Healthcare System

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CHAPTER 11

Health Insurance and Healthcare Systems

LEARNING OBJECTIVES

By the end of this chapter, the student will be able to:

• identify the largest governmental insurance systems in the United States and explain the basic principles of their financing.

• describe the employment-based health insurance system in the United States and discuss how fee-for-service insurance and capitated insurance options have evolved in recent years.

• describe the features of the Affordable Care Act that represent key changes to the U.S. health insurance system.

• describe the basic structure and financing aspects of the healthcare systems in Canada and the United Kingdom and compare them to those of the United States.

• identify and describe six sources of excess costs in the U.S. healthcare system.

• identify strategies for reducing the costs of health care in the United States.

You take a job right out of college and need to select from among your company’s comprehensive healthcare options. The choices appear to be quite complicated and none of them seems just right for you. You wonder: What are the key differences between comprehensive health insurance plans?

The Benjamin family has a teenaged son and a daughter who recently graduated from college and is looking for a job. Their son had a heart defect at birth requiring surgery. After starting his own business in 2009, John Benjamin had a great deal of difficulty getting insurance that he could afford because of his son’s heart condition. Lynette Benjamin went back to work recently, primarily in order to take advantage of the health insurance offered by her employer. How is this family affected by the Affordable Care Act?

Jorge Rios’s family is without health insurance. He works two jobs, neither of which provides health insurance. He earns a total income of slightly over the federal poverty level, which in his state means the family is not eligible for Medicaid. His state has recently accepted federal funds to expand its Medicaid program as part of the Affordable Care Act. Jorge was born in the United States, but his brother, who lives with the family, is undocumented. Jorge is now trying to pay off the bills for his brother’s treatment when he was recently seen in the emergency department. How is this family affected by the Affordable Care Act?

The Johnson family’s annual income is $300,000, so they thought they would never need to worry about money, until their son Bob was diagnosed with a brain tumor in 2008. They sought and he got the best available treatment. The hospital stays and the initial treatments went well and were covered by the comprehensive insurance provided by George Johnson’s law firm. Things changed when one day the family received a notice saying that they were approaching the lifetime cap on treatment of brain tumors. How is this family affected by the Affordable Care Act?

Members of the Smith family live in the United States, Canada, and the United Kingdom. They have the same inherited disease. The recommended treatment is quite similar in the three countries and can be delivered as part of primary care. How might the delivery of care and the payment for care differ among the three countries?

You wonder how the United States ranks globally in terms of the performance of its healthcare system. You are surprised when you find out that its ranking is not number one, or even near the top. Why is that? you ask yourself.

The politicians seem to agree that health care is too expensive. However, some argue for greater regulation, while others argue for less. You ask yourself: What are the options for controlling costs and what are the consequences?

Understanding healthcare systems requires us to understand the workforce and institutions that make up the system. It also requires us to examine the central measures of success: the issues of quality, access, and cost of health care.

In this chapter, we will take a look at questions of access to and the costs of health care. Both of these issues are closely tied to the availability of health insurance to pay for health care. In the United States, there is no comprehensive right to health care. The ability to access most health care is dependent on having health insurance. Thus, to better understand the U.S. healthcare system, we will begin by taking a look at the finances. We need to know how much money is spent and how it is spent. This will require us to look at health insurance and the changes that are occurring as a result of the Patient Protection and Affordable Care Act (ACA).

Then, we will look at the overall features of the U.S. healthcare system and compare them to features of the systems in Canada and the United Kingdom. Equipped with these understandings, we will see how health systems can be scored or graded and how the United States compares with other nations. Finally, we will examine the issue of controlling costs while maintaining or improving health care quality—a major challenge facing the U.S. health system today. Let us start by looking at how much we currently spend on health care.

HOW MUCH MONEY DOES THE UNITED STATES SPEND ON HEALTH CARE?

The United States spends approximately $3 trillion per year on health care. That represents over 18% of the gross domestic product, or approximately $9,000 per person per year. Dollars spent have been growing faster than inflation for over 40 years. At the current rate of growth, the United States is estimated to spend 20% of its gross domestic product on health care by early in the next decade. 1

Continuing that rate of growth takes money away from other activities, which makes it more difficult for the United States to compete globally or have discretionary resources to spend. Other developed countries, such as Canada, the United Kingdom, France, Germany, Japan, and Australia, spend about half as much per person and generally spend 10% or less of their gross domestic product on health care.

To understand how we spend so much of our money on health care, it is critical to know more about the U.S. health insurance system. Much of the money spent on health care, whether by individuals, businesses, or government, pays for insurance coverage. The majority of the remaining funds are spent to fill in the holes in insurance coverage through direct payments by patients called out-of-pocket expenses.

BOX 11-1 Important Insurance Terms

Cap—A limit on the total amount that the insurance will pay for a service per year, per benefit period, or per lifetime.

Copayment—An amount that the insured is responsible for paying even when the service is covered by the insurance. Coinsurance, in contrast, is the percentage of the charges that the insured is responsible for paying.

Covered service—A service for which health insurance will provide payment or coverage if the individual is eligible—in other words, any deductible has already been paid.

Customary, prevailing, and reasonable—These standards were used in the past by many insurance plans to determine the amount that would be paid to the provider of services. Under many employer-based plans, the provider may bill patients above and beyond this amount. This is known as balance billing.

Deductible—The amount that an individual or family is responsible for paying before being eligible for insurance coverage.

Eligible—An individual may need to meet certain criteria to be eligible for enrollment in a health insurance plan. These may include an income level for Medicaid, age and enrollment in the Social Security system for Medicare, or specific employment requirements for employer-based insurance. Health status is not generally a factor in eligibility.

Medical loss ratio—The ratio of benefit payments paid to premiums collected—indicating the proportion of the premiums spent on health services. Lower medical loss ratios imply that a larger amount of the premium is retained by the insurance company for administrative costs, marketing, and/or profit.

Out-of-pocket expenses—The cost of health care that is not covered by insurance and is the responsibility of the insured. These costs may be due to caps on insurance, deductibles, copayments, and/or balance billing.

Portability—The ability to continue employer-based health insurance after leaving a job—usually by paying the full cost of the insurance. A federal law, known as COBRA, generally ensures employees 18 months of portability but requires the employee to pay the entire cost of the health insurance.

Premium—The price paid by the purchaser for the insurance policy on a monthly or yearly basis.

Let us look at the basic types of insurance available in the United States. We start by examining government-financed insurance. We will then take a look at employment-based insurance. Finally, we will take a look at the changes that are occurring in health insurance in the United States. Before getting started, however, it is important to understand the language of health insurance. Box 11-1 defines some important insurance terms.

WHAT TYPES OF GOVERNMENT-SUPPORTED HEALTH INSURANCE ARE AVAILABLE?

The two largest government programs of insurance are Medicare and Medicaid. 2 , 3 Both programs began in the mid-1960s, but they have very different funding sources, coverage, and populations served. a

Medicare

Medicare began as a program for persons 65 and older. It was expanded to include disabled persons eligible for Social Security disability benefits and those with end-stage renal disease. Today, nearly 50 million Americans are eligible for Medicare, and the number is expected to increase to over 60 million by 2020.

When Medicare began, it was designed primarily to cover hospital services and doctors’ services. It did not cover drugs, most preventive services, or nursing home care. Drugs are now partially covered by Part D of Medicare. Preventive services are covered only when specifically approved by Congress or when it can be shown that they actually save the Medicare system money. Skilled nursing or rehabilitative care, but not nursing home or custodial care, is covered by Medicare. Hearing aids and eyeglasses, perhaps the two most important medical devices for the elderly, are not covered by Medicare.

Medicare is a federal government program, which means that eligibility and benefits are consistent throughout the United States. Medicare is primarily funded by a payroll tax of 1.45% from employees and 1.45% from employers. There is no income limit on this tax, and high-income individuals pay a higher amount. Income from investments as well as employment is now taxed. Self-employed individuals pay the employer as well as the employee share.

Medicare is a complicated program because there are four different parts: A, B, C, and D. The following describes the current basic costs and coverage of Medicare. The details are expected to change in coming years.

Part A covers hospital care, skilled nursing care, and home health care after a hospitalization, as well as hospice care. It is paid for primarily by the payroll tax, and no premium is required. An annual deductible is required before receiving payments.

Part B is a voluntary supplementary insurance that covers a wide range of diagnostic and therapeutic services provided by physicians, emergency departments, and other outpatient services. For most people, about 75% of the cost of Part B is funded by general tax revenues and about 25% by a monthly premium, which starts at approximately $100 per month. Those with higher incomes pay higher premiums, up to a maximum of approximately 80% of the cost of Part B. Those covered by Part B are still responsible for copayments of 20% for most services. There is also a deductible of approximately $150 per year. Health insurance policies called Medigap policies, which are offered by private insurance companies, are often obtained by individuals to cover all or most of the 20% copayment.

Part C is a special program designed to encourage Medicare beneficiaries to enroll in prepaid health plans.

Part D is a relatively new prescription drug coverage plan. It is a complicated plan that is open to those who are enrolled in Parts A and B of Medicare. It requires a monthly premium and an annual deductible. The exact terms depend on contracts through private plans that compete in part by offering lower costs or greater coverage. For example, coverage may include 75% of the costs of covered drugs once the deductible is satisfied, up to approximately $2,500 in drug costs. A gap, or “doughnut hole,” in which no coverage is provided occurs above the $2,500 limit but is being gradually eliminated over the next few years. Once an enrolled individual reaches a “catastrophic level” of total annual drug costs of about $5,000, Medicare pays 95% of the additional cost of drugs.

Medicaid

Medicaid is a federal plus state program designed to pay for health services for specific categories of poor people and other designated categories of individuals. In the basic program, the federal government pays a variable amount of the cost ranging from 50 to 83%, depending on the per capita income of the state. These funds are designed to match the funds provided by a state based on the state’s Medicaid formula. All states have chosen to be part of the basic program and therefore must provide benefits for such groups as the disabled, children, and pregnant women based on the federal poverty level. The federal poverty level for a family of 4 is currently slightly under $25,000 per year. Thus, there have been a substantial number of poor and near-poor individuals, especially men, who have not been eligible for the basic Medicaid program. As we will discuss later in this chapter, eligibility for Medicaid is being expanded under the Affordable Care Act in states that choose to participate.

States at their discretion may include and receive federal matching funds for other categories of “medically needy” and may increase the eligible income level up to 185% of the federal poverty level. Most states cover custodial care in nursing homes for eligible individuals who have limited financial resources. As a result, Medicaid has become the largest source of insurance funds for nursing homes. b

In order to obtain federal matching funding through Medicaid, states that administer the program must provide basic services that include most inpatient and outpatient services, including preventive services. States may choose to offer other services, and the federal government will provide matching funds for a wide range of services including drugs, eyeglasses, and transportation services. Thus, for those who are eligible for Medicaid, the coverage is usually quite comprehensive. However, the reimbursement rates to clinicians are often comparatively low, and clinicians may choose not to participate in the Medicaid program.

A program begun in the late 1990s called the State Child Health Insurance Program (SCHIP) provides additional funds that states may use to enhance the health care of children. This may include raising the income level for Medicaid eligibility, starting eligibility more rapidly, and ensuring longer periods of eligibility. In 2009, Congress expanded and made this program more flexible, utilizing funds from an increase in the tax on cigarettes.

Medicaid now covers approximately 50 million individuals, about half of whom are children. Funds spent on the elderly, who constitute less than 10% of Medicaid beneficiaries, exceed those spent on children. The rising costs and increasing number of individuals eligible for the Medicaid program have led many states to require that Medicaid enrollees become members of a Medicaid-managed care organization in an effort to reduce costs and improve continuity of care.

WHAT TYPES OF EMPLOYMENT-BASED HEALTH INSURANCE ARE AVAILABLE?

Employment-based insurance is the largest single category of insurance coverage in the United States. Approximately 50% of all Americans have the option to purchase some form of this type of insurance.

Employment-based insurance is in large part an accident of history. During World War II, employers were prohibited from raising wages. Instead, they offered healthcare benefits. Employment-based insurance grew rapidly in the 1950s and 1960s based on a principle known as community rating. Community ratings implied that the cost of insurance was the same regardless of the health status of a particular group of employees. Community rating has since been replaced by what is called experience rating or medical underwriting. This concept means that employers and employees pay based on their groups’ use of services in previous years. c

In the 1950s and 1960s and in many parts of the country well into the 1990s, employment-based insurance provided payments to clinicians and hospitals based almost entirely on fee-for-service payments, often using the customary, prevailing, and reasonable criteria. Fee-for-service, as its name implies, consists of charges paid for specific services provided, and as a payment system, it encourages the provision of as many services as possible. Thus, this system has been accused of increasing healthcare costs through overuse of services.

In 1973, the federal government began to encourage an alternative approach to employment-based insurance called health maintenance organizations (HMOs). HMOs charge patients a monthly fee designed to cover a comprehensive package of services. Clinicians or their organizations are paid based upon the number of individuals that enroll in their practice. Their compensation is based on what is called capitation, which is a fixed number of dollars per month to provide services to an enrolled member regardless of the number of services provided. Classic HMOs are traditionally “staff model” HMOs, like Kaiser Permanente, that directly or indirectly provide the entire package of services.

Capitation, as opposed to fee-for-service, has the potential for underuse of services in an effort to reduce costs. HMOs, in contrast to a fee-for-service system, generally cover preventive services and thus argue that they do a better job of keeping people healthy. d

Classic fee-for-service systems and classic staff model HMOs represent the two traditional models of employment-based health insurance in the United States. Beginning in the 1990s, both these systems began to change in ways that brought them closer together.

Fee-for-service systems often evolved into what are called preferred provider organizations, or PPOs. Staff model HMOs developed options for what are called point of service plans (POSs). PPOs imply that the fee-for-service insurance system decides to work with only a limited number of clinicians, called preferred providers. These providers, who form the plan’s network, agree to a set of conditions that usually includes reduced payments and other conditions. Patients may choose to use other clinicians in what is called out-of-network care, but if they do so, they typically will pay more out of pocket.

Point of service plans imply that patients in an HMO may choose to receive their care outside the system provided by the health plan. Like a PPO patient who goes out of network, patients who choose the POS option must expect to pay more out of pocket. PPOs and POSs are today the most common forms of employment-based insurance. They now come in a variety of forms and together can be called mixed models. An employer may offer its employees a number of complicated mixed model choices, as well as ones that are closer to the classic fee-for-service plus HMO staff model, or classic HMOs. To better understand the types of options faced by employees, take a look at Box 11-2.

The basic elements of Medicare, Medicaid, and employment-based health insurance have been in place for several decades. A big change occurred in March 2010, when President Obama signed the Patient Protection and Affordable Care Act, often referred to as the Affordable Care Act (ACA) or Obamacare. The ACA legislation, which remains controversial, is in the process of being implemented. The law is a massive piece of legislation that will touch nearly every aspect of the U.S. healthcare and public health systems. However, it is important to recognize that the ACA is first and foremost what President Obama characterized as health insurance reform.

BOX 11-2 Prototype Health Insurance Options

Let us imagine that you go to work for a large employer that offers a full range of comprehensive health insurance options. The options fall into three basic categories: fee-for-service classic, mixed-model, and HMO classic. Your employer offers the following chart ( Table 11-1 ) comparing the benefits and costs of each of these three options. Employers often subsidize the cost of insurance for the employee but not for the rest of the employee’s family.

Now, let us put ourselves in the position of those who may need to choose among these options and think about which option they might choose.

• A healthy, single, 22-year-old male right out of college with an income of $30,000.

• A healthy, 30-year-old, recently married professional who intends to start a family in the next year. Their family income is $60,000.

• A 40-year-old married employee with a family of four with a family income of $80,000. Both husband and wife require ongoing treatments to prevent illness, including regular preventive care and expensive medications.

• A 35-year-old single parent of two young children and an income of $30,000. The mother and children need preventive care and the mother needs regular mental health care.

• A 55-year-old single professional with an income of $250,000 and no current major medical problems.

Today these types of choices face most employees of large organizations. No one plan is likely to be the best plan for everyone. In reality, there are often far more choices, and the best choice for each employee can be very difficult to determine. The classic models are rapidly disappearing, and a wide range of mixed models are now the usual options facing employees.

TABLE 11-1 Prototype Health Insurance Options

The ACA aims to provide increased access to healthcare services by reducing the number of uninsured, who numbered approximately 50 million people, or 15% of the population before passage of the ACA. It also aims to greatly reduce underinsurance, which affected approximately an additional 25 million people, most of whom received health insurance through their employment with small businesses. Underinsurance, with its inadequate coverage for severe illness, often led to bankruptcy when major illness occurred. Let us look at key health insurance approaches included in the ACA legislation.

WHAT ARE THE KEY HEALTH INSURANCE CHANGES INCORPORATED INTO THE ACA LEGISLATION? 4

The following outlines the key health insurance changes that are incorporated into the ACA legislation.

Ensure more comprehensive and secure health insurance coverage: All insurance companies are restricted from denying coverage to those with preexisting conditions. Renewal of insurance is now guaranteed, in that insurance companies are prohibited from rescinding coverage except in the case of fraud. Caps on lifetime coverage and annual coverage are eliminated, and maximum annual out-of-pocket limits are generally required. Dependent children up to 26 years of age may remain on their parents’ health insurance coverage.

Expand Medicaid: The ACA expands the Medicaid program for citizens and legal immigrants to include all those who make up to 133% of the federal poverty level. The federal government is paying for nearly all of the cost of this expansion. However, as a result of the 2012 Supreme Court ruling, states may choose not to participate.

Individual mandate: Individuals are required to purchase health insurance or face an additional tax. Most U.S. citizens and legal residents will be required to purchase health insurance or pay the additional tax. This provision, which is central to healthcare reform, was ruled constitutional as a tax by the 2012 U.S. Supreme Court ruling. The tax will gradually increase and take into account income. In 2016, the penalties will be the greater of $695 or 2.5% of taxable income per person.

Employer mandate: Employers with 50 or more employees are generally required to offer affordable health insurance or pay a penalty. The employer mandate was needed to encourage employers to continue offering or start offering health insurance. Without such a mandate, employers may have found it profitable not to offer health insurance and let their employees purchase their own health insurance with federal subsidies, shifting more of the costs of healthcare reform to the taxpayers.

Exchanges: The health insurance exchanges, or exchanges, are Web-based competitive marketplaces for the purchase of health insurance. They are intended initially for those who must purchase individual policies or for those employed by small businesses with fewer than 50 employees that do not offer health insurance with minimum expected coverage. The legislation encourages gradual expansion of the exchanges.

Exchanges are required to offer 4 types of insurance packages with average coverage as follows: bronze, covering ~60% of costs; silver, covering ~70% of costs; gold, covering ~80% of costs; and platinum, covering ~90% of costs. For adults who are under 30 years of age and eligible to receive health insurance as an individual through an exchange, a catastrophic plan with a high deductible and lower cost will be available. Catastrophic polices must include coverage of preventive services and limited primary care coverage but will not include the package of essential benefits. Subsidies are available for purchase of insurance through the exchanges for individuals and families. For instance, a subsidy is available for a family of 4 whose income is up to 4 times the federal poverty level, which currently is slightly over $90,000.

Competition is expected to help make the cost of policies purchased through the exchanges more affordable. Insurers may adjust the cost of policies for age, family size, geographic area, and tobacco use, but the ACA limits the extent to which this can occur.

Essential benefit packages included in insurance sold through the exchanges: The ACA mandates a package of essential benefits that must be included in insurance policies sold through exchanges except for the limited option to purchase catastrophic policies for those under 30. The essential benefit package includes at least ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health, prescription drugs, rehabilitative services, habilitative services to address existing disabilities, laboratory services, wellness services, chronic-disease management, and pediatric services. Approved preventive services must be offered without cost sharing, or shifting costs to individuals. These include approved vaccines, recommended screening and preventive care for women, and preventive interventions given grades of A or B by the U.S. Preventive Services Task Force, indicating the net benefit is moderate to substantial.

Encourage cost sharing but limit its impact: Cost sharing is used as an incentive to discourage overuse of services under the ACA. Cost sharing, including deductibles and copayments, generally continues under the ACA. Limits are placed on cost sharing by the annual limit on out-of-pocket expenses. In addition, these costs will be subsidized for those with lower incomes. To encourage use of approved preventive interventions, cost sharing will not generally apply to approved preventive services. High coverage policies without cost sharing, known as “Cadillac” policies, will be discouraged by a tax to take effect in 2018.

Key provisions of the ACA, including new rules governing insurance coverage and the individual mandate, went into effect in January 2014. Implementation of the employer mandate was delayed until January 2015. Full implementation will not occur until at least 2018. However, it is already possible to speculate on what the U.S. health insurance system might look like when the ACA phase-in is completed.

WHAT MIGHT THE UNITED STATES HEALTH INSURANCE SYSTEM LOOK LIKE WHEN THE ACA PHASE-IN IS COMPLETED?

Greater protections for individuals and families: A range of provisions in the legislation provide protections for individuals and families who purchase health insurance. The legislation prohibits excluding or charging more for those with preexisting conditions. In addition, the ACA eliminates lifetime and annual caps and prohibits rescinding coverage except for fraud. These provisions should make coverage more predictable and secure with fewer personal bankruptcies due to serious illness. The availability of insurance through the exchanges should allow employees to more easily change jobs without fear of losing health insurance or needing to pay the full cost of the insurance.

Fewer uninsured: The individual mandate incorporated into the healthcare legislation as well as the penalties for businesses that do not offer adequate insurance are likely to increase the extent of coverage and reduce the problem of underinsurance. The ability of young adults to remain on their parents’ policy until age 26 is also likely to increase coverage. It has been estimated that over 30 million additional individuals will be covered, but approximately 20 million, primarily undocumented aliens, will remain uninsured even when the ACA legislation is fully implemented.

Those without health insurance receive less preventive care, are diagnosed at more advanced stages of disease, receive less treatment once diagnosed, and have a higher mortality rate. They are much less likely to have a usual source of health care and are more likely to use the emergency department for routine care. 5

More standardized coverage: The new exchanges provide standardized insurance packages with defined essential benefit packages, limits on cost sharing, and a choice of cost and payment levels. These packages are likely to be increasingly utilized by employment-based insurance as well. It should be easier for individuals and for families to compare insurance policies and know what they are purchasing.

More competition in offering insurance: The ACA ensures continuation of nongovernmental health insurance offered by for-profit as well as not-for-profit companies. The legislation encourages increased competition, including requiring the availability of multistate options in the exchanges. The ACA also creates a new type of private nonprofit health insurer, called a Consumer Operated and Oriented Plan, or “CO-OP.” CO-OPs are directed by their customers and offer individuals and small businesses insurance options through the exchanges. CO-OPs are encouraged by the ACA through subsidies of start-up costs for a limited number of CO-OPs. The impact of the increased competition is not yet clear, but greater choice and lower costs are clearly the goals.

Expansion of the exchanges: Several provisions of the ACA, including efforts to encourage multistate plans and healthcare choice compacts intended to permit selling of insurance between states and to incorporate larger employee groups in the exchanges in later years, suggest that the legislation may lay the groundwork for a regional or national approach to purchasing health insurance. Keep an eye on the success in how the exchanges are working because they are central to the success of the ACA.

Higher taxes on high-income individuals: Medicare taxes increased in 2013 for high-income individuals, who are defined as those having an income from wages of $200,000 for those filing as individuals and $250,000 for those filing jointly. A new tax on investment income of up to 3.8% was also added. The income thresholds for these taxes are not indexed to inflation so that a growing percentage of the population will be subject to these taxes in the future.

Continuing efforts to control costs: The ACA does very little to directly control costs. The changes it makes in the structure and financing of the health insurance system should have some impact over the coming decade. The need to address the cost increases that are occurring in the employment-based insurance system as well as the government-supported systems will not go away. Expect continued debate and new efforts for many years to come.

We have described the basic components of the U.S. healthcare system, including the health professionals and institutions that provide health care, and addressed issues of quality and access. We are now ready to compare the U.S. healthcare system to that of other developed countries and examine the big issue of cost. First, let us look at a framework that we can use to describe and compare healthcare systems.

HOW CAN WE DESCRIBE HEATHCARE SYSTEMS IN GENERAL AND THE UNITED STATES HEALTHCARE SYSTEM IN PARTICULAR?

One approach to describing healthcare systems is to define their characteristics using the following categories:

• Method of financing

• Method of insurance and reimbursement

• Methods for delivering services

• Comprehensiveness of insurance

• Cost and cost containment

• Degree of patient choice

• Administrative costs

Table 11-2 uses these categories to describe the complex U.S. healthcare system.

The U.S. system is often compared to those of Canada and the United Kingdom. Despite the fact that these countries have much in common, their healthcare systems have evolved in very different ways.

HOW CAN WE DESCRIBE THE HEALTHCARE SYSTEMS IN CANADA AND THE UNITED KINGDOM?

Let us use the same chart we used to describe the U.S. system to outline the features of the Canadian 6 and United Kingdom 7 healthcare systems. Table 11-3 describes the Canadian healthcare system, and Table 11-4 describes the healthcare system in the United Kingdom.

WHAT CONCLUSIONS CAN WE REACH FROM THESE DESCRIPTIONS OF THE HEALTHCARE SYSTEMS IN THE UNITED STATES, CANADA, AND THE UNITED KINGDOM?

These charts highlight key features of the three systems, while demonstrating substantial differences. When describing these characteristics, we can ask: On the spectrum of market justice versus social justice, where do the United States, Canada, and the United Kingdom lie?

TABLE 11-2 Describing the U.S. Healthcare System

Category	Description
Financing	Cost approximately 18% of GDP and rising rapidly Complicated mix of federal, state, employer, and self-pay
Type(s) of insurance and reimbursement	Employment-based insurance plus government insurance through Medicare and Medicaid provide most insurance. New exchanges provide options for individuals and small business employees. Mix of fee-for-service, capitation, and salary with incentives are the most commonly used methods
Delivery of care	Mix of practice types with private practice dominant Physicians: 33% primary care; 66% specialists Primary care increasingly based upon nurse practitioners and physician assistants Hospitalists increasingly coordinate inpatient care Need for better continuity of care between institutions and between clinicians. New Accountable Care Organizations aiming to coordinate care for Medicare recipients.
Comprehensiveness of insurance	Until recently, 15% uninsured plus half again as many underinsured. Approximately 20 million expected to remain uninsured. Health insurance with cost sharing offered through employment-based insurance and through health insurance exchanges, as well as government programs including Medicaid and Medicare. Preventive services increasing, insurance obtained through exchanges requires coverage of approved preventive services and no copayments for approved preventive services; also generally requires coverage of essential benefits. Drug benefits provided through Medicare, Medicaid, exchange-purchased insurance, and most employment-based insurance.
Cost and cost containment	Emphasis on competition as means of controlling costs, plus cost sharing by patients
Patient choice	Considerable choice of primary care and often direct access to specialty care Greatly increased access for those with comprehensive insurance with high levels of provider reimbursement
Administrative costs	High: 25–30% of total costs, including administrative costs of health insurance, clinicians, and institutions, but this does not include administrative time spent by patients and their families

TABLE 11-3 Describing the Canadian Healthcare System

Category	Description
Financing	National policy to keep expenditures under 10% of GDP Combination of provincial and federal ~70% government through taxes ~30% private insurance payments by individuals
Type(s) of insurance and reimbursement	Government insurance for basic/essential services, individual policies with subsidies for the poor for most other services Negotiated fee-for-service reimbursement with single payer for basic services
Delivery of care	Mix of practice types with private practice dominant—emphasis on physicians in primary care Physicians ~50% primary care and ~50% specialists Primary care physicians generally admit to the hospital and are responsible for continuity of care Concerns about limited access to high-tech procedures
Comprehensiveness of insurance	Three-tiered: 1. Medically necessary basic services—universal coverage. Government funded and guaranteed to all without any cost sharing, including preventive services. No private insurance allowed for medically necessary services. 2. Private insurance and government-subsidized insurance for other medical services, including drugs, long-term care, home care with government payment for needy. Negotiated bulk purchasing of drugs on formulary keeps cost down. 3. Private insurance or self-pay for dental, vision, and many nonphysician services
Cost and cost containment	Capital purchases, such as of high-tech diagnostic equipment, are regulated and at times restricted Concern about waiting time for access Negotiated fees between providers and government with government as single payer having considerable negotiating power
Patient choice	Choice of primary care physician Referral often needed to see specialists
Administrative costs	Low—approximately 15% or less of total costs

It can be argued that the United States relies most heavily on market justice, while the United Kingdom places the greater emphasis on social justice. Canada lies somewhere in between. The ACA legislation has moved the United States in the direction of social justice while relying on market mechanisms to implement the changes.

In describing these systems, it can also be useful to identify areas in which the United States has unique approaches and unique results. The following distinguish the U.S. healthcare system not only from that of Canada and the United Kingdom, but also from the healthcare systems of most other developed countries:

• The United States spends considerably more per person and as a percentage of gross domestic product (GDP).

• The United States continues to have a higher percentage of uninsured individuals, even after the implementation of the ACA.

• The U.S. healthcare system is more complex for patients and providers of care and costs far more to administer.

• The U.S. healthcare system places more emphasis on specialized physicians and on nurse practitioners and physician assistants to provide primary care.

• The United States encourages rapid adoption of technology, especially for diagnosis and treatment.

• The United States places greater emphasis on giving patients a wider choice of clinicians.

• The United States has a more complex system for ensuring quality and a unique system of malpractice law.

Equipped with all this information, we will now see if it is possible to grade or score the performance of the U.S. healthcare system compared to those of other developed countries.

TABLE 11-4 Describing the United Kingdom’s Healthcare System

Category	Description
Financing	Budget about 8% of GDP, has been rising Tax-supported comprehensive and universal coverage through National Health Service Private insurance system with overlapping coverage purchased as additional coverage by ~15% of the population with perception of easier access and higher quality
Type(s) of insurance and reimbursement	National Health Service is single payer with capitation, plus incentives for general practitioners, i.e., physicians responsible for a panel of patients Specialists generally salaried in National Health Service often earn substantial additional income through private insurance system
Delivery of care	Governmental system of healthcare delivery in National Health Service, including government-owned and administered hospitals Emphasis on physicians Primary care general practitioners ~66% Specialist physicians ~33% General practitioners generally do not admit to hospital
Comprehensiveness of insurance	National Health Service comprehensive with little cost sharing plus may cover transportation costs Incentives to provide preventive services and home care
Cost and cost containment	Overall limit on national spending (“global budgeting”) Negotiated rates of capitation and salary with government as single payer with National Health Service having considerable negotiating power
Patient choice	National Health Service provides limited choice of general practitioners Waiting lines for services in National Health Service, especially specialists and high-tech procedures Referral to specialists generally needed Greater choice with private insurance
Administrative costs	Greater than Canada, less than United States

HOW CAN A HEALTHCARE SYSTEM BE SCORED?

The Commonwealth Fund’s Commission on a High Performance Health System (the Commission)e has developed the National Scorecard on the U.S. Health System (National Scorecard). 8 The national scorecard uses a standardized set of measurements to try to objectively measure performance in 19 developed countries. Box 11-3 outlines the criteria used to score these healthcare systems and the types of measurements that are used.

Let us take a look at how the United States scores in comparison with other developed countries based upon the national scorecard.

USING THE NATIONAL SCORECARD, HOW DOES THE UNITED STATES’ HEALTHCARE SYSTEM PERFORM COMPARED TO THOSE OF OTHER DEVELOPED COUNTRIES?

The Commission scored the performance of 19 developed countries, including the United States, 14 European nations, Canada, Japan, New Zealand, and Australia. It set benchmarks high, but established realistic levels of performance for each area using the score of the top three countries as the highest standard. Thus, high but realistic performance is given a score of 100.

BOX 11-3 Criteria and Measurements Used in the Commonwealth Fund’s Commission on a High Performance Health System

The Commission’s scorecard measures the following five areas of health system performance:

• Healthy lives: National health outcomes using such measures as life expectancy, infant mortality, HALEs at age 60, limitations in activities among adults under 65, and missed school days by children due to illness or injury

• Quality: Quality of preventive, curative, and rehabilitative health care using such measures as adults and children receiving recommended preventive services; control of chronic diseases; availability of services (including mental health) after hours and on an urgent basis; hospital quality of care, including the ratio of observed to expected mortality; and preventive measures in nursing homes

• Access: Availability of care using such measures as insurance coverage, including the percentage of uninsured and underinsured, as well as the impact of the cost of insurance

• Efficiency: Inappropriate, wasteful, or fragmented care using such measures as emergency department use for routine care, hospital admissions for preventable conditions, short-term readmission rates, and costs of administration

• Equity: Disparities in health services and health outcomes by racial/minority status and income using such measures as access to preventive and acute services, control of chronic diseases, insurance coverage, and measures of healthy lives

The scores from each of these areas are added together to produce overall scores.

The Commission has scored the performance of these 19 countries three times, most recently in 2011. The scores in the United States changed very little over the period of 2006 to 2011.

TABLE 11-5 Performance of United States Compared to Best Performing Countries—2011

Area of performance	U.S. score (out of 100)
Healthy lives	70
Quality	75
Access	55
Efficiency	53
Equity	69
Overall score	64

Data from The Commonwealth Fund. Commission on a High Performance Health System. Available at http://www.commonwealthfund.org/Publications/Fund-Reports/2011/Oct/Why-Not-the-Best-2011.aspx . Accessed August 10, 2013.

Table 11-5 summarizes the performance of the United States on each of the criteria, as well as the overall score.

The score for access will hopefully improve on future surveys as the ACA changes in health insurance are fully implemented. Perhaps the greatest negative aspect of the U.S. healthcare system is the issue of high and escalating costs. This is reflected in the U.S. score for efficiency of 53 on the Commonwealth score. Let us complete our look at the U.S. healthcare system by examining the options for controlling costs.

HOW CAN THE COSTS OF HEALTH CARE BE CONTROLLED IN THE UNITED STATES?

To understand the options for controlling costs, it is important to first understand the reasons that costs are increasing. The United States is not alone in facing increased costs for health care. There are a number of forces at work in most developed countries that increase and most likely will continue to increase the costs of health care, including the following:

• The aging of the population: The success of public health and healthcare efforts over the last century has produced a population that is living longer. Longer life is strongly associated with the development of chronic diseases, many of which require expensive care over many years or decades.

• Technological innovations have greatly expanded treatment options: A wide range of interventions is now possible, some of which can have dramatic impacts on longevity and the quality of life. However, many others produce very modest improvements at high costs. It may be difficult to distinguish these different types of results.

• The successes of medical care over the last half century have raised the expectations of patients: Greater expectations for access to technology, preventive interventions, individualized care, rapid access to care, privacy, and protection of confidentiality are now all possible, but often are quite expensive.

Nearly all developed countries face these forces to a greater or lesser extent. Many countries in Europe, as well as Japan, face an even more rapidly aging population than the United States. How the healthcare systems respond to these challenges will determine in large part the overall costs of health care in each country.

The United States, however, also faces some issues to a far greater extent than other developed countries. The United States healthcare system has a far more complex, diverse, and changing structure. The sheer complexity of the system has led to a need for multiple levels of administration, which are not required in most other countries, where care is often paid by one source called a single payer. In addition, patients in the United States are often expected to fill out and process complex insurance applications and claim forms. Clinicians are often required to bill for each service provided, justify the services provided, and, in many cases, obtain approval for payments prior to treating patients. Today, a clinician’s office usually has far more individuals involved in administering the system compared to those directly delivering care to patients.

The United States also has a far more complex and changing system of quality control. As we have seen, healthcare quality is monitored and maintained via a system that includes accreditation, certification, licensure, and malpractice, to name a few. The direct and indirect costs of this system may themselves contribute to the large and escalating cost of health care.

The Institute of Medicine recently examined the excess costs that are built into the U.S. systems of delivering and paying for health care. 9 Box 11-4 describes its findings.

A variety of efforts has been and efforts are continuously being made to reduce costs in the United States. These include:

• Cost control through reimbursement incentives: The concept of capitation has been widely used as a mechanism for controlling or reducing costs. A special form of capitation, diagnosis-related groups (DRGs), has been successfully used to reduce the length of stay in hospitals. DRGs pay hospitals a set amount for a particular diagnosis, regardless of the length of hospital stay. However, reimbursement systems at times have moved the costs from one part of the system to another. Restrictions on payment for procedures may increase the number of procedures performed. Restriction on inpatient reimbursement may encourage an increase in outpatient or home care services.

BOX 11-4 Excess Costs of Health Care in the United States

The Institute of Medicine has identified the following six categories of excess costs of health care. For each category, the institute indicates the types of excess costs that occur. In addition, it has estimated the potential annual savings from each of the six categories of excess costs.

Unnecessary services and overuse—beyond evidence-established levels—$210 billion

• Discretionary use beyond benchmarks

• Unnecessary choice of higher-cost services

Inefficiently delivered services—$130 billion

• Mistakes—errors, preventable complications

• Care fragmentation

• Unnecessary use of higher-cost providers

• Operational inefficiencies at care delivery sites

Excess administrative costs—$190 billion

• Insurance paperwork costs

• Insurers’ administrative inefficiencies

• Inefficiencies due to care documentation requirements

Prices that are too high—$105 billion

• Service prices beyond competitive benchmarks

• Product prices beyond competitive benchmarks

Missed prevention opportunities—$55 billion

• Primary prevention

• Secondary prevention

• Tertiary prevention

Fraud—$75 billion

• All sources—payers, clinicians, patients

Together, these excess costs come to over $750 billion per year, or approximately 25% of the dollars the United States spends on health care. Efforts to reduce these costs provide great opportunities for controlling healthcare costs without jeopardizing quality or access.

Data from Institute of Medicine. The Healthcare Imperative: Lowering Costs and Improving Outcomes-Workshop Series Summary. Available at: http://iom.edu/Reports/2011/The-Healthcare-Imperative-Lowering-Costs-and-Improving-Outcomes.aspx . Accessed June 27, 2013.

• Cost sharing: This involves efforts to shift the costs of health care to individuals on the assumption that individuals will spend less when the costs are coming out of their pockets. Methods such as deductibles, copayments, and caps are all intended to reduce costs by shifting them to individual patients.

• Regulation: At times, efforts have been made to reduce costs by placing limits on how much care can be provided or how much compensation can be provided. Government-controlled health insurance, such as Medicare and Medicaid, is most easily targeted for these types of regulation. The national issue of rates of compensation for clinicians and hospitals has become part of the political process.

• Restrictions on malpractice: It has been argued that the U.S. malpractice system encourages clinicians to practice “defensive medicine”—that is, to perform unnecessary tests to protect themselves against lawsuits. The extent of the problem and the impact of changes in malpractice are controversial, but efforts are being made to reduce the number of lawsuits that reach the court system and to restrict the amount of compensation that can be awarded beyond actual damages.

A more general approach to reducing costs favored by many in the United States is to increase competition between providers of health services, including institutions and individual clinicians and groups of clinicians. To better understand the potential for competition to succeed and the changes that are occurring to encourage competition, take a look at Box 11-5. 10

BOX 11-5 Using Competition to Control Costs

The healthcare system in the United States is perhaps the most market-oriented system of any major nation. To successfully control costs through market mechanisms, a number of characteristics of a well-functioning market need to be in place. It has been argued that, until recently, the U.S. healthcare system has not reflected most of these characteristics. Advocates of a market approach often share these concerns, but argue that it is possible to modify the U.S. healthcare system so that it functions as a better market system.

Let us take a brief look at key features of a well-functioning market, examine the extent to which the U.S. healthcare system fulfills these conditions, and examine changes that are being made or considered to move the United States toward a more efficient market-based system.

• Informed purchaser: An informed purchaser is a key requirement for a well-functioning healthcare market. In the U.S. healthcare system, the employer often serves an intermediary role in selecting the health plans from which their employees may choose. Until recent years, employers paid little attention to the details of the health plans that they offered. However, that habit is changing rapidly. Cost information is now widely available to both employees and employers, and quality measures are also becoming available. Employers often rely on accreditation standards, such as those of the National Committee for Quality Assurance, which now accredits a range of types of health plans and group practices. In addition, data on outcomes for surgical and medical procedures is increasingly available at the level of the hospital and group practice. In terms of purchasing health insurance, the exchanges are required to provide an increasing amount of information. In addition, health insurance navigators must be provided to assist consumers in choosing between insurance offerings provided through the exchanges.

• Purchasing power: The second requirement of a well-functioning market is the ability of those who need the product to have the purchasing power to obtain it. The subsidies that are available for health insurance purchased through the exchanges are designed to provide purchasing power to a wide range of previously uninsured and underinsured consumers.

• Multiple competing providers: Well-functioning markets give purchasers a choice of service providers. Consumers’ choices then generally favor providers who offer the services at reduced costs and/or increased quality. The availability of choices for employed individuals has increased in recent years, especially for those whose employers pay a substantial portion of the premiums. Employees of large firms and organizations typically have a range of choices and can choose their health plan based on criteria including cost, quality, and/or convenience. For health insurance purchased through exchanges, two or more insurance providers are required, as well as choices between bronze, silver, gold, and platinum plans.

• Negotiation: Negotiation is the key to putting information, purchasing power, and competition together. These negotiations increasingly take place through the employer. However, labor unions are becoming more involved in issues related to health benefits as well because health insurance constitutes an increasing percentage of their current, as well as future, benefits. The individual employee often has little negotiating power and needs to rely on his or her employee representatives and/or employers.

If the U.S. healthcare system continues to move in the direction of becoming a competitive healthcare market, it will need to ensure that these conditions are fulfilled as much as possible.

Understanding healthcare systems is a challenge for patients, as well as those who work in the system. Understanding the roles of healthcare professionals, institutions, and the issues of quality, access, and cost help us understand the system as a whole.

A well-functioning healthcare system is essential to the public’s health. An efficient system that works in concert with organized public health efforts and leaves adequate financial resources to invest in programs directed at the health of the entire population is a key goal. The population health approach thus needs to pay considerable attention to the workings of the public and private healthcare system, as well as the workings of the public health system.