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Read: Kraft & Furlong: Chapters 8

Chapter 8 Health Care Policy

Health care spending and results. The United States spends twice as much per person on health care as does any other developed country, yet on average gets worse results. The disparity has led many elected officials to call for major changes in public policy. The photo shows Sen. Debbie Stabenow, D-Mich. (right), and Sen. Tammy Baldwin, D-Wis., participating in a news conference to announce legislation giving people between the ages of fifty and sixty-four the option of buying into Medicare on February 13, 2019, in Washington, D.C.

U.S. spending on health care has been of great concern in recent years, and regularly is at the center of political debate. Yet from 2008 through 2013, health care spending grew by less than 4 percent annually, one of the lowest rates in more than fifty years, and well down from the annual average of more than 7 percent that prevailed from 2000 through 2008 and even higher rates of increase during the 1990s. From 2014 through 2017, the rates of increase also were relatively stable. They rose to over 5 percent after adoption of the Affordable Care Act, primarily because an additional twenty million people gained health insurance coverage and many more enrolled in the federal Medicaid program as states expanded their coverage under the act. But then the rate dropped back to 3.9 percent for 2017.

The Centers for Medicare and Medicaid Services (CMS) reported in early 2019 that even with this reduced rate of increasing expenditures, overall spending on health care rose to a record high of $3.5 trillion in 2017, or nearly 18 percent of the nation’s gross domestic product (GDP). The United States spent $10,739 per person for health care in 2017, a figure certain to grow substantially over the next decade. Indeed, CMS projects that per capita spending on health care by 2027 will be an astonishing $16,907 and that overall health care spending will rise to $6.0 trillion, or 19.4 percent of GDP. Given these costs, and the continuing challenge of ensuring broad access to vital health care services, it is no wonder that President Barack Obama spent so much of his first year in office championing his proposed policy changes that eventually became the Patient Protection and Affordable Care Act of 2010, also known as Obamacare. It is equally unsurprising that the president’s detractors saw the new act as another costly expansion of governmental authority they believed was unjustified.1

It is likely, however, that the high cost of health care in the United States will remain a difficult challenge for the president and Congress, and for the states, regardless of which party is in control. This is particularly so as the nation’s population ages, driving up health care costs, and it continues to struggle with increasing federal deficits and a growing national debt.

Simply spending more money on health care, of course, is not necessarily the best way to deal with the nation’s health care problems. The United States already spends twice as much per person on health care as most other industrialized nations, and achieves less for it. As the chief executive of the Mayo Clinic has stated: “We’re not getting what we pay for. It’s just that simple.” The implication is that whether the money is spent through governmental programs or entirely in the private sector, fundamental changes are needed in the way the nation handles health and disease—that is, in the way we choose to structure and operate the health care system. As just one example, if morespending were shifted to preventive health care and wellness activities, the outcomes could be far better. This is because a very large percentage of health care costs go to treatment of chronic and preventable illnesses, such as diabetes, heart disease, and back and neck pain.2 Would you favor such a change in spending priorities that put more emphasis on wellness and disease prevention? Are there any reasons not to make such a seemingly sensible change? This chapter should help in answering such questions.

The long-recognized gap between health care spending and results remains as striking today as when it was first noticed. In a 2018 report, for example, the Commonwealth Fund found that the United States ranks poorly in terms of health care cost, access, and affordability compared to other high-income countries based on a series of measures of health system performance.3 One reason for these findings is that prior to passage of the Affordable Care Act, some eighty-four million people in the United States either lacked health insurance or were underinsured, and therefore had limited access to health care services. Another is that the quality of health care people receive and what they pay for it depend on where they live and personal characteristics such as race, income, and education.4 What, if anything, should the nation do to correct such an important inequity? And who should pay for the added cost of doing so?

The combination of the high cost of and unequal access to quality health care has long been a major concern in public policy. In 2018, the average health insurance premium for a family of four under employer-provided health plans reached $19,616. Increasingly, workers also are forced to pay a higher percentage of these costs and to cope with higher deductibles and co-payments.5 It is little wonder, then, that reform of health care policy has regularly appeared at the top of issues that voters consider important.

Most people rely on employer-provided health care insurance, for which they pay a portion of the cost, or on government programs to meet essential health care needs. Federal and state health care policies also affect the uninsured and those who pay for their own insurance. Government policies influence not only access to and quality of health care services across the country but also the pace of development and approval of new drugs and medical technologies and the extent of health care research that could lead to new lifesaving treatments. Whether the concern is periodic medical examinations, screening for major diseases, or coping with life-threatening illnesses, health care policy decisions eventually affect everyone.

This chapter examines some of the problems associated with health care services and the public policies designed to ensure that citizens have access to them at a reasonable cost. The chapter begins with background information about the evolution of major public policies, such as Medicare, Medicaid, and the veterans’ health care system, and then turns to some of the leading policy disputes, including the rising costs of health care, the role of managed care, the regulation of prescription drugs, and the potential of preventive health care and other strategies to keep people healthy and save money. In this chapter, we focus on the effectiveness of current public policies, and we use the criteria of economic efficiency and equity to examine these disputes and recommendations for improving health care policy.

Background

Health care policy includes all the actions that governments take to influence the provision of health care services and the various government activities that affect or attempt to affect public health and well-being. Health care policy can be viewed narrowly to mean the design and implementation of the range of federal and state programs that affect the provision of health care services, such as Medicare and Medicaid. It also can be defined more broadly and more meaningfully by recognizing that government engages in many other activities that influence both public and private health care decision making. For example, the government funds health science research and public health departments and agencies; subsidizes medical education and hospital construction; regulates food, drugs, and medical devices; regulates health-damaging environmental pollution; and allows tax deductions for some health care expenditures (which makes them more affordable). The box “Working with Sources: Health Care Policy Information” lists some useful websites to begin a policy investigation.

As a government activity, health care policymaking is relatively recent, even though governments at every level long ago established what we call public health agencies to counter the threat of infectious diseases or unsafe food and to support medical research. The work of these agencies should be clearly differentiated from what we recognize today as health care policymaking, which involves how we decide to deal with concerns such as access to health insurance and the provision and cost of health care services. These agencies dealt with such seemingly mundane but critical functions as providing safe drinking water supplies, sanitation, and waste removal. Many of the oldest of these public health agencies continue such work today, largely without much public notice. These include the Food and Drug Administration (FDA), the National Institutes of Health (NIH), and the Centers for Disease Control and Prevention (CDC).

Evolution of Health Care Policy

What we consider the core of health care policy developed in the United States only after the 1930s, with the idea of health insurance. Individuals could take out an insurance policy, much as they did for their lives, houses, or cars, that would defray the cost of health care should an illness develop or an injury occur. Most of those early policies covered only catastrophic losses. Health insurance works much the same way now, although instead of individual policies, most people are insured through their jobs, and the insurance policies cover routine medical services as well as preventive health care. Employer-sponsored health insurance became popular in the 1950s after the Internal Revenue Service ruled that its cost was a tax-deductible business expense. By the early 1960s, the push was on for federal health insurance policies, primarily to aid the poor and the elderly, two segments of the population that normally would not benefit from employer-provided health plans. It is clear that equity concerns in access to health care services were important as health care policy developed. Those efforts culminated in the enactment of the Social Security Act Amendments of 1965 that formally created the Medicare and Medicaid programs (Marmor 2000). These policies are discussed in detail later in the chapter.

Even with adoption of these two programs, the U.S. health care system remains distinctive in comparison to those of other industrialized nations, where national health insurance, also known as single-payer insurance (the government pays), is the norm; the Medicare program is one example of this in the United States. Campaigns to adopt national health insurance in the United States date back to 1948, when the Democratic Party platform endorsed the idea. Members of Congress began to introduce bills to create such a program, but they were unsuccessful until the decision in 1965 to establish insurance programs for the poor and the elderly through Medicaid and Medicare, respectively.

In 1993, President Bill Clinton submitted the Health Security Act to Congress after extensive analysis by a presidential health care task force headed by his wife, First Lady Hillary Rodham Clinton. The plan would have guaranteed health insurance to every American, including the thirty-four million who were uninsured at the time. Republicans in Congress criticized the Clinton plan as too expensive, bureaucratic, and intrusive, and the health insurance industry opposed it as well, and lobbied intensely against it. In the end, the Clinton recommendations failed to win congressional approval, as did the many alternatives members of Congress proposed (Hacker 1997; Patel and Rushefsky 2015).

With the election of Barack Obama and gains in Democratic seats in the House and Senate in the 2008 elections, national health care policy reform once again was in the spotlight, although with competing proposals that reflected deep differences between the two parties. President Obama had offered detailed proposals on his preferred approach to health care reform during the 2008 campaign, which he modified in 2009 in the face of Republican opposition and objections by the health insurance and pharmaceutical industries. In particular, the president abandoned what had been strong Democratic preference for a so-called public option, where the federal government would compete with private insurance companies in offering health care insurance. In 2009 and early 2010, Congress considered and eventually approvedsweeping health care reforms, although on strict party-line votes. No Republican in either the Senate or the House voted for what became the Patient Protection and Affordable Care Act of 2010, and party members since then have vowed to repeal the act and replace it with an alternative policy.6

The Affordable Care Act is a highly complex and multifaceted policy in addition to being politically controversial. In recent years, most Republicans continued to call for its repeal, although with few concrete proposals for how they would replace it. Following their 2016 election success, both President Donald Trump and congressional Republicans vowed again to repeal the act, while also acknowledging that doing so might take several years. In an intriguing 2015 analysis, the Congressional Budget Office concluded that repealing the law would cost more than keeping it. Eliminating it entirely would add $137 billion to the federal deficit over the next decade.7

The original 1,200-page law affects virtually every component of the U.S. health care system, and it survived a major legal challenge when the Supreme Court in 2012 upheld its constitutionality in a close vote.8 Other legal challenges, however, continue. The major purpose of the law was to increase health insurance coverage and access to health care services, and it does so through a number of key actions: (1) expanding Medicaid and the Children’s Health Insurance Program (CHIP) and making eligibility and benefits more uniform across the states (although the Court allowed for states to opt out of the Medicaid expansion part of the law); (2) mandating that individuals who are not covered through their employers or by public programs purchase a minimal level of health insurance, with tiered plans that must offer standard packages of benefits, or pay a penalty for failing to do so (a requirement that a Republican Congress repealed in 2017); (3) subsidizing the costs of such insurance for low- to moderate-income families; (4) offering tax credits to encourage small businesses to provide health insurance to their employees and instituting a penalty for larger employers (with fifty or more employees) who do not offer health insurance benefits; and (5) creating new regulations for health insurers to deal with several long-standing concerns, such as prohibiting insurers from excluding children and eventually all individuals with preexisting medical conditions, preventing them from setting annual and lifetime limits on coverage, and requiring them to cover family members (such as college students) up to age twenty-six. Other provisions in the act set new limits on allowable administrative costs to encourage insurers to improve efficiencies in billing and health care management. The various components of the act were to take effect over a seven-year period between 2011 and 2018. A summary of them and how they apply to individuals can be found on the federal government’s web page (www.healthcare.gov), where the full text of the act is posted.9

Major Features of the Affordable Care Act

Mandates that individuals not covered through their employers or by public programs purchase a minimal level of health insurance through state health insurance marketplaces (eliminated by Congress in late 2017)

Subsidizes the costs of health insurance for low- to moderate-income families

Offers tax credits for small businesses to provide health insurance to their employees

Removes annual and lifetime limits or caps on health insurance coverage

Requires insurers to cover family members (such as college students) up to age twenty-six

Expands Medicaid and the Children’s Health Insurance Program

Mandates free preventive services for those on Medicare and offers seniors savings on prescription drugs

Creates accountable care organizations to help doctors and health care providers cooperate to deliver better care at lower cost

Prohibits insurers from refusing coverage or charging higher rates due to gender or preexisting medical conditions

Mandates that at least 80 to 85 percent of insurance premium dollars (depending on the plan) be spent on health care to reduce administrative costs

Creates a new Patient’s Bill of Rights to protect consumers from insurance industry abuses

Establishes a new Center for Medicare and Medicaid Innovation to study improved ways to care for patients

Source: Henry J. Kaiser Family Foundation, “Summary of the Affordable Care Act,” at www.kff.org/health-reform/fact-sheet/summary-of-the-affordable-care-act/.

Among the act’s more intriguing and promising elements are requirements to study ways to improve the efficiency of health care service delivery and to reduce costs. A new CMS Innovation Center is to oversee such studies and to devise ways to reward health care providers for improved quality and gains in efficiency. Similarly, a new independent federal advisory board is to identify cost savings in the Medicare program, and the new Patient-Centered Outcomes Research Institute is to conduct research on the comparative effectiveness of health care services—that is, to determine which procedures and drugs work best and at the least cost, a widely endorsed but still controversial proposal.10 Other provisions in the act seek ways to reduce costly medical errors and hospital-acquired infections by rewarding hospitals with better patient outcomes, and to promote the use of disease management programs and preventive health care. Despite the partisan rancor over the bill, the two parties were largely in agreement on the need to increase emphasis on preventive health care through both governmental and private insurance programs.11

The costs of the Affordable Care Act are sizeable, and yet they are expected to be offset in part by a variety of new revenues, including a 0.9 percent increase in the Medicare payroll tax for high earners (household income of greater than $250,000 a year) and a 3.8 percent tax on so-called passive income such as dividends and capital gains that took effect in 2013, also only for high-earning households. The act’s critics, however, argue that net costs nonetheless are likely to rise because they believe that Congress may not agree to all the new taxes and fees or make the expected reductions in some health care spending, and that younger people might not sign up for insurance plans in sufficient numbers to balance older and less healthy segments of the population. In the past several years, many critics also anticipated that prices some will pay for insurance coverage might well increase substantially, at least in the short term. The longer-term impacts are less clear, particularly in comparison to what might prevail without the act.12

As noted in chapter 6, implementation of the new act did not go as smoothly as the government had hoped. In addition, it soon became clear that each state would choose whether to offer a state insurance exchange or to defer to the federal government. Many states controlled by Republican legislators and governors chose not to offer their own exchanges as one expression of their dislike of the federal program.13 In addition, following the Supreme Court’s 2012 decision, many states chose not to expand Medicaid services under the Affordable Care Act even though the federal government was covering nearly all the costs of doing so. These choices will affect the law’s implementation, its success in persuading large numbers of people to sign up for insurance, and the anticipated cost savings.

The Trump administration also sought to use executive authority to weaken implementation of the law when it was unsuccessful in seeking its repeal from Congress. For example, it largely defunded programs to educate the public about enrollment in Affordable Care Act insurance programs, and one executive order instructed federal agencies “to waive, defer, grant exemptions from, or delay the implementation of” the parts of the act that they could.14 Critics of the administration’s actions argue that in effect it sought to sabotage the law through its rules and regulations as well as spending priorities.15

A Hybrid System of Public and Private Health Care

Another way to consider the history of health care in the United States and the nation’s present health care system is to emphasize that it relies largely on the private market and individual choice to reach health care goals, as we indicated in the chapter’s opening paragraphs. Even following enactment of the Affordable Care Act, the U.S. government plays a smaller role in health care than, for example, the governments of Great Britain or Canada, nations with national health insurance programs that provide comprehensive health services. Their systems have been criticized for delays in providing health services for some patients as well as the quality of care, although these weaknesses appear to be less important today than previously, and most citizens in these and other developed nations appear to be well served by such health care systems.18

In contrast to such government-run systems, most health care services in the United States are provided by doctors and other medical staff who work in clinics and hospitals that are privately run, even if many are not-for-profit operations. Indeed, the United States has long had the smallest amount of public insurance or provision of public health services of any developed nation in the world (Patel and Rushefsky 2015). The result is a health care system that is something of a hybrid. It is neither completely private nor fully public. It does, however, reflect the unique political culture of the nation, as first discussed in chapter 1. Americans place great emphasis on individual rights, limited government authority, and a relatively unrestrained market system. Those who favor a larger government role to reduce the current inequities in access to health care services are in effect suggesting that health care be considered a so-called merit good to which people are entitled. In short, they tend to believe that normal market forces should not be the determining factor in the way society allocates such a good.

Most nonelderly U.S. adults have employer-sponsored, private health insurance, and others purchase similar insurance through individual policies. Those over age sixty-five are covered through Medicare, discussed later in the chapter. But with rising costs and a slow-growing economy, employer coverage is likely to be less widely available in the future. About 56 percent of small firms and 98 percent of large companies offered health benefits to at least some of their employees in 2018.19 The annual premium for covered workers averaged $19,616 for family coverage, with employees paying $5,547 of that amount; single premiums averaged $6,896.20 These premiums have been rising at about 3 to 5 percent for the past several years, leading employers to cut back on some benefits and to shift more of the cost to employees. That trend will likely continue.

Employer and other private health insurance policies generally cover a substantial portion of health care costs, but not all. Some services, such as elective cosmetic surgery, generally are not covered, and only partial payment may apply to others. The federal government can specify services that must be included in private insurance plans, but there are major gaps in coverage, such as assistance with expensive prescription drugs and provision of long-term care in nursing homes and similar facilities that may follow a disabling injury or illness, or simple aging. People are living longer, and the demand for these services is expected to rise dramatically in the future as the U.S. population ages. Most policies historically also have had a lifetime cap on covered expenses that could be exceeded in the event of serious medical conditions, but the Affordable Care Act eliminated such caps.

The Perils of Being Uninsured

The number of individuals and families without any insurance coverage rose significantly between 1990 and 2010, and this was a major driver in congressional approval of the Affordable Care Act. The number of nonelderly Americans without insurance (that is, those not eligible for Medicare) fell from forty-four million in 2013, before the act took effect, to twenty-seven million by 2016, and then rose somewhat. Continued uncertainty over the Affordable Care Act may further increase the population of uninsured citizens. That percentage varies widely around the nation and from state to state. In some states (e.g., Georgia, Florida, and Texas), more than 15 percent of the nonelderly population was uninsured in recent years, but in several states (Connecticut, Vermont, Hawaii, and Massachusetts), the rate was 7 percent or less.21

As the cost of medical care continues to grow, what happens to the uninsured? The consequences for them can be devastating—a higher lifelong risk of serious medical problems and premature death. The uninsured are more likely than the insured to receive too little medical care, to receive it too late, to be sick, and to die prematurely. A 2009 Harvard University study estimated that some forty-five thousand Americans die each year from lack of health insurance.22 Studies like these on the consequences of being uninsured played a role in consideration and enactment of the Affordable Care Act.

The uninsured also are more likely than the insured to receive less adequate care when they are in a hospital, even for acute care, such as injuries from an automobile accident. They are more likely to go without cancer screening tests, such as mammograms, clinical breast exams, Pap tests, and colorectal screenings, and therefore suffer from delayed diagnosis and treatment.23

Prescription for health care. Michelle Loose, a University of Denver accelerated nursing student, checks the blood pressure for patient Elife Bzuneh, during a medical clinic night at the DAWN clinic on August 9, 2016, in Aurora, Colorado. DAWN is a student-run clinic established to serve uninsured patients in Aurora at no cost. It opened in March 2015. The Patient Protection and Affordable Care Act of 2010, or Obamacare, was designed to improve access to health care for those without medical insurance, among other goals.

Anya Semenoff/The Denver Post via Getty Images

In addition, the uninsured tend not to receive the care recommended for chronic diseases such as diabetes, HIV infection, end-stage renal (kidney) disease, mental illness, and high blood pressure, and they have worse clinical outcomes than patients with insurance. “The fact is that the quality and length of life are distinctly different for insured and uninsured populations,” a 2002 National Academy of Medicine report said. It added that if this group obtained coverage, the health and longevity of working-age Americans would improve (National Academy of Medicine 2002).

At least some policymakers are aware of some of these risks and the inequities they present to the U.S. public. As the failure of the Clinton health policy initiative in the 1990s and continuing controversy over the Affordable Care Act show, however, reaching agreement on extending insurance coverage to the entire population is not an easy task. The debate is likely to continue for years, and the rising costs of health care may force reconsideration of current policies that leave so many citizens without health care insurance.

Strengths and Weaknesses of the U.S. Health Care System

No one seriously doubts that the United States has one of the finest health care systems in the world by any of the conventionally used indicators, such as the number of physicians per capita, the number of state-of-the-art hospitals and clinics, or the number of health care specialists and their expertise. The United States also has a large percentage of the world’s major pharmaceutical research centers and biotechnology companies, which increases the availability of cutting-edge medical treatments.

Despite these many strengths, however, patients and physicians alike frequently complain about the U.S. health care system. As noted at the beginning of the chapter, the United States is ranked well below the level of other developed nations despite spending far more than other nations on health care per person.24 Such findings reflect the highly unequal access of the population to critical health care services, from prenatal care to preventive screening for chronic illnesses. The poor, the elderly, minorities, and those living in rural areas generally receive less frequent and less adequate medical care than white, middle-class residents of urban and suburban areas. Because of such disparities, among others, the fifty states vary widely in the health of their populations, with Hawaii, Massachusetts, and Connecticut at the top in recent rankings and Alabama, Mississippi, and Louisiana at the bottom.25

As discussed earlier, comparisons of U.S. health care costs to those in other nations force the question of what U.S. citizens are getting for their money. Just how effective are current programs, and are health care dollars being well spent? How might the programs be modified to improve their effectiveness and efficiency and to ensure that there is equitable access to health care services? Plenty of controversy surrounds each of these questions, and they remain at the center of policymakers’ concerns about the future of the U.S. health care system. The websites listed in the box “Working with Sources: Health Care Policy Information” in the early part of this chapter cover health care developments and policies and offer a wealth of information on these issues.

A Pluralistic Health Care System

Before we turn to a description and assessment of specific U.S. health care programs, we start with an overview of the health care system itself. The individual health care programs are complicated enough to confuse even the experts, but they do not represent the totality of government activities that affect the health and welfare of the U.S. public. A broad view of health care policy suggests that many other actions should be included as well. Table 8-1 lists the collection of agencies and policies at the federal, state, and local levels. Table 8-1 Major Government Health-Related Programs

Level of Government

Agency and Function

Federal

Department of Agriculture

Food safety inspection (meat and poultry)

Food stamp and child nutrition programs

Consumer education

Department of Health and Human Services

Food and Drug Administration

Agency for Healthcare Research and Quality

Centers for Medicare and Medicaid Services

Health Resources and Services Administration (health resources for underserved populations)

Indian Health Service

Substance abuse programs

Health education

Public Health Service (including the surgeon general’s office, the National Institutes of Health, and the Centers for Disease Control and Prevention)

Department of Labor

Occupational Safety and Health Administration (regulation of workplace safety and health)

Department of Veterans Affairs

Veterans Health Administration (VA hospitals and programs)

Environmental Protection Agency (regulation of clean air and water, drinking water, pesticides, and toxic chemicals)

State

Medicaid and Children’s Health Insurance Program (CHIP)

State hospitals

State mental hospitals

Support of state medical schools

State departments of health

Health education

State departments of agriculture and consumer protection

State environmental protection programs

Local

City and county hospitals and clinics

Public health departments and sanitation

Emergency services

City and county health and human services programs

The table indicates the diversity of departments and agencies that are involved in health-related services, broadly defined, and shows that authority is highly diffused rather than concentrated and is shared among all levels of government. As we saw in the implementation of the Affordable Care Act, states have a great deal of discretion in what they choose to do under the act, as they have long had with state Medicaid programs. Moreover, as noted earlier in discussion of the hybrid U.S. health care system, health services are delivered through both the private sector and public programs. The programs most frequently in the public eye, such as Medicare and Medicaid, are only part of what governments do to promote the public’s health. To put this in other terms, solutions to U.S. health problems are not to be found solely in either expanding or modifying the established Medicare, Medicaid, and veterans’ health care programs. Other actions also are possible, including those that rely on preventive health care. These include personal decisions related to diet and exercise, detection of disease at its earliest stages, health education, medical research, environmental protection, and a host of public and private programs to improve mental and physical health. We will return to a discussion of such preventive health care below.

Major Government Health Care Programs

The following sections describe the major federal and state programs that deal directly with health care services. In addition to the programs’ goals and provisions, the discussion tries to evaluate them in terms of the major public policy criteria we set out earlier in the text: effectiveness, efficiency, and equity. Medicare Program Provisions.

The Medicare program has two main parts, one standard and the other optional. Medicare Part A is the core plan, which pays partially for hospital charges, with individuals responsible for a deductible and co-payments that can be substantial. The program is paid for by Medicare trust funds, which most employees pay through a payroll deduction, much like the Social Security tax, which employers match. Part A also covers up to one hundred days in a nursing care facility following release from the hospital, but again with co-payments. Part A of Medicare covers people who are eligible for the federal Social Security system or Railroad Retirement benefits.

The optional part of the Medicare program, Part B, is supplemental insurance for coverage of health care expenses other than hospital stays. These include physician charges, diagnostic tests, and hospital outpatient services. The cost of Part B insurance is shared by individuals who choose to enroll in it (in 2019, they paid $135.50 per month, or more for those with higher incomes) and by the government, which covers about three-fourths of the cost from general federal revenues. Part B also has both deductibles and co-payments, and historically it did not cover routine physical examinations by a physician, but it now covers a yearly “wellness” visit that is designed to help prevent disease and maintain good health, and a variety of other preventive health services such as cardiovascular, cancer, and diabetes screenings. Many of these services were mandated by Congress under the Balanced Budget Act of 1997, and further changes have come with the Affordable Care Act.

Medicare uses a fee schedule of “reasonable” costs that specifies what physicians, hospitals, nursing homes, and home services should charge for a given procedure, and the government pays 80 percent of that amount. Some physicians choose not to participate in the Medicare system because they believe the fee schedule is too low and their options for raising patient fees are unrealistic.

Equally important is the fact that the regular Medicare program does not cover many other medical expenses, including prescription drugs used outside of the hospital, dental care, and eyeglasses. It also pays for only the first ninety days of a hospital stay and limited nursing home care. Because of these restrictions and the deductibles and co-payment charges, Medicare historically has covered only about two-thirds of the health care costs for the elderly. Individuals must therefore pay for the rest of the costs or purchase supplementary private insurance policies to cover the gaps in Medicare. Low-income elderly also may be eligible for state Medicaid programs, which cover some of these costs. Despite the many restrictions, Medicare is a bargain for the elderly, who would have to pay much higher fees for a full private insurance policy, considering the chronic and serious health problems they are likely to face. In 2018, Congress approved a new Chronic Care Act that permits Medicare to provide more benefits to better coordinate and manage chronic diseases. However, critics fault the new law because that care is restricted to those enrolled in the private Medicare Advantage programs. It is not available to those in the traditional Medicare program.27

As we discussed earlier, the costs of health care in general, including Medicare, continue to rise, and this trend poses major challenges to the solvency of the Medicare trust fund as the population ages and the ranks of Medicare recipients swell.

Fraud and Abuse under Medicare.

A perennial problem in all government health care programs is fraud and abuse, especially notable under Medicare. Indeed, the Government Accountability Office (GAO) has declared both Medicare and Medicaid as “high risk” programs that are “particularly vulnerable to fraud, waste, abuse, and improper payments.”30 Less-than-scrupulous health care providers may charge the government for services that were not performed or order tests and procedures that may not be necessary but for which the health care provider knows Medicare will pay. The CMS has no official estimate of fraud, but the GAO has indicated that up to $60 billion a year, or about 10 percent of Medicare’s budget, may be lost to a combination of fraud, waste, abuse, and improper payments.

Such improper payments have a long history. A 1998 Department of Health and Human Services investigation into abuses by community mental health centers noted there was “extensive evidence of providers who are not qualified, patients who are not eligible, and services billed to Medicare that are not appropriate,” including services “that weren’t covered, weren’t provided, or weren’t needed.”31 More recent assessments of Medicare spending echo those concerns. The program continues to be deficient in its monitoring and enforcement of quality standards and in its oversight of spending even though it spends over $1 billion annually to combat fraud, waste, and abuse. Health care centers say that at least part of the problem lies in the government’s complex billing procedures that contribute to errors. Federal agents who investigate Medicare fraud are not persuaded by such arguments. They charge that health care providers intentionally put services into a higher-paying category, or “up code” their billing, and engage in other illegal practices to increase profits.

Issues of Medicaid Fraud and Abuse.

The Medicaid program, like Medicare, is vulnerable to fraud and abuse by service providers, such as filing inaccurate claims for reimbursement. Although the money lost to fraud is less than in the Medicare program, the costs are nevertheless substantial. The service providers defend themselves by arguing that they are the victims of an excessively complicated system of eligibility requirements and reimbursement procedures. The states vary widely in how they administer the Medicaid program, and some states, such as New York, have been singled out for doing a poor job historically of dealing with Medicaid fraud.36 The National Conference of State Legislatures lists an extensive number of actions that the states have taken and might take to reduce Medicaid fraud and abuse, and also recounts the many provisions of the Affordable Care Act that are directed at the problem.37

tate Policy Innovations

The federal government is not the only policy actor trying to contain health care costs; the states also have a role to play, and some states have adopted innovative public policies. For example, as we pointed out in chapter 6, Oregon approved a state health plan that offered Medicaid recipients and others universal access to basic and effective health care. Based on a public-private partnership, the plan included state-run insurance pools, insurance reforms, and a federal waiver allowing for the expansion of Medicaid. The system featured rationing of services based on a ranking of medical procedures that the state and its residents believed to be cost-effective.

Other states have long promoted policy innovation. California, for example, developed an aggressive antismoking media campaign and raised tobacco taxes to get people to stop smoking, a preventive health care action. The goal is to reduce the number of people needing expensive medical services in the future, and thus to improve the economic efficiency of health care programs. By all accounts, the effort has been successful. States also have taken measures to deal with rising rates of obesity, such as limiting access to calorie-laden fast food in public schools. One notable success story under the Affordable Care Act was the formation of accountable care organizations for coordinating patient care, where doctors are rewarded for keeping patients healthy rather than for how many procedures they perform. In Rio Grande Valley in Texas, the change meant that preventive care, such as encouraging change in diet and lifestyle, became a key focus of the Medicare program there. The change saved money and improved patients’ health.48

Some states, as noted early in the chapter, have gone well beyond these limited measures to adopt comprehensive health care plans. Most notably, a landmark plan enacted in Massachusetts in 2006 requires all state residents to purchase health insurance coverage and imposes a financial penalty on those who do not. There is a state subsidy for low-income residents, the poorest of whom are enrolled automatically into the program. The plan also requires employers with eleven or more employees to make a “fair and reasonable” contribution toward their health insurance coverage or to pay a “fair share” contribution annually per employee. Although the plan is potentially costly, supporters point to its coverage of more than 350,000 state residents who previously did not have health insurance. They also highlight the plan’s Health Care Quality and Cost Council, which sets goals for improving quality, containing costs, and reducing inequities in health care. Despite its many successes and serving as a model for what became the national policy under the Affordable Care Act, critics continue to fault the Massachusetts plan for its level of government involvement and costs.49

These and many other examples illustrate the pivotal role that the states can play in finding solutions to the emerging health care crisis. Where the federal government has often been unable to act because of the constraints on policymaking that we discussed in chapter 2, states have been able to try different approaches and demonstrate their merits.

tate Policy Innovations

Reducing Health Care Costs

If managed care has not succeeded in restraining the rise in health care costs, other strategies may emerge to reach that goal. Four merit brief mention: (1) passing on additional costs to health care consumers, (2) setting up personal health accounts, (3) managing disease more effectively, and (4) using preventive health care.

Everyone complains about the cost of health care, but the fact is that few people ever see the full price tag because insurance plans take care of most of it. Of course, even simple surgeries can cost thousands of dollars, and many prescription drugs can run to hundreds of dollars per month. These relatively low burdens on individuals can escalate quickly if a major health care need arises. But under more normal circumstances, these modest costs borne by individuals suggest that one way to reduce rising demand for health care services and prescription drugs is to pass along more of the cost to them. For example, if employees had to cover more of the costs now paid by their employers’ insurance policies, they might have an incentive to reduce their demand for health services that are not essential, such as visiting a hospital emergency room for a nonemergency situation, demanding exotic new drugs when less expensive alternatives exist, or requesting expensive diagnostic tests that a physician believes are unnecessary. Raising the policyholder’s share of the cost with higher deductibles and higher levels of co-payments would inject “market discipline” into health care coverage.53

A variation on this theme is that individuals who use health services more frequently than average should pay more of the cost—for example, through higher insurance premiums. In other words, the sicker should pay more, just as those with more driving citations or accidents pay higher automobile insurance premiums and those with safe driving records get a break. Is this proposal fair? It might be if the health care consumers brought on their conditions through poor choices over which they had reasonable control. But what about individuals with inherited diseases, or accident victims, or those who simply have the misfortune of suffering from a rare (and expensive) illness? Is it ethical to pass the costs of treatment along to them and their families?

Many employers seeking ways to cope with rising premium costs are setting up personal health accounts for their workers. The employers deposit money into an account that is used to pay for each employee’s health expenses that the regular insurance does not cover. The money can be used for prescription drugs, physician visits, dental work, and other health-related bills. Employees make their own decisions about how best to spend the limited funds. Once the money is gone, the employee is responsible for any additional charges that year. These plans may come with a very high deductible, which would make them essentially catastrophic insurance policies; if so, the employee is better off.

Medical Errors

One element of the concern about the quality of medical care is more concrete and disturbing—the incidence of medical errors. A widely circulated and influential report released in 1999 by what is now the National Academy of Medicine (NAM) estimated that between 44,000 and 98,000 patients die each year of medical errors made in hospitals. A 2016 study put the number at over 250,000 lives a year lost to medical errors in hospitals and other health care facilities, which would make such errors the third leading cause of death in the United States.56 The errors include operations on the wrong patient or the wrong side of a patient, incorrect drug prescriptions or administration of the wrong dosages, malfunctioning mechanical equipment, and nursing and other staff errors, such as poor communication of medical information. Neither study included the more than 700,000 infections acquired in the nation’s hospitals each year, which the CDC claims lead to some 75,000 deaths annually. The CDC findings have led many hospitals to adopt new procedures to try to cut infection rates, with some measure of success.57

Following the 1999 NAM study of medical errors, Congress approved, and President Bush signed, legislation that establishes procedures for voluntary and confidential reporting of medical errors to independent organizations that are to submit the information to a national database. Many recommendations for improving hospital safety have been made since that time, and greater attention to reducing medical errors came also after the federal Medicare program announced that it would no longer pay for medical errors—what it called “reasonably preventable” conditions on a list it made available to hospitals. Some of the nation’s largest health insurance companies also announced that they would not pay for what they called “never events”—that is, medical errors that should never occur.58 As noted earlier, the Affordable Care Act is likely to be yet another force for reducing medical errors.

Economic Efficiency Issues

Consistent with the information provided in the previous section, many advocates of preventive health care defend such initiatives as providing economic benefits. That is, spending money on preventive health care would pay substantial dividends, both financially and in improved health and well-being. For example, a 2009 article in Health Affairs put the cost of obesity at $147 billion per year in 2008, up from $78 billion in 1998, and another study in 2012 estimated that obesity accounted for $190 billion in U.S. health care costs at that time. These studies indicate the potential savings if the nation found effective and acceptable ways to reduce our collective waistlines.73 In addition, some studies make clear that health care for obese and overweight individuals can cost considerably more (about 37 percent more on average) than for those of normal weight.74 As one example, type 2 diabetes, strongly associated with being overweight, currently ranks number one in direct health care costs, at more than $327 billion a year in the United States in 2017; this number is likely to increase substantially as the percentage of Americans with diabetes or prediabetes rises.75 Excessive weight also has been linked to more than a hundred thousand cancer deaths per year.76 Studies like the ones cited here have helped convince the federal government to spend more on anti-obesity therapies and to increase support for research on obesity.

Experience at the state level tells much the same story. The state of West Virginia, for example, found that the cost of obesity for its state employees more than doubled since 1995, and consumed more than one-fifth of the health plan’s cost. An even more striking study comes from California. In 2005, a report put the cost of obesity to businesses and the state itself at $22 billion per year in lost productivity, increased medical costs, and higher insurance payments. The report was the first to link such weight problems to increases in employer costs. The study concluded that a 5 percent increase in physical activity could save businesses and the state $6 billion each year; a 10 percent increase could save nearly $13 billion.77 Numbers like these suggest that both state governments and businesses would be wise to give serious thought to programs that promise to reduce weight gain. Analysts have long made similar arguments about the costs of smoking, which are estimated to result in about $156 billion in health-related economic productivity losses each year.

Equity and Other Ethical Issues

As suggested in the box “Working with Sources: Ethical Issues in Health Care,” acting on preventive health care should be evaluated not only on the grounds of effectiveness and efficiency but also in terms of ethics. One of the concerns is equity, or fair treatment for all groups in the population, and another is whether governments (or employers) are justified in taking actions that may impinge on individual rights.

Consider the case of smoking. Do the statistics presented earlier make for a strong case for further government intervention to reduce smoking and therefore smoking-related disease? For example, should government further raise the price of cigarettes to discourage their use? Studies show that increasing the price of cigarettes can substantially decrease the number of young people who become smokers, and that restrictions on smoking in workplaces and public places can decrease smoking by young adults (Tauras 2005). But does this mean that it is right for government to restrict smoking, particularly among adults who choose to smoke? Should state and local governments become more aggressive in restricting smoking in public places? What about using the kind of graphic warning labels on cigarette packs that are common in more than eighty other nations, with good evidence that they work, but which are rejected in the United States? Or, would it be right for employers to refuse to hire employees who smoke, or to fire those who do, based on the impact on their health and the cost to the employer? In these illustrations, it is easy to see that smokers might well feel they are being treated unfairly as a group even if they acknowledge the possible health care costs of their habit.

Working with Sources Ethical Issues in Health Care

Some of the most contentious issues in health care involve ethical rather than economic issues. One of the prominent debates in recent years concerned provisions of the Affordable Care Act that related to insurance coverage for contraceptive services. The act requires group health insurance plans to offer Food and Drug Administration–approved contraceptive methods, sterilization procedures, and patient education and counseling for women with reproductive capacity (not for men), and to do so without a co-pay or deductible. The law exempted health plans that are sponsored by certain religious organizations or nonprofit organizations with religious objections to contraception, such as churches. In addition, the federal government provided some accommodation for eligible organizations that voiced religious objections to such coverage, with the insurance companies rather than the religious organization paying for the contraceptive coverage.

Some organizations and businesses objected to the new mandated coverage even with this accommodation, saying that the requirement to provide cost-free contraceptive coverage violated their religious freedom. That is, they did not want to provide such coverage for their employees. Among the dozen or so businesses objecting to the new law was the arts and crafts store Hobby Lobby, with some twenty-one thousand employees. In November 2013, the U.S. Supreme Court agreed to hear two cases brought by such secular, for-profit corporations, whose owners sought an exemption under the law based on their religious beliefs, and in late June 2014, the Court ruled 5 to 4 in favor of the corporations. Controversies over this section of the Affordable Care Act continued under the Trump administration as it sought to further weaken the provision.a

To examine some of the arguments for and against the Affordable Care Act’s contraceptive coverage mandates, go to the federal government’s website for preventive health care services for women at www.healthcare.gov/coverage/preventive-care-benefits/ to see a review of the services that are covered under the act. For an overview of Planned Parenthood’s perspective on the act’s contraceptive coverage rules, see www.plannedparenthood.org/about-us/newsroom/press-releases/planned-parenthood-statement-final-birth-control-rule-new-report-impact. For the perspective of religious organizations on the new contraceptive coverage rules, go to the website for the United States Conference of Catholic Bishops at www.usccb.org/issues-and-action/human-life-and-dignity/health-care and follow the Contraception link to the Health and Human Services contraceptive services rule.

What do you see as the main points of contention?

Is one view more persuasive than another?

Do you think the ethical issues involved in either support for or opposition to the rules are stated clearly enough?

a. See Matt Stevens, “Judge Blocks Trump’s Attempt to Roll Back Birth Control Mandate,” New York Times, January 14, 2019.

Lifestyle choices and wellness activities also are part of the equity question when it comes to provision of generous prescription drug coverage or other health care insurance benefits. Some would argue that heavily subsidized coverage of drugs and other medical expenses discourages individuals from making sensible lifestyle decisions regarding diet, weight, exercise, and smoking. Individuals may believe that medical science will be able to treat any resulting illness with no cost to them, so they have little incentive to take responsibility for such choices. However, if they were responsible for more of the eventual cost, they might make different choices.78

Given the arguments here for effectiveness, efficiency, equity, and other ethical issues, would you favor a major shift on the part of government, employers, and insurance companies toward emphasizing preventive health care? What reasons do you find most persuasive? What reasons might lead you to challenge such a recommendation?

Conclusions

This chapter traces the evolution of government health care policies and examines the leading programs. It emphasizes issues of cost, access, and quality, and the diverse ways government activities affect the public’s health and well-being. The present array of health care programs, from Medicare and Medicaid to innovative state preventive health measures and provisions of the Affordable Care Act, may seem complex and confusing to many, and it strikes health care professionals the same way. Students of public policy, using the criteria discussed in the text, can evaluate all programs against standards of effectiveness in delivering quality health care services, efficiency of present expenditures in terms of the benefits received, and equity in access to and payments for those services. Many analysts, policymakers, health care professionals, and patients alike find strengths and weaknesses in this system in terms of all three criteria. The strengths merit the praise they have received, but the weaknesses need to be addressed as well.

Rising costs alone suggest the imperative of change. As we have shown, the costs threaten to bankrupt the Medicare system as the baby boom generation ages. Employers and individuals face similar hurdles in meeting the anticipated increases in insurance policy premiums and almost certainly higher deductibles and co-payments. Health care policy therefore would profit greatly from critical assessments that point to better ways of providing affordable and high-quality health care to the U.S. public in the future. The questions posed throughout the chapter encourage such assessments, from how best to reform Medicare and Medicaid to the effectiveness of many state efforts to constrain costs to the promotion of health education, wellness training, and other preventive health care measures. Fortunately for the student of public policy, information to help design more appropriate health care policies and institutions is widely available on the internet through government and independent sites.