Overview of the U.S.
Health Care System
Katie Jennings
March 9, 2015
What is a health system?
Technology
Medical
Devices
Patients/Con
sumers
Health
System
Government
Doctors
Hospitals
Insurance
Pharmaceuticals
What makes the U.S. system
different from other countries?
COST
COVERAGE
Per Capita Cost (2011)
UNITED STATES
$8,058
Norway
$5,669
Switzerland
$5,643
Netherlands
$5,099
Canada
$4,522
Germany
$4,495
France
$4,118
Sweden
$3,925
Australia
$3,800
United Kingdom
$3,505
New Zealand
$3,182
Source: The Commonwealth Fund
Cost of Services
Source: The New York Times, “The 2.7 Trillion Medical Bill” by Elisabeth Rosenthal
(June 1, 2013)
Cost does not equal quality.
Coverage Models
“The most notable way the U.S. differs
from other industrialized countries is
the absence of universal health
insurance coverage.”
-The Commonwealth Fund
Universal Coverage:
Employer-Sponsored:
UK Model
US Model
• The government is billed for all
health care fees and pays out
all health care costs.
• The government sets the price
of services.
• Private insurance is available
to be able to choose specific
doctor and/or avoid wait times
for certain procedures.
• Criticisms: Rationing of care,
long wait times, doesn’t cover
experimental treatments.
• There are many different
payers—government,
insurance companies,
individuals (cost-sharing).
• Fee-for-service: Payment is
tied to the number of services
performed.
• Prices for the same services
are hugely variable and
dependent on negotiations
between insurers, hospitals
and doctors.
• Criticisms: There is no cost
control mechanism. System
incentivizes number of
procedures performed rather
than quality.
US Health Insurance Coverage
15.60%
13.40%
Uninsured
Employer-Sponsored
Health Insurance
Medicaid
17.30%
53.90%
Source: 2013 Census Data
Medicare
How do we pay for care?
EmployerSponsored
Insurance
Government:
Medicare &
Medicaid
Individual
Contributions
Employer-Sponsored Health
Insurance
The heavy reliance on employer-sponsored
insurance in the United States is, by many
accounts, an accident of history that evolved in
an un-planned way and, in the view of some,
without the benefit of intelligent design.
– David Blumenthal, The New England Journal
of Medicine (2006)
A Short History
• 1932: FDR considered enacting universal health coverage with
the passage of the Social Security Act, but there was fierce
opposition from the American Medical Association who
threatened to kill the bill.
• 1930s: Private insurance through Blue Cross Blue Shield
helped protect people from the growing costs of illness. The
idea was that you would pay a small amount of money each
month towards the cost of a hospital stay. And then if you
actually had to use hospital services, Blue Cross would pick up
the tab.
A Short History
• WWII: The government enacted wage controls, but they gave
tax breaks to employers who expanded employee benefits,
such as health insurance.
• 1954: IRS decided that “contributions that employers made to
the purchase of health insurance for their employees were not
taxable as income to workers.”
• Between 1940 and 1950, the number of persons enrolled in
private health plans increased from 20.6 million to 142.3
million .
How It Works
• Fully-insured vs. Self-insured
• Employer pays a rate per employee to the insurance
company.
• The individual employee makes a monthly contribution
known as a “premium.”
• The insurance company negotiates rates with doctors
and hospitals (in-network).
• The employee usually pays a percentage of the
negotiated rate (co-pay/co-insurance/out-of-pocket
costs). Sometimes the employee must hit a deductible
before the insurer starts to pay.
Government Programs:
Medicare & Medicaid
Medicare: 50 Million Americans
• Medicare is a government-sponsored health insurance
program for Americans 65 and older.
• Signed in to law July 30, 1965 under President Lyndon B.
Johnson.
• Beneficiaries pay a premium and then the government picks
up the rest of the cost of doctor appointments, hospital care
and prescription drugs.
• The rate the government pays is set by the Medicare Fee
Schedule.
Medicaid: 70 Million Americans
• Medicaid is a government-sponsored health insurance
program for low-income people. It is also the main source of
funding for nursing home and long-term care.
• 1 in 5 people in the US are on Medicaid.
• Reimburses less than Medicare.
• Medicaid is administered on a state level—jointly funded by
states and the federal government.
33 million
children
19 million
low-income
adults
16 million
elderly &
disabled
Total US Health Spending:
$2.8 Trillion
Total Spent By US Government on
Medicare & Medicaid:
$800 Billion
Almost one-third of the US
population receives some form of
government-sponsored health
insurance.
The fragmented payment
system…
15.60%
13.40%
Uninsured
Employer-Sponsored
Health Insurance
Medicaid
17.30%
53.90%
Source: 2013 Census Data
Medicare
… leads to lots of structural
issues.
Lack of Cost Controls
• Because of the incredibly
decentralized payment system, there
is no sense of “actual cost.” You don’t
know the cost of services until you
receive the bill.
• Insurers negotiate rate with doctors and
hospitals.
• Discuss readings – Steven Brill
Bitter Pill
“When you look behind the bills
that Sean Recchi and other
patients receive, you see nothing
rational — no rhyme or reason
— about the costs they faced in
a marketplace they enter
through no choice of their own.”
Topics to Discuss
• In-network versus out-of-network.
• Aggressive markups (400% on drugs)
• Hospital Chargemaster v Medicare
• Negotiations between insurers and
hospitals
Negotiations: The Power Dynamic
“Insurers with the most leverage, because they have the
most customers to offer a hospital that needs patients, will
try to negotiate prices 30% to 50% above the Medicare
rates rather than discounts off the sky-high chargemaster
rates. But insurers are increasingly losing leverage because
hospitals are consolidating by buying doctors’ practices
and even rival hospitals. In that situation — in which the
insurer needs the hospital more than the hospital needs
the insurer — the pricing negotiation will be over discounts
that work down from the chargemaster prices rather than
up from what Medicare would pay.”
Perverse Incentives
• The fee-for service-model encourages
doctors to perform more tests and
procedures to get more money.
• This skews care delivery towards higher
paying specialty care and away from
primary care.
Pregnancy in the United States
• Charges for delivery have tripled since 1996.
Vaginal Delivery in US
• $50,000 average billed price
• Commercial insurers pay
$18,000+
• Women pay out of pocket
$3,400
• Women stay in the hospital
for 1-2 days
• Each service billed
separately (lab tests, scans,
delivery room, hospital
room)
Vaginal Delivery in
Switzerland, France,
Netherlands
• $4,000 maximum
• Women make minimal
contribution
• Women stay in the hospital
for 1 week
• Flat fee for delivery and
care of expectant mother
The Patient Protection and
Affordable Care Act
aka “Obamacare”
THEORY:
Expand
access to
health care
coverage
Contains
costs
Improve
health care
delivery
REALITY:
Expand
access to
health care
coverage
Contains
costs
Improve
health care
delivery
Expanding Access to Coverage
• Individual Mandate
• State-based health insurance exchanges
• New employer requirements
• Medicaid expansion
New Requirements for Insurers
• Medical loss ratio
• Dependents can stay on until age 26
• Can’t discriminate against pre-existing
conditions
• Free preventive care
• Free women’s health services
Cost Containment
• Some technical things related to Medicare
& Medicaid
• Reduce fraud, waste and abuse
Improve health care delivery
• Establish pilot programs for new payment
models like Accountable Care Organizations
• Move away from fee-for-service and
towards value-based care
Legal Challenges
• NFIB v Sebelius (challenge to individual
mandate)
• King v Burwell (challenge to state-based
exchanges)
Issues
• What does affordable even mean anyway?
• There is no government option in the statebased exchanges, so insurers set the market
rate.
• Subsidies shield true cost of care.
• Prices vary dramatically depending on market.
• Health insurers are failing to provide legally
mandated services
• No medical malpractice reform
Issues
• Major technical challenges
• Both with healthcare.gov and implementation
of electronic health records (EHRs)
• No explicit instructions on how the
movement from fee-for-service to valuebased payments is going to take place
• Consolidation
• Pros and Cons
Drug Pricing
Drug Pricing
• The United States essentially subsidizes drug
development and research for other
countries because our Congress has
forbidden Medicare from negotiating prices
with drug companies.
• This means people in the US market pay MUCH
higher costs for drugs than in other countries
where the governments negotiate prices.
• Graphic:
http://www.nytimes.com/2013/10/13/us/thesoaring-cost-of-a-simplebreath.html?pagewanted=all
Quick Recap
Health care makes up almost
20 percent of US gross domestic
product. It is a huge economic
contributor and huge job provider.
Health care in America is more
expensive than ANY other country
but overall US health outcomes
aren’t better. The US does have
better specialty care and
access to drugs that might be
rationed or not provided in other
countries.
The evolution of the employersponsored health insurance system
in the US was random.
Almost one-third of the US
population receives some form of
government-sponsored health care.
This is evidence that the employersponsored system isn’t
working.
The Affordable Care Act has had
some positive impact, but it
does not do nearly enough to fix the
system wide problems,
especially when it comes to cost
containment.
Health Reporters
•
•
•
•
•
•
Elisabeth Rosenthal, The New York Times
Charles Ornstein, ProPublica
Anna Wilde Mathews, The Wall Street Journal
Dan Diamond, POLITICO
Margot Sanger Katz, The Upshot (The New York Times)
Austin Frakt, Adrianna McIntyre, Nicholas Bagley, The
Incidental Economist
• Chad Terhune, The LA Times
• Zach Tracer, Bloomberg
• Dan Goldberg, POLITICO New York
Email Digests & Trade Pubs
•
•
•
•
•
•
•
POLITICO Pulse
POLITICO New York Health
Kaiser Health News
The Morning Consult
Health Affairs
Modern Healthcare
The Incidental Economist
Where to Look for Stories
• Every single bill tells a story (Elisabeth Rosenthal, Steven Brill)
• Nonprofits & Think Tanks: Kaiser Family Foundation,
Commonwealth Fund, Robert Wood Johnson Foundation,
Brookings, RAND, Urban Institute, PEW Charitable Trust, etc.
• Lawsuits & Investigations by the Attorney General and the
State Attorney General
• Look at the research coming out of universities and teaching
hospitals—Mailman School of Public Health at Columbia, NYU
Hospital, Columbia Presbyterian, etc.
• There is so much available data from the state and federal
government that is rarely analyzed by the media (i.e. Center
for Medicare & Medicaid Services on nursing home facilities—
see which ones have violations, worst ranked)
Questions or Comments?