Lane Kenworthy, The Good Society
An ideal healthcare system has universal health insurance coverage, quality healthcare services at an affordable cost, and patient choice among providers. Is it possible to combine these? How is America doing?
People need health insurance. Health care, unlike food and clothing, is too expensive to purchase on an as-needed basis. If you go without insurance and end up needing a coronary bypass operation, you’ll have to pay around $60,000 out of pocket. Many Americans wouldn’t be able to come up with that much money.1
Health insurance improves people’s financial security by reducing the possibility of a large unexpected cost. Large medical debt and related problems are less common among those who have health insurance.2
Unfortunately, in the United States some insurance isn’t as good as it should be at preventing large medical bills.3 In a 2014 survey by the Commonwealth Fund, 29% of adults aged 19 to 64 who had health insurance throughout the year reported that they nevertheless had outstanding medical debt, had trouble paying medical bills, were contacted by a collection agency for unpaid medical bills, or had to alter their way of life in order to pay medical bills.4
Health insurance also improves health. It increases the likelihood of treatment and reduces the incidence of lasting health problems and death.5
Some of the evidence is cross-sectional — comparisons across persons or countries at a point in time. The US is the only affluent democratic nation with a substantial share of citizens who lack insurance, and among these countries we have the lowest life expectancy.6 About one in three Americans, a far larger share than in any of ten other rich nations, say that in the past year cost considerations prevented them from getting recommended care, filling a prescription, or visiting a doctor or clinic when they had a medical problem.7 As figure 1 shows, 20% of Americans say cost leads them to put off seeking medical treatment even for a serious condition.8 Compared to children with health insurance, those without it are less likely to get medical treatment for ordinary conditions and emergencies, and when hospitalized they are less likely to survive.9 Americans who don’t have health insurance are less likely to have screening tests for breast cancer and colorectal cancer, so if they get either of these types of cancer, they tend to be diagnosed later; as a result, they have lower survival rates.10 People with diabetes, hypercholesterolemia, and hypertension are about 10% less likely to get diagnosis and treatment if they lack health insurance.11 At-risk adults who don’t have insurance are more likely to have a stroke, and stroke victims without insurance are more likely to have lasting neurological impairment or to die, compared to those with insurance.12 Among Canadians, all of whom have a standard public health insurance plan, the incidence of early death for persons with cystic fibrosis is similar to that among Americans who have private insurance, but 44% lower than among Americans who have Medicaid, which pays for fewer medications and therapies, and 77% lower than among Americans who don’t have any insurance.13
Other evidence comes from comparison over time. Among persons aged 50-64, those without health insurance have worse health outcomes than those who have insurance; when they turn 65 and get Medicare, this difference shrinks significantly.14 In 2006, Massachusetts expanded the share of citizens with health insurance to nearly 100%; access to care increased, and deaths decreased by 8 per 100,000 persons per year.15 Oregon conducted an experiment in 2008-2010, expanding Medicaid to a randomly-selected group of low-income persons and comparing them to a control group. After two years, the Medicaid group had better mental health and expressed better subjective assessment of their physical health, though they weren’t better off in blood pressure, cholesterol, and some other health measures.16 In 2013, Arkansas and Louisiana expanded Medicaid (largely paid for by the Affordable Care Act) whereas neighboring Texas chose not to. One year later, in 2014, the new Medicaid recipients in Arkansas and Louisiana were more likely to have received medical care and were better off than their counterparts in Texas on objective and subjective measures of health, and the following year, 2015, the gap had expanded.17 A study comparing all states that expanded Medicaid following the ACA with all states that didn’t found a larger increase in access to healthcare services and a larger improvement in self-assessed health in the expanding states.18
As figure 2 shows, the United States is the only rich democratic nation in which a nontrivial share of the population lacks health insurance. As of 2015, approximately 91% of Americans are insured.
Why doesn’t everyone purchase health insurance? The reason is that it’s expensive.19 Many things can go wrong with our health, and there are many things healthcare providers can do to treat and prevent health problems. Health care in the United States is much more expensive than it needs to be (see below); health expenditures are 18% of our GDP. But even if we spent just 10% of our GDP on health, which is more in line with other rich nations, that would amount to $15,000 per household.20 Average annual income among the bottom fifth of American households is only $20,000.21
Because health insurance is very expensive, people with limited income are inclined to go without, despite the risk. That’s especially true of those who are young and/or healthy. And when the healthiest don’t buy health insurance, insurers not only receive fewer premiums (payments) but also pay out more per customer. To offset this, they charge more for the insurance they offer, which further reduces the number who can afford to buy it.
The chief way to facilitate access to health insurance is for government to help. Government can purchase insurance directly, it can provide a subsidy to people to help offset the cost of insurance, it can subsidize employers (via a tax break) to encourage them to offer health insurance for their employees, and it can require that individuals purchase insurance. In the US, there have been two significant leaps in insurance coverage in the past half century, one in the 1960s and the other in the 2010s (figure 2). In both instances the driver was an expansion of government insurance provision or subsidization: Medicare and Medicaid were created in the mid-1960s, and the Affordable Care Act, passed in 2010, took full effect beginning in 2014. The Affordable Care Act has expanded health insurance through an assortment of means: expansion of Medicaid, subsidies for direct purchase on exchanges, tax credits to small businesses to encourage them to offer insurance to their employees, allowing young adults to remain on their parents’ insurance policy through age 25, preventing insurers from denying coverage to persons with a preexisting condition, and a fine for people who don’t have insurance (“individual mandate”).22
Americans currently get health insurance in the following ways: 56% employer-based private, 16% direct purchase private, 16% Medicare, 20% Medicaid, 5% Veterans Administration (VA).23 The remainder, 9%, are uninsured. (These percentages sum to more than 100% because some people have more than one source of coverage.)
QUALITY PROVISION AND AFFORDABLE COST
The United States spends a lot of money on health care, and our spending has increased very rapidly. Figure 3 shows that over the past generation America’s health expenditures have soared past those of other rich nations. Yet the health outcomes we get aren’t as good as they should be. Life expectancy during this period dropped from the middle of the pack to the bottom, as figure 4 indicates. (The same is true for “healthy life expectancy.”24) This isn’t due to our rates of change in obesity, smoking, or homicide, which have been similar to those of other countries. Death rates in America exceed those in most other rich countries for many different sources, from cardiovascular disease to neuropsychiatric conditions to infectious and parasitic diseases. And we see a similar pattern for infant mortality.25
Figure 5 brings together the data on health spending and life expectancy to highlight the degree to which the United States stands apart from other affluent countries.
Attempts to rate healthcare quality directly also judge America’s system to be comparatively mediocre. The Commonwealth Fund periodically assesses the quality of our health care and that of ten or so comparable nations on four dimensions: prevention, chronic care, safety, and coordination of care.26 As figure 6 shows, in the most recent Commonwealth Fund assessment, in 2012, America’s healthcare system was ranked in the middle for quality. That would be fine if it weren’t for the fact that we spend far more than the other countries while leaving about 10% of the population uninsured.
Why is our healthcare system so expensive? The key causes are:
- Payers are fragmented
- Many providers and payers (insurers) are for-profit
- Some providers have a near-monopoly position
- Generous patent protection for pharmaceutical companies
- “Fee for service” payment
- Large number of uninsured
Other rich countries typically have one or more powerful actors — government (Japan, the UK, Sweden, France, Canada, Taiwan) or large insurance funds (Germany, Switzerland) — that set healthcare prices and thus have incentive and ability to keep a lid on cost increases. In the US, most health insurance companies and healthcare providers (hospitals, small groups of physicians, and solo doctors) are for-profit and insurers are fragmented, reducing their bargaining power vis-a-vis providers. These features lead to higher costs in a variety of ways.
The fragmentation of insurers produces high administrative costs. Each insurer has its own set of provisions, costs, and billing arrangements, so providers have to spend a lot of time checking to see what procedures are and are not covered for each patient and filling out billing forms.
In other affluent nations, health insurance firms and healthcare providers tend to be public or nonprofit. They often compete with one another, but they don’t need to earn a profit on top of their salary or break-even revenues. The fact that our insurers and providers are for-profit contributes to higher costs for medical services and procedures. So too does the high compensation levels of hospital administrators and medical providers, which is a consequence of the fact that there is a limited number of providers in each geographic area coupled with the fragmentation of insurers. No single insurer has enough power to drive down payment levels. As of 2012, an MRI scan cost, on average, $1,000 in the US, compared to $600 in Germany, $400 in France, $300 in Canada, and $200 in the UK. An average hospital stay in the US cost $14,000, versus $7,000 in Canada and $5,000 in France and Germany. Bypass surgery cost $60,000 in America, while in Germany and Canada the cost was less than $30,000 and in France and the UK less than $20,000.27
The fragmentation of insurers along with generous patent protections enable pharmaceutical firms to charge very high prices for new drugs they develop. By one estimate, the resulting above-market addition to the price of pharmaceuticals is nearly $300 billion per year, which is about 10% of our total spending on health.28
Insurers frequently compensate healthcare providers on a “fee for service” basis. Payment is for services performed, rather than for patient outcomes. This encourages overuse of tests, procedures, and other medical services. Compared to the average among OECD countries, Americans get twice as many CT scans, MRI scans, caesarean sections, and coronary bypass operations.29
Finally, the fact that some Americans lack health insurance or are underinsured encourages them to wait rather than going to see a primary care physician when they need medical attention. When the problem gets bad enough, they then go to the emergency room, which is much more expensive than an ordinary doctor visit.
America’s healthcare system is more market-driven than those of most other affluent countries. Why doesn’t that push prices down? One reason is that competition among providers often is quite limited. The number of hospitals in many areas is small, sometimes just one. Meanwhile, licensing requirements constrain the number of physicians. A second reason is that the direct payers for health care are insurers. Insurers pool funds from individual consumers, and this means they can afford to pay more for healthcare services than those individual consumers could. The combination of fragmented-but-rich payers with quasi-monopolistic providers contributes to high prices.
Is America’s heavy expenditure on medical equipment and medicines needed to stimulate innovation? One view says yes, because the cost of research, particularly for pharmaceuticals, is so high.30 Skeptics contend that it isn’t clear the United States is the world leader in medical innovation, especially when measured on a per capita basis. In addition, America’s universities and venture capital system are key contributors to its success in medical research, and they arguably would be quite robust and effective even in the absence of high healthcare prices.31
PATIENT CHOICE OF PROVIDER
Most of us want to be able to choose our doctor(s). In comparing healthcare systems, this is a nonissue. All rich countries — even those with full public provision of health care, such as Sweden, Finland, and the United Kingdom — allow individuals and families some choice among providers. People also can purchase additional private health insurance if they’re willing and able, which expands choice.
WHAT TO DO
One possible route to improvement would be to double-down on employers as the key source of health insurance. A more sensible alternative may be for government to step in as payer for more Americans.32 We could allow more people to shift into Medicare or Medicaid (and eventually combine these two programs). This will free employers from having to deal with the cost and hassle of health insurance and free employees to move more readily from job to job. And it will give Medicare and Medicaid more leverage to impose cost controls on healthcare providers.
America’s healthcare system performs poorly in three key respects: it fails to insure everyone, it’s very expensive, and its quality is average. Other affluent democratic countries structure their healthcare systems in varying ways, but each insures everyone, costs less, and achieves quality and outcomes similar to or better than ours.
- Lane Kenworthy, “Stable Income and Expenses,” The Good Society. ↩
- Kenworthy, “Stable Income and Expenses.” ↩
- Kenworthy, “Stable Income and Expenses.” ↩
- Sara R. Collins, Petra W. Rasmussen, Michelle M. Doty, and Sophie Beutel, “The Rise in Health Care Coverage and Affordability Since Health Reform Took Effect: Findings from the Commonwealth Fund Biennial Health Insurance Survey, 2014,” The Commonwealth Fund, 2015, p. 6. ↩
- According to one prominent estimate, 45,000 Americans may die each year due to lack of health insurance. But there is considerable disagreement about this conclusion. See Institute of Medicine, America’s Uninsured Crisis: Consequences for Health and Health Care, National Academy Press, 2009; Andrew P. Wilper et al, “Health Insurance and Mortality in US Adults,” American Journal of Public Health, 2009; Richard Kronick, “Health Insurance Coverage and Mortality Revisited,” Health Research and Educational Trust, 2009; Megan McArdle, “Myth Diagnosis,” The Atlantic, 2010. ↩
- Lane Kenworthy, “Longevity,” The Good Society. ↩
- Karen Davis, Kristof Stremikis, David Squires, and Cathy Schoen, “Mirror, Mirror on the Wall, 2014 Update: How the Performance of the U.S. Health Care System Compares Internationally,” Commonwealth Fund, 2014, p. 20. ↩
- See also Board of Governors of the Federal Reserve System, “Report on the Economic Well-Being of U.S. Households in 2014,” 2015, p. 19. ↩
- Kaiser Family Foundation, “Children’s Health — Why Health Insurance Matters,” 2002; F. Abdullah et al, “Analysis of 23 Million US Hospitalizations: Uninsured Children Have Higher All-Cause In-Hospital Mortality,” Journal of Public Health, 2009. ↩
- American Cancer Society. ↩
- Daniel R. Hogan et al, “Estimating The Potential Impact Of Insurance Expansion On Undiagnosed And Uncontrolled Chronic Conditions,” HealthAffairs, 2015. ↩
- A. Fowler-Brown et al, “Risk of Cardiovascular Events and Death: Does Insurance Matter?,” Journal of General Internal Medicine, 2007; J.J. Shen and E.L. Washington, “Disparities in Outcomes Among Patients with Stroke Associated with Insurance Status,” Stroke, 2007. ↩
- Aaron Carroll, “Why Cystic Fibrosis Patients in Canada Outlive Those in the U.S.,” New York Times, 2017. ↩
- J. Michael McWilliams et al, “Use of Health Services by Previously Uninsured Medicare Beneficiaries,” New England Journal of Medicine, 2007. ↩
- Benjamin D. Sommers, Sharon K. Long, and Katherine Baicker, “Changes in Mortality After Massachusetts Health Care Reform: A Quasi-experimental Study,” Annals of Internal Medicine, 2014. ↩
- Ezra Klein, “What if Health Insurance Doesn’t Make You Much Healthier?,” Vox, 2015. ↩
- Benjamin Sommers et al, “Changes in Utilization and Health Among Low-Income Adults After Medicaid Expansion or Expanded Private Insurance,” JAMA Internal Medicine, 2016. ↩
- Kosali Simon, Aparna Soni, and John Cawley, “The Impact of Health Insurance on Preventive Care and Health Behaviors: Evidence from the First Two Years of the ACA Medicaid Expansions,” Journal of Policy Analysis and Management, 2017. ↩
- Yonatan Zunger, “Health Insurance: How Does It Work?,” Healthcare in America, 2017. ↩
- As of 2016, US GDP was $18.5 trillion and there were 125 million households. ↩
- Lane Kenworthy, “A Decent and Rising Income Floor,” The Good Society. ↩
- Margot Sanger-Katz, “The Biggest Changes Obamacare Made, and Those That May Disappear,” New York Times, 2017. ↩
- Data source: Census Bureau, “Health Insurance Coverage in the United States: 2015,” table 1. ↩
- US Burden of Disease Collaborators, “The State of US Health, 1990-2010: Burden of Diseases, Injuries, and Risk Factors,” JAMA, 2013. ↩
- National Research Council and Institute of Medicine, U.S. Health in International Perspective: Shorter Lives, Poorer Health, National Academies Press, 2013, ch. 1 and figure 2.4. ↩
- (1) Prevention: physicians report it is easy to print out a list of patients who are due or overdue for tests or preventive care; patients receive reminders for preventive care; patients are routinely sent computerized reminder notices for preventive or follow-up care; doctors or other clinical staff talk with patients about healthy eating, exercise or physical activity, health risks and ways to quit. (2) Chronic care: patients with diabetes receive all recommended services; patients with hypertension have had cholesterol checked in past year; patients with a chronic condition aren’t impeded from receiving recommended tests, treatment, and follow-up care by cost; physicians report it is easy to print out a list of patients by diagnosis; physicians report it is easy to print out a list of all medications taken by individual patients, including those prescribed by other doctors; pharmacist or doctor reviews and discusses all medications patient used in the past year. (3) Safety: patients know of no medical mistakes made in treatment or care in the past 2 years; patients weren’t given wrong medication or wrong dose at a pharmacy or while hospitalized in the past 2 years; patients weren’t given incorrect results for a diagnostic or lab test in the past 2 years; patients experienced no delays in being notified about abnormal test results in the past 2 years; hospitalized patients report no infection while in hospital or shortly after; doctors routinely receive a computerized alert or prompt about a potential problem with drug dose or interaction; doctors routinely receive reminders for guideline-based interventions and/or tests. (4) Coordination of care: patients have a regular doctor or place; regular doctor or place always or often helps coordinate and arrange care from other doctors or places; specialists have information about medical history; when primary care physicians refer a patient to a specialist, they always or often receive a report back with all relevant health information; when primary care physicians refer a patient to a specialist, they always or often receive information about changes to a patient’s medication or care plan; when primary care physicians refer a patient to a specialist, they always or often receive information that is timely and available when needed; doctors receive alert or prompt to provide patients with test results; patients know who to contact for questions about condition or treatment; patients receive written plan for care after discharge; hospital makes arrangements for follow-up visits with a doctor or other health care professional when leaving the hospital; primary care physician always or often receives notification that patient has been seen in emergency room; primary care physician always or often receives notification that patient is being discharged from hospital; primary care physicians receive the information needed to manage a patient’s care within 2 days after they were discharged from the hospital. ↩
- Philip M. Boffey, “The Money Traps in U.S. Health Care,” New York Times, 2012, using data from the International Federation of Health Plans. See also Gerard Anderson, Uwe Reinhardt, Peter Hussey and Varduhi Petrosyan, “It’s The Prices, Stupid: Why The United States Is So Different from Other Countries,” HealthAffairs, 2003. ↩
- Dean Baker, The End of Loser Liberalism, Center for Economic and Policy Research, 2011, ch. 10. ↩
- OECD. These data are for 2012. ↩
- Tyler Cowen, “Poor U.S. Scores in Health Care Don’t Measure Nobels and Innovation,” New York Times, 2006; Glen Whitman and Raymond Raad, “Bending the Productivity Curve: Why America Leads the World in Medical Innovation,” Policy Analysis 654, Cato Institute, 2009; Sally C. Pipes, “Those Misleading World Health Rankings,” Wall Street Journal, 2013. ↩
- PricewaterhouseCoopers, “Medical Technology Innovation Scorecard,” 2011; Thomson Reuters, “2016 State of Innovation,” 2016. ↩
- Kenworthy, “A Better America.” ↩