Healthcare Policy & Law

CHAPTER 4

Overview of the United States Healthcare System

INTRODUCTION

Coordinated. Efficient. Cost-effective. Goal oriented. These are words one might use to describe a well-functioning system. Unfortunately, they are not words that are often used when discussing how healthcare services are delivered in the United States. Unlike most other developed nations, the United States does not have a unified healthcare system. Even with the passage of the 2010 Patient Protection and Affordable Care Act (ACA), the first major health reform law passed in this country in nearly 50 years, the United States will continue to provide healthcare services through a patchwork of public and private insurance plans; federal, state, and local governments; and institutions and individual providers who are often unconnected to one other.1

The United States has never been accused of providing healthcare services in an efficient or cost-effective manner. This country spends over twice as much on health care per person as other developed countries. While the U.S. healthcare system does some things well, it ranks at or near the bottom on important health outcome measures such as life expectancy, infant mortality, and adult obesity rates.2 Even though the federal government establishes the nation’s healthcare goals through initiatives such as Healthy People 2020, the lack of coordination within the healthcare system means that all parts of the system are not working together to achieve these goals.3

The lack of a unified healthcare system makes it difficult to provide a straightforward overview of how healthcare services are delivered and financed. For example, the following are some of the various players in the provision and delivery of health care:

• Educational institutions such as medical, dental, nursing, and physician assistant programs

• Research organizations including private entities, public agencies, and non-profit foundations

• Private suppliers of goods and services such as hospital equipment manufacturers, home health agencies, and uniform suppliers

• Private health insurance provided through employers, on the individual market, and through state health exchanges

• Public health insurance programs such as Medicaid, Medicare, and Tri-Care (the Department of Defense healthcare program for members of the uniformed services and their families)

• Individual providers such as physicians, dentists, pharmacists, and physical therapists

• Institutional providers such as hospitals, community health centers, and skilled nursing facilities

• Private trade associations representing providers (e.g., the American Medical Association, which represents physicians), institutions (e.g., the National Association of Community Health Centers), and industries (e.g., PhRMA, which represents the pharmaceutical industry)

• Private accreditation agencies that provide quality certifications to healthcare institutions

• Consumers of healthcare goods and services

• Local, state, and federal government agencies that have roles in delivering care, financing care, setting health policy, developing laws and regulations, and conducting and funding research

In the absence of a unified system or single government program to describe, it is easiest to understand the provision of U.S. health care through the concepts of finance (How do individuals pay for health care and how are providers reimbursed for their services?), access (How do individuals access healthcare services and what barriers to access exist?), and quality (What is the quality of healthcare services that are provided and what can be done to improve the quality of care?). It is also helpful to consider the health system choices made by this country against those made by other developed countries. This chapter begins with a discussion of the concepts of finance, access, and quality and then turns to a comparative overview of how other countries have designed their healthcare systems.

HEALTHCARE FINANCE

In 2013, the United States spent $2.9 trillion on aggregate healthcare spending, the equivalent of $9,255 per person and 17.4% of the nation’s gross domestic product (GDP). This represents a 3.6% increase over 2012 spending.4  Figure 4-1  shows present and projected national health expenditures as a percentage of GDP. Healthcare spending has grown relatively slowly over the past several years, due to the combination of a tepid national economic recovery, budget-cutting impacts of sequestration, slow growth in the use of Medicare services, and increased cost-sharing for the privately insured.4 Although there has been a slowdown in spending growth, national health expenditures are expected to average 5.7% growth from 2013 to 2023 and reach 19.3% of the GDP by 2023.4 Put differently, come 2023, one-fifth of the nation’s economy will be consumed by healthcare spending. This is nothing short of staggering. As shown in  Figure 4-2 , the largest portion of national healthcare spending in 2013 was on hospital services, followed by physician and clinical services.5

The projected growth in healthcare spending is due to a combination of ACA coverage expansions, an improving economy, and an aging population. With many ACA provisions taking effect in 2014, healthcare spending was projected to grow by 5.6% that year, with 9 million individuals expected to gain insurance.6 In 2014, private health expenditures were expected to increase by 6.8% and Medicaid expenditures were to rise by 12.8% due to expanding coverage options in the public and private sectors.6 In addition, 8 million people were expected to enroll for the first time in Medicaid in 2014, with another 8.5 million projected to enroll by 2016.6 Medicare’s projected growth rate was 4.2% in 2014, but it is expected to increase to 7.3% annually from 2015 to 2023 due to increased enrollment, increased utilization, and higher reimbursement rates, though the payment increases will be slowed down by several provisions in the ACA.7 While private out-of-pocket spending was expected to decline slightly in 2014, it was projected that premiums will increase 5.4% annually from 2016 to 2023 due to increased enrollment and utilization in an improving economy. The premium increase projections would be higher except that employers of some low-wage workers are expected to stop offering health insurance altogether, and those employees in turn will gain coverage in the state exchanges, enroll in Medicaid, or become uninsured. In addition, some employers may scale back their health plans to avoid paying taxes on high-cost insurance plans.

Health Insurance

Having health insurance both reduces the risk of financial ruin when expensive health services are needed and often provides coverage for preventive services at low or no cost. As discussed in the upcoming section on healthcare access, individuals without health insurance must pay for services themselves, find services provided at no cost, or go without care. While most people in the United States have health insurance, one of the main goals of the ACA is to decrease the number of uninsured people. By 2023, it is projected that there will be 23 million uninsured individuals in this country, cutting the number by half from 2012 figures.7 According to the Department of Health and Human Services, 16.4 million individuals have gained coverage under the ACA as of early 2015. This includes 14.1 million adults who have gained insurance since October 2013 and 2.3 million younger adults (ages 19–25) who were able to remain on their parents’ insurance plans since October 2010.8 From the first quarter of 2014 to the first quarter of 2105, the uninsured rate among Latinos dropped 12.3% and the uninsured rate among African Americans fell 9.2%.8 While these reductions in uninsured rates are impressive, Latinos and African Americans still lack insurance more than other racial and ethnic groups.

As shown in  Figure 4-3 , most people in the United States are privately insured and obtain their health insurance through their employer. Employer-sponsored insurance plans may be self-funded (meaning employers set aside funds to pay for their employees’ health insurance claims instead of paying a premium to a health insurance carrier) or fully insured (meaning employers pay a premium to a private health insurance company to administer their plans and pay the healthcare claims of the employees). Another significant portion of the population is publically insured through Medicaid, CHIP, Medicare, the Veteran’s Administration, and the Department of Defense. Public programs are funded and run by federal and/or state government agencies, depending on the program.

As shown in  Figure 4-4 , health insurers act as an intermediary between consumers (sometimes referred to as “insureds”) and providers (which refers to both individual providers, such as physicians or nurses, and institutions, such as hospitals and community health centers). The specifics regarding eligibility for a particular insurance plan, choice of plans, how much a plan costs to enroll in or use, what benefits are covered, and how much providers are reimbursed varies by plan or government program. In some circumstances, providers may only accept insurance from a single plan, but often providers will accept patients from a variety of plans.

Consumers interact with health insurance companies or government programs by enrolling into an insurance plan by which they are accepted (in the case of private plans) or for which they are eligible (in the case of public programs), providing payments to the insurance plan for being enrolled (either directly or through a payroll deduction), choosing which provider to see based on plan restrictions or incentives, and working with the plan if they have questions or complaints. Providers that agree to be part of a plan’s “network” (i.e., the group of providers who will see patients insured by the plan) are reimbursed a contractually agreed-upon amount from the insurance company and/or the patient for providing services covered under the plan, may accept consumers who are enrolled in the plan, may be subject to plan quality-control measures, and will participate as necessary in plan appeals processes.

Direct Services Programs

In addition to providing publically funded health insurance to certain populations through programs such as Medicare and Medicaid, federal, state, and local governments also fund numerous programs that directly provide healthcare services to vulnerable populations. Many of these programs also receive private funding and donations to support their operations. Direct service programs generally exist to fill gaps in the private healthcare delivery system. Examples of these types of programs include:

• Federally qualified health centers: Also known as FQHCs, these centers are located in medically underserved areas and provide primary care services to individuals on a sliding fee scale (meaning that how much one pays for services depends on the individual’s income level). While anyone may use an FQHC, the health center patient population is made up of mostly uninsured and publically insured patients. Funding for health centers usually comes from the federal and state governments, and sometimes from local governments and private donations.

• HIV/AIDS services: The Ryan White HIV/AIDS Program works with states, cities, and local organizations to provide services to patients with HIV or AIDS who do not have health insurance coverage or the financial resources to pay for needed care. The program is federally funded and provides grants to state agencies that deliver care to patients. The Ryan White program also includes the state AIDS Drug Assistance Program (ADAP), which provides medications to low-income individuals with HIV. A supplementary ADAP for high-need states includes federal funding and a state matching requirement. In addition, states often supplement federal funding with state-funded HIV prevention and treatment programs. Some local public health departments also provide HIV testing and counseling services and help individuals access treatment. Many programs also accept private donations.

• Family planning services: Title X of the Public Health Service Act provides federal funding for family planning services offered to women who do not qualify for Medicaid, maintains family planning centers, and establishes standards for providing family planning services (although federal dollars may not be used to support abortion services except in the case of rape, incest, or danger to the life of the pregnant woman). In addition, states also fund family planning services. Services provided vary by state, but may include contraception, cervical cancer screening, tubal sterilization, STD screening, HIV testing, and abstinence counseling. State laws vary on the use of state funds for abortion services. Local health departments may also offer some of these services as well as help people access family planning services from private providers. Private donations provide revenue to many family planning clinics.

HEALTHCARE ACCESS

Access to care refers to the ability to obtain needed health services. There are a variety of factors that can hinder access to care. Barriers may exist if individuals are underinsured and cannot afford the cost sharing required by their health insurance policy, if needed services are not covered by health insurance, if providers will not take a particular insurance plan, or if providers are not available in certain geographic areas. Access problems are exacerbated by provider shortages, especially in primary care fields (e.g., internal medicine and pediatrics). Many areas of the country already experience workforce shortages, and the influx of newly insured individuals as a result of health reform will make this problem even more pronounced in the years to come.

Of course, one important factor relating to access is lack of health insurance. Individuals without health insurance have to pay more for comparable services because they do not have the advantage of sharing costs as part of a pool of consumers. Because many individuals without health insurance are low-income, they may be unable to pay for the cost of needed care, and providers are often unwilling to accept uninsured patients because of the risk of not being paid for their services. Some providers, referred to as “safety net” providers, focus on providing care to uninsured patients, but gaining access to needed care remains a significant issue for this population.

As discussed previously, many changes that took place in 2014 as part of ACA implementation are intended to reduce the number of uninsured people. Even so, it is important to understand the healthcare problems faced by the uninsured because millions will remain uninsured despite health reform. This will occur because some individuals will continue to lack access to affordable employer-sponsored coverage, be ineligible for subsidies, be unaware that they are eligible for coverage and financial assistance due to confusion about the law, or find the actual or perceived costs remain a barrier to care. One survey from the end of 2014 found that almost half of the uninsured cited costs as the primary barrier to obtaining coverage, 12% did not have access to employer-sponsored coverage, and 6% were told they were ineligible for coverage.9

The Uninsured

Characteristics of the Uninsured

There are many myths relating to the uninsured. It is often assumed that the uninsured do not work or simply choose not to purchase health insurance even though it is available and affordable. Although this may be true in some cases, in most instances it is not. Furthermore, many people believe that all employers offer insurance or that those individuals without private insurance are always eligible for public programs. As you will see, these and other assumptions are also false.

Income Level The primary reason people do not have health insurance is financial—available coverage is simply too expensive. In 2013, 27% of the uninsured were people who earn an income below the federal poverty level (FPL) ($19,530 for a family of three in 2013) and 85% were below 400% FPL.10 Given the correlation between income and being uninsured, it is not surprising that the uninsured rate among the poor is twice as high as the national average, as shown in  Figure 4-3 .

Employment Status Most of the uninsured work or are in families with at least one full-time worker, and many more have part-time workers in the family.10 Most uninsured workers hold blue-collar jobs within their fields. For example, 17% of blue-collar health and social services workers are uninsured, compared to 7% of white collar workers in that field.10 Workers are often uninsured because they cannot afford the cost-sharing associated with the insurance coverage offered by their employers or because they work in jobs that do not offer coverage. At the end of 2014, when the ACA was fully in effect, uninsured adults did not have employer-sponsored insurance because they were self-employed or not working (44%), their employer did not offer coverage (27%), they could not afford the premiums (10%), or they were ineligible for coverage (6%).9

Age Because Medicaid and CHIP provide extensive coverage to low-income children, adults are more likely to be uninsured than children. In 2013, 5.4 million children (under age 18) were uninsured, compared to 36 million adults.11(pp6–7) Even though many young adults (ages 19–25) gained insurance under the ACA, this group still represented 22% of the uninsured population at the end of 2014.9

As young adults transition from school to the workforce, they may become ineligible for their family’s coverage for the first time, may have entry-level jobs earning too little income to afford a policy, or may work for an employer that does not offer health insurance. The ACA addresses part of this problem by requiring insurers to cover dependents (someone who relies on the primary insured for support) until age 26. Although some young adults do not consider health insurance a priority expense because they are relatively healthy, studies have shown that cost is the primary factor in whether people in this age bracket decide to obtain coverage.12(pp73–74)

Although adults ages 55–64 are more likely to be insured than the overall population, the uninsured who fall into this age group are a cause for concern because they are medically high-risk and often have declining incomes.12(p72) These adults account for two-thirds of all deaths and one-third of all hospital stays among non-elderly adults. In addition, they are more likely to report being in fair or poor health, having a chronic disease, or experiencing a disabling condition.12(p74) The disability provisions of Medicaid and Medicare and the availability of employer-based insurance keep the number of uninsured in this group relatively small, which is important because it would be very expensive for individuals in this demographic to purchase individual insurance policies in the private market.  Figure 4-5  illustrates the characteristics of the uninsured by income, age, and work status.

Education Level Education level is also an important factor in insurance status because it is easier, for example, for college graduates to earn higher incomes and obtain jobs that provide affordable employment-based insurance as compared to less-educated individuals.

Race, Ethnicity, and Immigrant Status Although approximately half of the people who are uninsured are white, a greater proportion of minorities are uninsured. At the end of 2013, about 10% of non-Hispanic whites were uninsured compared to 24% of Hispanics, 16% of African Americans, and 14.5% of Asian Americans.11(p10) This difference is only partially explained by variations in income. Minorities also have lower rates of employment-based coverage, although this is partially offset by their higher rates of public insurance coverage.11(p10) Because eligibility for public insurance coverage is generally less stable than for private coverage, this difference in type of coverage is a key public policy issue.12(p89)As noted above, while Hispanics and African Americans have had significant reductions in their uninsured rates under the ACA, they are still disproportionately uninsured.

Although most of the uninsured are native or naturalized citizens, a higher proportion of immigrants are uninsured. Non-citizens, both legal and undocumented, are three times as likely to be uninsured as citizens, but non-citizens only accounted for 20% of the uninsured at the end of 2013.10(p5) Some of the disparity in coverage rates among U.S. native and foreign-born individuals is because non-native residents have lower rates of employer-based coverage, higher rates of low-wage jobs, and higher rates of employment in sectors that are less likely to provide insurance.10(p5) Restrictive eligibility rules pertaining to immigrants in public programs make it difficult for non-natives to obtain public coverage and, under the ACA, undocumented immigrants are not eligible for federal subsidies to assist with purchasing health insurance through the new state exchanges and are even prohibited from purchasing insurance through an exchange at full cost.

Gender Gender variations exist in both the rate and type of insurance coverage. In general, non-elderly men are more likely to be uninsured than non-elderly women. Yet, of those with insurance, men are more likely to have employer-based coverage and women are more likely to have public coverage, due to their lower average income level. This difference in public coverage rates is due, in large part, to the extensive coverage for low-income pregnant women under Medicaid.

Geography Residents of the South and West are more likely to be uninsured than residents of the North and Midwest, There are variations in the uninsured rate from state to state. These differences are based on numerous factors including racial/ethnic composition, other population characteristics, public program eligibility, and employment rates and sectors.13 This trend is likely to continue, at least in the short run, with many states in the South and Midwest opting not to expand Medicaid coverage under the ACA. Uninsurance is a particular problem among rural residents because they have relatively high healthcare needs—they tend to be older, poorer, and less healthy than urban residents—and there is often a provider shortage in these areas. Among the insured, rural residents rely more heavily on public programs due to their lower incomes and fewer opportunities to obtain employer-based coverage.

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