Health Care Reform & You

Apr 25th, 2010 | By Mandrita Datta | Category: Current Issue, Features

History was made in the U.S. when the Patient Protection and Affordable Care Act (PPACA) was finally signed into law by President Barack Obama on March 23rd, 2010. Given the significance of the issue in question (i.e., the health of all Americans) and the far reaching effects of this reform, we decided to take a look at it ourselves.

  • Why did we need to reform health care?
  1. Nearly 18% of Americans are uninsured[1] (that is, after taking Medicare and Medicaid into account). Translated to numbers – about 47 million Americans have no insurance, and approximately 25 million are underinsured. These are staggering numbers for a country that leads the world in medical research and technology. A recent study led by Harvard showed that lack of health insurance coverage is the cause of more than 45,000 deaths annually and that uninsured working-Americans have a 40% increased morality risk compared to their insured counterparts! [2]
  2. Current health care costs are too high and unsustainable. The annual cost of health care per person in the US is about $7300, almost twice as much as any other developed country (Switzerland comes 2nd at $4400 , the average is about $3000)[3]. See Figure 1[4].
Figure 1 – Comparison of average annual cost of health care per person, number of physicians visits annually and life expectancy in Europe, North America and Japan. (National Geographic Magazine, January 2010.)

Figure 1 – Comparison of average annual cost of health care per person, number of physicians visits annually and life expectancy in Europe, North America and Japan. (National Geographic Magazine, January 2010.)

According to a recent study by researchers at Harvard Medical and Law schools, medical debt is the biggest reason for bankruptcy (about 60% of all bankruptcies are medically-related even though about 75% of them had health insurance[5]). The common threats within many health insurance plans  (e.g. high deductibles, co-pays, escalating premiums) are serious, or as  Dr. Himmelstein, lead author of the study and Associate Professor of Medicine at Harvard Medical School, puts it: “Unless you’re Bill Gates, you’re just one serious illness away from bankruptcy.”

Why do we pay so much? We pay extra because we are charged “piecemeal” for our treatments –i.e., individual bills for consultation, hospital admission, procedure, follow-up visits and the list goes on. We also pay more for prescription drugs. And what we definitely pay a LOT more for is the HUGE administrative overhead in the current health care system[6]. An analysis published in the New England Journal of Medicine in 2003 using data from 1999 estimated that Americans spent $1,059 per capita on the administrative costs of health care compared to $307 spent in Canada[7]. Today that difference adds up to $150 billion and $220 billion annually for health care administration in the US!![6] There is no evidence that this extra administration adds any value to the system, as anyone who has spent precious time on the phone arguing with the insurance company about billing glitches or trying to get past their voice-prompts would agree.

3. Despite the high cost of health care paid by Americans, the quality of health care is poorer in the U.S. compared to most European countries, Canada, and Japan, with higher rates of infant mortality, maternal mortality, and adult mortality[8] and shorter life expectancy (about 78 years in the U.S. compared to the mean life expectancy of 79.2 years) (Fig.1). We have fewer primary care physicians, known as the “rare breed” of care givers and fewer number of physician visits per year than most developed countries. Doctors, especially specialists, are paid “by the volume” (of patients they see), resulting in less time spent per patient and increased risk of careless mistakes in diagnoses, procedures, post-operative care, etc., not to mention dissatisfied patients.

Gerard Anderson, Professor at Johns Hopkins Bloomberg School of Public Health, and others have done detailed comparisons of the cost and quality of health care in United States and other Organization for Economic Co-operation and Development (OECD) countries in “It’s the Prices, Stupid, Why the United States Is So Different From Other Countries,” which was published in Health Affairs [9] (a must read indeed for anyone interested in knowing more about the US health care landscape!).

  • Goals of health care reform are:
  1. Make affordable health care accessible to a larger number of Americans
  2. Reduce cost of health care
  3. Improve quality of health care

The majority of working adults in the U.S. get heath care through their employers. This of course, has its own problems: a person’s choice of job may be dependent on which company offers better health care coverage rather than the job that fits one’s skills better. In principle, it discourages people from working at small businesses, which, with fewer employees, cannot negotiate lower prices with insurance companies.

Through a series of mandates for individuals and employers, the current reform extends health insurance to a larger number of Americans (adding approximately 32 million to cover approximately 95% of the legal population)[10]. Some key features catering towards making health insurance available to as many people as possible include:

  • Setting up of state Health Insurance Exchanges for individuals to shop around for insurance plans, compare benefits and prices and select the plan that suits them best. Insurance Exchanges are required to have at least one plan from a private non-profit. The majority of people shopping at these exchanges would also qualify for government subsidies depending on their income bracket.
  • Separate insurance exchanges for small companies to pool together and negotiate better deals with insurance companies.
    These exchanges are expected to be functional by 2014.
  • Small businesses will receive tax credits to cover cost of employee premium payments. Starting in 2010-2011, this tax credit will increase to cover up to 50% of premium payments in 2014.
  • Young adults can stay in their parents’ health insurance until they turn 26 (that’s a lot of us grad students!) – effective starting 2010-11.
  • Insurance companies will be barred from dropping patients once they get really sick, denying coverage to children with pre-existing conditions and cannot create lifetime coverage limits – effective starting 2010-11.
  • Expansion of Medicaid coverage
  • Creation of a temporary insurance plan to include adults denied health insurance on grounds of pre-existing conditions until exchanges are up and running.
  • As part of the individual mandate, uninsured individuals without exemptions will pay tax penalties starting in 2014.
  • Large companies not providing health care coverage will pay an annual tax penalty of around $2000 per employee if any worker receives federal subsidies to purchase health insurance.

For a more detailed summary of the Health Reform Law, check out the Kaiser Family Foundation website [11, 12].

To improve quality of health care and bring down cost, two separate industries – health insurance (private insurance companies) and hospitals – must be regulated. These are of course, interconnected in practice. The reform act seeks to regulate insurance companies by regulating their “product” – health insurance schemes. A prototype of the reform bill passed by the U.S. House of Representatives included a government-run insurance plan called the “public option”, which was expected to ratchet up the competition with private insurers for better coverage and lower costs. This public option was to be made available alongside private health care options in the insurance exchanges. However, the public option was eventually dropped from the reform bill during its tortuous rite of passage. Exchanges will still house insurance plans from non-profit cooperatives. However, without the “public option”, the question remains as to how effective the reform will be in lowering coverage costs set by various private for-profit insurance companies, which regionally monopolize the market and, subject only to uneven individual state regulations, are at liberty to fix their own prices/rates and to collude with each other. Moreover, in the absence of a flat-rate government-provided insurance plan, success of the insurance exchanges in stimulating new competition among insurance companies would depend on whether enough buyers participate in purchasing health insurance through exchanges to create a robust market.

However, effective 2011, insurance companies are required to prove that at least 80% of premium payments have been spent on medical services, as opposed to advertisement and executive compensation [13]. States will also require insurance companies to submit justification for all requested premium increases, and insurance companies with excessive or unjustified premium exchanges may not be able to participate in the new Health Insurance Exchanges. In addition, there will hopefully be materialization of a bill (currently at its inception) that provides for the establishment of a national Health Insurance Rate Authority that can deny or limit premium increases by insurance companies will be effective in regulating the health insurance industry.

The current reform, for the most part, does not seek to regulate hospitals, prime generators of health care costs, unlike in many European health systems. However, regulating coverage and rates provided by health insurance companies can indirectly regulate how hospitals charge for health care [14].

Increasing the number of primary care physicians (PCP) is key to improving the quality of health care Americans currently receive. Health care reform provides new funding, effective 2011, to increase the number of primary care physicians and nurses as well as Community Health Centers to allow for doubling of the number of patients treated in the next five years.

It also provides a 10% Medicare bonus payment to primary care physicians and to general surgeons practicing in health professional shortage areas.

Doctors are encouraged to form “Accountable Care Organizations” to improve quality and efficiency of care (effective 2012). In 2013, a national Medicare pilot program will be established to develop and evaluate a bundled payment option for acute, inpatient hospital services, physician services, outpatient hospital services, and post-acute care services for an episode of care to address the problem of paying for treatment “piecemeal.”

The reform also seeks financial transparency by requiring disclosure of financial relationships between health entities, including physicians, hospitals, pharmacists and the manufacturers of drugs, medical devices and supplies.

  • How will it affect you?

As graduate students with decent health insurance and premiums footed by our programs, our lives won’t change much for the most part. Those under 26 can now opt to be in their parents’ insurance instead of Harvard’s (i.e. now is the time to ensure your teeth are pearly and white through your parents’ dental insurance!) The White House and Moody’s Economy.com provide resources to assess how reform affects your particular situation.

  • How much does reform cost, and how is it paid for?

The health care reform is estimated to add up to $940 billion dollars in the first 10 years. This is predicted to reduce the deficit by $138 billion dollars.

The money comes from:

  1. The Medicare Payroll Tax – High income families (making more than $250,000 annually) will be taxed 2.35% on their income and (starting in 2012) charged 3.8% tax on un-earned income (such as interest, rent etc) No worries, as grad students, it will be a LONG time before we make anywhere near that sum.
  2. Excise Tax – From 2018, insurance companies will pay a 40% excise tax on high end insurance plans.
  3. Tanning Tax – 10% excise tax on indoor tanning services.

Overall, the health care reform law addresses the primary goals of making health care affordable to a larger number of Americans and improving quality of health care more comprehensively than lowering the overall burden of health care costs incurred by the government. However, what is most important is that we now have a structure in place that will undoubtedly evolve to a more sophisticated system in years to come.

Passage of a bill to reform health care in the United States was a long time coming. Figure 2 shows a timeline of key major health care changes or attempts in the U.S. in the last century. The behemoth task now (yes, even more daunting than passing health care reform itself) is implementing it vigilantly and meticulously, phase by phase, bit by bit. We wish our law-makers and executors all the best!

Figure 2 – Major advances in the 20th century to improve health care of Americans.

Figure 2 – Major advances in the 20th century to improve health care of Americans.

Special thanks to Dr. Suman S. Basu for a critical discussion of health care reform.

References

1.         McPake, B., and Normand, C., Health economics: an international perspective. 2008. 2nd edition, Routledge, New York.

2.         Wilper AP, W.S., Lasser KE, McCormick D,Bor DH and Himmelstein DU, Health Insurance and Mortality in US Adults. Am J Public Health, Dec 2009. 99: p. 2289 – 2295.

3.         Organisation for Economic Co-operation and Development (OECD) Health Data 2009.

4.         Uberti, G.O., The Cost of Health Care. National Geographic Magazine, 2010. January.

5.         David U. Himmelstein, D.T., Elizabeth Warren, Steffie Woolhandler, Medical Bankruptcy in the United States, 2007: Results of a National Study. American Journal of Medicine, 2009. xx(x).

6.         Kahn, C.R., Health care reform — need for less emotion and more science. Journal of Clinical Investigation, 2009. 119(10): p. 2856–2857.

7.         Woolhandler S., C.T., Himmelstein D.U., Costs of health care administration in the United States and Canada. New England Journal Of Medicine, 2003. 349: p. 768. – 775.

8.         WHO Statistical Information System. http://apps.who.int/whosis/data/Search.jsp.

9.         Anderson GF, R.U., Hussey PS and Petrosyan V., It’s The Prices, Stupid:Why The United States Is So Different From Other Countries. Health Affairs, 2003. 22(3).

10.       http://www.whitehouse.gov/health-care-meeting/proposal.

11.       Focus on Health Reform: health reform implementation timeline. The Kaiser Family Foundation, http://www.kff.org/healthreform/8060.cfm.

12.       Health Reform: Summary of New Health Reform Law. The Kaiser Family Foundation, http://www.kff.org/healthreform/8061.cfm.

13.       Amadeo, K., What is Obama’s Health Care Reform Plan? About.com:US Economy.

14.       http://www.whitehouse.gov/healthreform/immediate-benefits.

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  1. I got into a rather interesting debate about a year ago with a friend of mine as to what would happen as a result of the healthcare reform bill

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