends/variants
Public: Medicare, Medi-Cal,
Out-of-pocket
S-CHiP, VA, Indian Health,.
~ 60 safety net programs
Doctors
Hospitals
Pharmacies
Device vendors
Skilled Nursing Fac.
Other
Admin costs of insurance 15%
Admin costs overall 30%
$400 billion annually in billing and
insurance-related (BIR) administration
= $1300 per person per year
~60% is at providers
>$250 billion is “excess” - avoidable
Elements of Provider BIR - 1

Complexity of the insurance process:
multiple steps, often detailed &
demanding:
Contracting, maintaining benefits
database, patient insurance determination,
collection of copayments, formulary and prior
authorization procedures, procedure coding,
submitting claims, receiving payments, paying subcontracted
providers, appealing denials and underpayments, negotiating endof-year resolution of unsettled claims, and collecting from patients, …
Elements of Provider BIR - 2


Friction: some BIR steps are (or seem)
designed to slow and complicate the
process, e.g., prior authorization, high
rates of denials / errors / underpayment.
Variation: modest number of payers, but
dozens to hundreds of plans, including
negotiated variants. Providers need to
track plan-specific benefits and pay rules.
Allocation of spending for hospital and
physician care paid through private insurers
Insurer
cMLR
19.0%
Medical
care
62.0%
Hospital
BIR
3.9%
Physician
BIR 5%
Medical
care admin
10.1%
Reform
Incremental … Systemic
Major types of health reform



Free market – let individuals buy health insurance /
care, subsidize the poor. Often called “consumer
driven”. Based on principles of moral hazard.
Improved mixed system – regulate private insurance,
expand public insurance (PPACA). “Managed
competition”
Single payer / universal – use a public fund to pay for
private and public providers, everyone covered with
good benefit package. Common in OECD countries.
By What Criteria Should We Judge Reform
Proposals? The IOM Report: 2004:





Health care coverage should be universal.
Health care coverage should be continuous.
Health care coverage should be affordable to
individuals and families.
The health insurance strategy should be
affordable and sustainable for society.
Health insurance should enhance health and
well-being by promoting access to high-quality
care that is effective, efficient, safe, timely,
patient-centered, and equitable.
Patient Protection and Affordable
Care Act - PPACA (March 2010)
Key provisions

Private insurance regulation - fairer, less baroque

Insurance exchanges - individuals / small business

Public means-tested – expand (Medicaid, CHIP)

Medicare - close gaps, control costs

Individual mandate

Subsidies for poor / near-poor
Patient Protection and Affordable Care Act (PPACA)
Prospective report card on Obama health care reform
Much
Worse
worse
No Δ
Better Solved
x
Coverage
92-94% covered? (vs 85% now)
Pre-existing illness exclusion
x
Eliminated (they say)
Chronic disease premium cost
x
Eliminated - "community rating"
Recission (revoking policy)
x
Disallowed, and shielded by above changes.
Primary care strengthening
x
Various initiatives
Quality of care
x
"Accountable care" & "comparative
effectiveness"
Medical malpractice
x
Special court?
Comprehensive benefits
?
To keep premiums low, fewer benefits. Unless …
meaningful benefits minimum standard.
Financial burden to individuals
?
New policies: high cost-sharing to save feds
money. But annual caps on out-of-pocket.
Administrative burden / costs
Insurer profits
More private for-profit insurance; persistent
product profusion; added admin (eg mandate).
x
x
x
Federal govt costs
System costs
More private for-profit insurance.
x
More subsidies vs. reasonable Medicare cost
control ("accountable care").
More insured with missed opportunity for large
savings (eg less administration).
PPACA waivers
Used to further coddle insurers, edentulating the bill. Dozens granted, e.g.,
Child coverage: Insurers complained may have to exit market if forced to
cover sick children on parents’ policies. The govt allowed brief open-enrollment
periods and higher premiums.
Insurers free to set their own premium rates, with limited states restraint.
Medical loss ratios (MLRs) set at 80-85%. Concessions: counting expenses of
quality assurance as medical costs, deduct taxes from premiums before
calculating MLR, and the ability to appeal for lower MLR for up to 3 years in
states where “there is a reasonable likelihood that market destabilization could
harm consumers”. Four states so far.
Exempted plans: Many insurance plans, including most large employers,
exempt from PPACA - “grandfathered in”
> 100 employers and other insurers can retain very low annual limits of
coverage (eg. only $2,000 a year, hardly qualifying as insurance). E.g.,
McDonald’s, after warning regulators that it might have to drop coverage for
30,000 hourly workers, can keep “mini-med” policies.

John Geyman, PNHP blog, Dec 2010