U.S. Health Care System:U.S. Health Care System:History, status, current reformHistory, status, current reform

James G. Kahn, MD, MPHJames G. Kahn, MD, MPH

28 April 201228 April 2012

OverviewOverview

1.1. HistoryHistory

2.2. Current systemCurrent system

ProfileProfile

Performance vs OECDPerformance vs OECD

3.3. Federal reform – the ACAFederal reform – the ACA

Major US Health Reform Efforts and EventsMajor US Health Reform Efforts and Events

& Medicaid

Medical benefits to increase compensation during WWII salary freeze

Other Forces Affecting US Health CareOther Forces Affecting US Health Care

Weak Weak cost controlscost controls • RBRVS (a scale for outpatient care)RBRVS (a scale for outpatient care)

• DRGs (inpatient per diagnosis)DRGs (inpatient per diagnosis)

Rise of Rise of technologytechnology and and specialty carespecialty care

Rise of Rise of corporate formcorporate form for insurers & for insurers & providersproviders

CORPORATE MEDICINE IS HERE TO STAYCORPORATE MEDICINE IS HERE TO STAY(and has been for a long time)(and has been for a long time)

Growth in HMO Enrollment and Plans, 1970-1997 Growth in HMO Enrollment and Plans, 1970-1997

0

10

20

30

40

50

60

70

80

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

Enr

ollm

ent (

in m

illi

ons)

0

100

200

300

400

500

600

700

Num

ber o

f Pla

ns

Enrollment Plans

1997

Source: InterStudy National HMO Census.

Key features of US Health Care FinancingKey features of US Health Care Financing

17.4% of GDP17.4% of GDP 2009 and rising, $2.5 T, 8,086 per 2009 and rising, $2.5 T, 8,086 per capitacapita

Public – Public – 43%43% (27% federal, 16% state/local) (27% federal, 16% state/local)

• CMS (Center for Medicare and Medicaid Services)CMS (Center for Medicare and Medicaid Services) Medicare – federal, aged & disabled ($502 B)Medicare – federal, aged & disabled ($502 B) Medicaid – state/federal, poor & long term care Medicaid – state/federal, poor & long term care ($374 B)($374 B)

• Veteran’s Admin, Military, Indian Health Svc, …Veteran’s Admin, Military, Indian Health Svc, …

• State and local safety netState and local safety net Private – Private – 34%34%

• EmployersEmployers – 21% – 21%

• FamiliesFamilies – premium contribution – 13% – premium contribution – 13%

FamiliesFamilies – uninsured services & copays etc – – uninsured services & copays etc – 15%15% Other privateOther private – – 7%7%

Martin, Health Affairs 2011

U.S. vs Other OECD countriesU.S. vs Other OECD countries

SpendingSpending per capita ~50% higher per capita ~50% higher Generally Generally fewerfewer doctor visits and doctor visits and hospital dayshospital days

Difference in spending due to:Difference in spending due to:• price (costs of doctor, procedure, price (costs of doctor, procedure, drugs)drugs)

• use of high technologyuse of high technology• administrative costs (later)administrative costs (later)

Health care Health care outcomesoutcomes same or worse same or worse

20

25

30

35

40

45

5019

76

1980

1985

1990

2000

2006

Number of Uninsured in the USSource: US Census Bureau, Current Population Surveys

Millions of people

15.8% of population

Schoen 2005

US standing on health care outcomesUS standing on health care outcomes

Rank of 13 industrialized nationsRank of 13 industrialized nationsLow birth weight %

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

BestPoorest

(U.S. in Red)

Billing and Insurance-Related Billing and Insurance-Related Administrative CostsAdministrative Costs

U.S. Health Care FinancingU.S. Health Care Financing

Funds Payers Providers

Public & PrivateMany "pools"

Employer Multiple private payers Doctors& many benefit plans Hospitals

Premium contrib. PPO vs capitated, Pharmacies many blends/variants Device vendors

Income taxes Public: Medicare, Medi-Cal, Skilled Nursing Fac. S-CHiP, VA, Indian Health,. Other

Out-of-pocket ~ 60 safety net programs

Admin costs of insurance 15%Admin costs overall 30%

Multi-payer health care financing

$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 - 1Elements of Provider BIR - 1

Complexity of the insurance Complexity of the insurance process:process: multiple steps, often multiple steps, often detailed & demanding:detailed & demanding:

Contracting, Contracting, maintaining benefits maintaining benefits database, patient insurance database, patient insurance determination,determination, collection of copayments, collection of copayments, formulary and prior authorization procedures, formulary and prior authorization procedures, procedure coding, procedure coding, submitting claims, receiving submitting claims, receiving payments, paying subcontracted providers, payments, paying subcontracted providers, appealing appealing denials and underpayments, denials and underpayments, negotiating end-of-year resolution of negotiating end-of-year resolution of unsettled claims, and unsettled claims, and collecting from patients, …collecting from patients, …

Friction:Friction: some BIR steps are (or some BIR steps are (or seem) designed to slow and complicate seem) designed to slow and complicate the process, e.g., prior the process, e.g., prior authorization, high rates of authorization, high rates of denials / errors / underpayment.denials / errors / underpayment.

Variation:Variation: modest number of payers, modest number of payers, but dozens to hundreds of plans, but dozens to hundreds of plans, including negotiated variants. including negotiated variants. Providers need to track plan-specific Providers need to track plan-specific benefits and pay rules.benefits and pay rules.

Elements of Provider BIR - 2Elements of Provider BIR - 2

Allocation of spending for hospital and physician care paid through private insurers

Hospital BIR

3.9%

Physician BIR 5%

Insurer cMLR19.0%

Medical care admin

10.1%

Medical care

62.0%

ReformReform

Incremental … SystemicIncremental … Systemic

Major types of health reformMajor types of health reform

Free marketFree market – let individuals buy health – let individuals buy health insurance / care, subsidize the poor. Often insurance / care, subsidize the poor. Often called “consumer driven”. Based on principles called “consumer driven”. Based on principles of moral hazard.of moral hazard.

Improved mixed systemImproved mixed system – regulate private – regulate private insurance, expand public insurance (PPACA). insurance, expand public insurance (PPACA). “Managed competition”“Managed competition”

Single payer / universalSingle payer / universal – use a public fund – use a public fund to pay for private and public providers, to pay for private and public providers, everyone covered with good benefit package. everyone covered with good benefit package. Common in OECD countries.Common in OECD countries.

By What Criteria Should We Judge Reform By What Criteria Should We Judge Reform Proposals? The IOM Report: 2004:Proposals? The IOM Report: 2004:

Health care coverage should be Health care coverage should be universaluniversal. . Health care coverage should be Health care coverage should be

continuouscontinuous. . Health care coverage should be Health care coverage should be affordable affordable

to individuals and familiesto individuals and families. . The health insurance strategy should be The health insurance strategy should be

affordable and sustainable for societyaffordable and sustainable for society. . Health insurance should Health insurance should enhance health enhance health

and well-beingand well-being by promoting access to by promoting access to high-quality care that is effective, high-quality care that is effective, efficient, safe, timely, patient-efficient, safe, timely, patient-centered, and equitable.centered, and equitable.

Patient Protection and Affordable Patient Protection and Affordable Care Act - PPACA (March 2010)Care Act - PPACA (March 2010)

Key provisionsKey provisions

Private insurance regulation - Private insurance regulation - fairer, less fairer, less baroquebaroque

Insurance exchangesInsurance exchanges - individuals / small - individuals / small businessbusiness

Public means-tested –Public means-tested – expand (Medicaid, CHIP) expand (Medicaid, CHIP) Medicare -Medicare - close gaps, control costs close gaps, control costs Individual mandateIndividual mandate SubsidiesSubsidies for poor / near-poor for poor / near-poor

Patient Protection and Affordable Care Act (PPACA)

Much worse

Worse No Δ Better Solved

Coverage x 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 x More private for-profit insurance; persistent product profusion; added admin (eg mandate).

Insurer profits x More private for-profit insurance.

Federal govt costs x More subsidies vs. reasonable Medicare cost control ("accountable care").

System costs x More insured with missed opportunity for large savings (eg less administration).

Prospective report card on Obama health care reform

PPACA waiversPPACA waiversUsed to further coddle insurers, edentulating the bill. Used to further coddle insurers, edentulating the bill. Dozens Dozens granted, e.g.,granted, e.g.,

Child coverage: Child coverage: Insurers complained may have to exit market if forced Insurers complained may have to exit market if forced to cover sick children on parents’ policies. The govt allowed to cover sick children on parents’ policies. The govt allowed brief brief open-enrollment periods and higher premiumsopen-enrollment periods and higher premiums..Insurers free to Insurers free to set their own premium ratesset their own premium rates, with limited states , with limited states restraint.restraint.Medical loss ratiosMedical loss ratios (MLRs) set at 80-85%. (MLRs) set at 80-85%. Concessions: Concessions: counting counting expenses of quality assurance as medical costs, deduct taxes from expenses of quality assurance as medical costs, deduct taxes from premiums before calculating MLR, and the ability to appeal for lower premiums before calculating MLR, and the ability to appeal for lower MLR for up to 3 years in states where “there is a reasonable MLR for up to 3 years in states where “there is a reasonable likelihood that market destabilization could harm consumers”. Four likelihood that market destabilization could harm consumers”. Four states so far.states so far.Exempted plans: Exempted plans: Many insurance plans, including most large employers, Many insurance plans, including most large employers, exempt from PPACA - “grandfathered in” exempt from PPACA - “grandfathered in” > 100 employers and other insurers can retain very low annual limits > 100 employers and other insurers can retain very low annual limits of coverageof coverage (eg. only $2,000 a year, hardly qualifying as insurance). (eg. only $2,000 a year, hardly qualifying as insurance). E.g., McDonald’s, after warning regulators that it might have to drop E.g., McDonald’s, after warning regulators that it might have to drop coverage for 30,000 hourly workers, can keep “mini-med” policies.coverage for 30,000 hourly workers, can keep “mini-med” policies.John Geyman, PNHP blog, Dec 2010