The U.S. National Health Care System

1
The U.S. National Health Care System

• PH 150
• November 2004

2
Outline

• Overview of U.S. system compared to other
  developed countries
• Private insurance
• Current policy issues

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Overview

• Characteristics of U.S. System
• Big
• Patchwork of insurance coverage
• Relies on marketplace

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Total Health Care Expenditures, 2001
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RELATIONSHIP BETWEEN NATIONAL WEALTH AND HEALTH
EXPENDITURES
Source Huber, M. 1999. Health Expenditure
Trends in OECD Countries, 1970-1997. Health
Care Financing Review 21(2) 99-117.
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Utilization of Select Services
7
Self-Reporting Waiting Times, 1998
 
Source Donelan, K., et al. 1999. The Cost of
Health System Change Public Discontent in Five
Nations. Health Affairs 18(3) 206-216.
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Life Expectancy and Infant Mortality Rates, 1998
  Data for Canada are for 1997.
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Patchwork of Coverage

• Medicare over 65 or disabled
• Medicaid some (about ½) of poor
• Employer-sponsored private insurance (if offered,
  if you are eligible, if you by it)
• Individual private insurance
• Military or veterans coverage
• Indian health services
• Uninsured (safety net providers)

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Eligibility for Health Care Benefits Under Public
Programs (percentage of population)
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Private Insurance

• Development
• Current statistics
• Issues in private insurance
• - underwriting
• - adverse selection
• - moral hazard

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Development of Private Insurance

• Story begins around 1930 in U.S., although
  earlier in countries such as Germany
• First example 21-day hospital benefit for
  6/year (Baylor University, Dallas, 1929)
• Hospitals then banded together to give choice of
  facility gave them even if beds in Great
  Depression even when beds were empty, which led
  to the formation of Blue Cross

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Development (continued)

• A.M.A. was worried that insurance could lead to
  socialized medicine, so Blue Shield plans
  didnt form till 1940s
• 10 tenets of coverage (MDs have complete control
  over care, free choice of MD, etc.)
• WWII stimulated development with labor shortage
  and wage controls, health insurance became
  attractive fringe benefit, and courts later ruled
  it not taxable income

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Development (concluded)

• Medicare Medicaid in mid-1960s
• Compromise between liberals who wanted social
  insurance, and providers who didnt want excess
  government interference
• Compromise 3-pronged approach put together by
  Congressman Wilbur Mills
• Part A of Medicare, hospital insurance, is like
  social insurance, financed from payroll taxes
• Part B, physician coverage, voluntary and partly
  paid by beneficiaries and partly from general
  revenues but with generous reimbursement rules
• Medicaid was not made an entitlement program, but
  a rather welfare-like program for poor people.

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Statistics The Uninsured

• Percentage of population under age 65
• - total population 17 (39 million people)
• - age 18-24 29
• - Black 21
• - Hispanic 34
• - Below poverty 35
• - 100-149 FPL 37
• - 150-199 FPL 27

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Issues in Private Insurance

• Medical underwriting
• Adverse selection
• Moral hazard

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Medical Underwriting

• The methods used by insurance companies to decide
  whether or not to insure an individual or group,
  and how much to charge in premiums (done by
  actuaries)
• In U.S., private insurance is experience rated
  (in contrast to community rating) the more
  you or your group will cost, the more it will be
  charged. As a result, many find it hard to get
  affordable coverage

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Adverse Selection

• When an insurer gets sicker people than
  anticipated (when it set premiums) the opposite
  is favorable selection
• Adverse selection is a big problem for insurance
  markets, as insurers are reluctant to enter risky
  markets for fear that they will get lots of sick
  people, raising premiums and making coverage
  unaffordable
• Up till now, FFS has experienced adverse
  selection, and HMOs, favorable selection

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Moral Hazard

• When possession of insurance makes it more likely
  that you will file a claim (as well as more
  expensive claims)
• In medical care, this is a downward sloping
  demand curve
• Various ways to deal with it. On demand side,
  higher copayments. On supply side, utilization
  review, practice guidelines, limiting supply of
  medical resources available

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Current Policy Issues

• Access/equity
• About 40 million uninsured
• Getting access to care in HMOs
• (2) Rising costs
• - Higher premiums, higher cost sharing
• - Especially pharmaceuticals
• - Movement away from tightly managed care
• (3) Quality
• - Does competition improve or deter
  quality?
• - Do HMOs provide as good quality of care?

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Legislation

• California Bill SB-2
• Tax credits to reduce number of uninsured
• Medicare reform

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Medicare Beneficiaries Out-of-Pocket Drug
Spending Under New Medicare Rx Benefit, 2006
Beneficiary Out-of-Pocket Spending
Catastrophic Coverage
5
Medicare Pays 95
5,100 (equivalent to 3,600 in out-of-pocket
spending)
No Coverage
2850 Gap
2,250
Partial Coverage up to Limit
25
Medicare Pays 75
250
Deductible
420 in annual premiums
Note Benefit levels are indexed to growth in per
capita expenditures for covered Part D drugs. As
a result, the Part D deductible is projected to
increase from 250 in 2006 to 445 in 2013 the
catastrophic threshold is projected to increase
from 5,100 in 2006 to 9,066 in 2013.