A New Era in U.S. Health Care demystifies the Affordable Care Act for unfamiliar readers, setting an agenda for lawmakers and the health industry alike. It focuses on four key issues that will determine the success of this 2010 legislation: the use of state-run Medicaid programs to expand access to insurance; the implementation process; the creation of health insurance exchanges; and the introduction of a new organizational form, accountable care organizations.
About the Author
Stephen M. Davidson is Professor of Strategy and Policy at Boston University's School of Management. A blogger for The Huffington Post , he is the author of Still Broken: Understanding the U.S. Health Care System.
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A NEW ERA IN U.S. HEALTH CARE
Critical Next Steps Under the Affordable Care Act
By STEPHEN M. DAVIDSON
STANFORD UNIVERSITY PRESSCopyright © 2013 Board of Trustees of the Leland Stanford Junior University
All rights reserved.
HEALTH SYSTEM PROBLEMS SUMMARIZED
Most everyone agrees that the many problems affecting health care in the United States can be grouped under three broad categories: access, cost, and quality. Some disagree, however, with the idea that the problems require a solution in which the public sector plays a large role or, alternatively, about what that role should be. To be able to assess for ourselves these and other difficult issues, we first need to come to an understanding about the problems in some detail.
Health system problems can be defined either by focusing on stories of individuals who, much as they would like to, are not able to use the health services they need or by reciting aggregate statistics that describe system problems at the national level. Some people are much more energized by one approach; some by the other. In the next few pages, I will summarize the problems using both approaches.
THE INDIVIDUAL PERSPECTIVE
There are three main reasons why Americans may lack access to needed services. One is that they live in areas with an inadequate supply of doctors, hospitals, and other professionals and facilities. These tend to be people living in rural areas where the population is too sparse to allow health care professionals and facilities to sustain themselves financially. Although this is an important part of the overall problem, we will not concentrate on it here.
A second reason is that they do not have health insurance. Personal income for most Americans has stagnated over many years, failing even to keep pace with inflation. One result is that they tend to have limited income to pay for even routine medical services when these become necessary. Moreover, some medical services are expensive. For both reasons, therefore, most people need insurance to help them pay for needed services. By pooling relatively small monthly payments from many purchasers, an insurer accumulates the funds it will need to pay the bills of those subscribers who use services. Those monthly premiums are supposed to be manageable for the individuals who pay them, while the cost of treating a serious injury or illness tends to be more than all but a few can pay for with ready cash. Here are two additional points about insurance: one is that as the cost of care escalates, monthly insurance premiums rise, making coverage unaffordable for many and thus adding to the rolls of the uninsured. The other is that for the insurance pool to work, the insurer needs to enroll many who are healthy and will use few, if any, services. That is the way small monthly payments from lots of subscribers can grow into a fund that is large enough to enable the insurer to pay for expensive surgery or lengthy hospital stays. This is another reason, therefore, that it is critical to keep down the cost of health care itself: if the insurance becomes too expensive, then healthy people won't buy it—not because they cannot afford it, but because it seems like a bad deal: paying a lot of money for coverage even though they do not expect to use medical care in the first place. If the low users of services drop out, then the funds in the pool will have been contributed only by high-service users. In effect, each of the expected high users will be prepaying in installments the entire amount of funds needed to pay for their own care. Most are not able to do that, however, which is why others need to contribute to the pool too. If insurance works as intended, instead of prepaying, those who use services will get care worth more, maybe even a lot more, than they put in. That works because those who do not get sick will have paid into the pool as well but not taken anything out since they will not have used care. What everyone—users and nonusers alike—buys when he or she buys insurance is the peace of mind that comes from knowing that in the unlikely but possible event that they need expensive services (because they got hit by a drunk driver or developed cancer, for example), they will not need to worry about whether or not they can afford the services their doctor recommends.
Most Americans obtain their insurance through their employment. Typically, employers offer one or more health insurance plans, and employees sign up for coverage. Even employed people may lack insurance, however—for some the reason will be that their employers decide not to offer coverage. Overall, in 2010 69 percent of U.S. employers offered insurance to their employees.
But among employers in 2010, 99 percent of those with two hundred or more employees did so, while only 59 percent of those with three to nine workers offered coverage. Many small employers simply decide the cost is too high for them to afford. Other workers lack insurance because, even though their employer offers it, they cannot afford their share of the premium. In still other cases, the worker may be covered, but not members of his or her family. Finally, of course, there are the unemployed and the almost 690,000 elderly who are not eligible for Medicare benefits. Despite all this, however, the fact is that 78 percent of uninsured Americans live in households with at least one member who works fulltime (62 percent) or part-time (16 percent).
Jonathan Cohn, in his book Sick: The Untold Story of America's Health Care Crisis—and the People Who Pay the Price, tells numerous heart-wrenching stories of Americans who toil at several jobs in order to be able to afford health insurance. In many cases, despite working long hours for multiple employers, people find themselves priced out of the private market for health insurance and are unable to obtain it for themselves and their families. In some cases, as a fall-back position, they qualify for Medicaid, the federal-state safety-net program. But then they can lose that coverage when the state, in a budget-cutting move, changes the eligibility criteria or limits the covered services. At that point, having done everything right, they must throw themselves on the mercy of the local hospital and hope that staff there will provide the care they need. These tales are hard to read. The stories they tell tug at the heartstrings of readers with any sense of empathy, and they lead many to ask, "Isn't there a better way?" There must be something that the richest nation on earth can do to end this kind of unfair suffering!
Finally, a third reason why millions of Americans lack access to needed medical care is that although they do have insurance, they deny themselves needed services because the out-of-pocket costs (that is, the amounts not covered by the insurer—the "cost-sharing") are too high. To illustrate this point, here is a story that I recounted in my earlier book.
Allen Orozco of Nashville, Tennessee, bought health insurance for his family—including his wife, Heather, and their three children—through his job with a mortgage company. The problem was that although his share of the premium cost him $800 each month—a struggle, but one they chose to endure—the coverage included a $1,500 per person deductible for each family member and then it paid only 80 percent of the cost of most diagnostic tests and surgical procedures. These provisions caused the Orozcos serious difficulties. Though young, Allen had asthma and an inflammatory bowel condition called Crohn's disease, and Heather had a serious gall bladder condition. Her doctor recommended that she have surgery to remove her gall bladder, and Allen needed expensive medications on an ongoing basis, with the possibility of surgery looming in his future, too. Even with insurance, the out-of-pocket cost of their care was more than they could handle, and neither one could afford to follow completely their doctors' recommendations.
Since Allen was the sole breadwinner while Heather was finishing school, they decided to do what they could to take care of his condition first. But the deductible for his prescription medications was so high that he "stretched them out" to make them last longer even though, by doing so, he undermined their effectiveness and recognized he was playing "Russian roulette" with his life. In the meantime, she got no treatment for her gall bladder condition. It frequently woke her up in the night with severe nausea, depriving her of the sleep she needed to carry out her responsibilities, which included getting the children ready for school and being a student herself. More than once, when her condition deteriorated to the point that she could no longer endure the pain, she wound up in a hospital emergency room—at a cost to the insurer of five or six times the cost of regular appropriate care in her doctor's office.
Unfortunately, the Orozcos' story is becoming all too typical. These are people living the American dream—job, school, family—and it is all being threatened by inadequate health insurance. Health care spending has increased so much that the cost of insurance has led many firms to drop it for their employees. Others, like Allen Orozco's employer, cut it back in order to be able to offer at least some coverage. But those cutbacks resulted in deductibles and co-insurance payments that are so high that, as with the Orozcos, they keep families from getting the care the insurance is supposed to make accessible. Imagine what their story would be if—like at least 49.9 million other Americans—the Orozcos had no insurance at all!
Here is the bottom line: the inexorable increase in health care spending is putting both insurance coverage and health care itself beyond the grasp of more and more Americans. Moreover, these trends are now reaching deeper into the middle class. Indeed, given the growth in spending, even organizations with historically comprehensive insurance plans, such as universities, are cutting back. In fact, many of those policies, though still in place, have been eroding for years. That erosion may take the form of rising premiums and cost sharing or the addition of prior authorization requirements that need to be satisfied before people can access many covered services.
THE AGGREGATE PERSPECTIVE
For many Americans, stories of individual suffering do not lead logically to proposals for corrective public policy. Some believe that people find themselves in these difficult circumstances, at least in part, because of their own failures; or that, whatever the cause, the solution is their own responsibility. They should find a job with better health insurance. Or maybe they would not have gotten sick in the first place if they didn't smoke or drink or eat too much. Years ago, this phenomenon was defined as "blaming the victim." Others are willing to entertain public policies to help people overcome these hardships, but are not sure that the stories being recounted define a problem that is large enough to require changing big chunks of the U.S. health care system, which they think of as the best in the world.
So instead of looking at stories of individuals who lack access to insurance or to care for one reason or another, the latter group wants to discuss the situation in the aggregate. When they make the effort to do so, among the facts they uncover are the following (summarized in Table 1.1):
The United States spends more money on the health sector than any other country—by a lot. In 2010, it was $2.6 trillion, which equaled 17.9 percent of GDP. No other country spent more than more than 12 percent of GDP
Those big numbers translate to about $8,402 per capita—twice as much as the next most expensive country. If there are four people in your family, that adds up to $33,608. When you realize that these averages include families with almost zero spending on health care, it becomes clear that, for some families, the cost of services used can be truly huge, well beyond the financial reach of most of us. In fact, this possibility should make it clear why having health insurance is a good idea for any family's peace of mind and financial well-being.
The rate of spending growth has been substantial for years. When Medicare and Medicaid became law in 1965, health care spending equaled only about 5 percent of GDP, not even close to 2010's 17.9 percent.
Out-of-pocket costs—those not covered by insurance—are the highest in the world, too, also by a lot. They were 29.1 percent of spending in 2009.
Furthermore, even though we spend a lot, many Americans have no insurance coverage at all. As of 2011, 18 percent of the non-elderly population was uninsured. The number tends to grow when economic times are hard. That is a big reason why Medicaid rolls, as well as the rolls of other counter-cyclical safety net programs, grow during those times.
Millions are underinsured. They do have coverage, but it is too skimpy for them to get the care they need. Like the Orozcos. The only policies they can buy require out-of-pocket payments when they use services that cost more than they can afford. The percentage of non-elderly adults who are underinsured exploded from 12.3 percent in 2003 to 22 percent in 2010, just seven years later.
Many people want insurance, but are rejected by insurers because they had prior conditions that insurers thought would cause them to be high users of services in the future. Wendell Potter puts that number at more than 650,000. Insurers either refused to cover them outright or charged so much that people could not afford coverage.
And for many years, students of the health care system have had great concern about the quality of medical care. Donald Berwick, the former head of the Center for Medicare and Medicaid Services (CMS), the federal agency responsible for these two big programs as well as for much of the Affordable Care Act, has devoted his career to finding ways first to assess the quality of care and then, building on that knowledge, to improve it.
The clearest evidence that we still have serious quality problems, although many claim that much progress has been made in recent years, is that national studies show great variation from state to state in aggregate measures of quality.
Whether you consider the problems of individuals or the aggregate condition of the U.S. system as a whole, the conclusion is inescapable that the U.S. health care system has serious problems. Using the common shorthand, they fall into the three main categories mentioned earlier: access, cost, and quality.
The critical point is that the problems are with the system as a whole, and the federal government is the only institution that can deal with the entire system. Therefore, if you agree that the problems need to be solved, it seems to me inescapable to conclude that the federal government must play a substantial role in improving the situation. Incremental changes adopted by one group or another—employers, insurers, physicians and other providers—even if they were fundamental enough and on a grand enough scale to cause the needed improvements throughout the system, would drag out the reform process for too many years. In the meantime, the scale and scope of the problems would continue to escalate. Others disagree, and indeed, the argument about the proper role of government in reforming the health care system has been going on for many years. In fact, partly for that reason, until Barack Obama did it in March 2010, no president except Lyndon Johnson in 1965, following a huge electoral victory the year before, has been able to persuade Congress to adopt a comprehensive reform plan.
Usually we describe the problems in the ways I just did—either that individuals are suffering from lack of coverage or that the system denies access to too many, spends too much, and produces care of a quality that is too unreliable. But we also need to understand something about how the system actually works.
THE PROVIDER PERSPECTIVE: HOW THE SYSTEM WORKS
Up to this point, we have considered primarily either the system's impact on individual citizens who at various times and for many reasons need health care services, or alternatively, the measures that reflect national spending on health care or aggregate measures of quality and other concerns about the actual services provided. Instead, we could examine the situation as faced by health care providers—organizational ones such as hospitals and medical group practices and individual clinical professionals practicing in small neighborhood doctors' offices. When we do that, we can learn a lot about how the system operates now and how I believe it is likely to continue to function over the next five to ten years. A key fact is that all of them tend to operate under great financial pressure.
Excerpted from A NEW ERA IN U.S. HEALTH CARE by STEPHEN M. DAVIDSON. Copyright © 2013 by Board of Trustees of the Leland Stanford Junior University. Excerpted by permission of STANFORD UNIVERSITY PRESS.
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Table of Contents
1 Health System Problems Summarized.................... 1
2 The Patient Protection and Affordable Care Act of 2010................... 18
3 Was the Affordable Care Act a Good Idea? Should We Scrap It and Try for
Something Better?.................... 34
4 Making Change.................... 59