Health Reform in the United States: Medicaid Expansion

The Affordable Care Act introduced several significant strategies aimed at increasing access to medical coverage for the millions of Americans without health insurance in 2010. A primary option presented to states was a substantial expansion of their Medicaid program. In order to accomplish this the eligibility threshold was increased to include individuals with incomes up to 138% of the Federal Poverty Line (FPL). The Congressional Budget Office projected a total enrollment increase of 24 million by 2016 if all 50 states elected to participate in Medicaid expansion. As an incentive for participation the federal government pledged to cover 100% of the additional costs through 2016 and a minimum of 90% in subsequent years. It is important to note that the standard CMS/state cost share arrangement for Medicaid is 57-43.

As of the date of this post 27 states and the District of Columbia have chosen to participate in Medicaid expansion, while 22 have not. The initial results in expansion states are promising as they appear to indicate a positive effect on enrollment. Medicaid enrollment has increased by 4.8 million individuals since 2012 at an average rate of 12.9% per year. The latest CBO projection has this figure approaching 13 million by 2015. Even in those states which have declined to participate there has been an uptick in enrollment of 2.6%. In addition to the increase in access the actual cost growth for states will ultimately be negligible. A CBO review of Medicaid expansion costs projects that states will on average carry only a 1.6% higher burden due to expansion through 2024.

It is interesting to consider the impact that generally favorable results from an access/cost perspective would have on public opinion polling. Prior to ACA implementation there was a slightly positive view of the ACA as according to a Gallup survey 53% of respondents approved of the upcoming health reform package. Following a difficult launch in 2012 which included website issues, confusion over eligibility and an attempt by Congressional Republicans to repeal the law, public approval of the ACA dipped significantly to 43%. These results have remained largely consistent even with the publication of data suggesting that a significant number of individuals have gained access to coverage. This may be due in part to political ideology as there is a direct link between party affiliation and opinion of healthcare reform, in that 79% of self-identified Democrats approve of the ACA versus only 8% of Republicans.

Physical Therapy and Critical Care

Traditionally physical therapy has been most utilized in the rehabilitation of non-life threatening injuries due to an activity or occupation. However a need for physical therapy in critical care settings has emerged in recent years. This is due to several factors including a high ICU survival rate, patient demographics, and an overall shift in healthcare philosophy towards a collaborative team-approach to care delivery.

Factors supporting expanded physical therapy practice in an ICU environment

In examining the potential reasons for inclusion of physical therapists in a critical care environment it’s important to consider the ICU patient population. There is a significant amount of data available concerning the make-up of this group. Over 4 million people were admitted to the ICU in 2005, with an average age of 66.7. Patients who are beyond retirement age present distinct physical challenges and are especially vulnerable to long stays in the ICU. This combined with a relatively low ICU mortality rate of 8%, which has been steadily declining over the past twenty years means that hospitals have been forced to place greater emphasis on rehabilitative care for critical patients both during their stay, after transfer to a non-intensive floor, and following departure from facility.

A third factor is the increased focus on healthcare delivery as a team-based process primarily concerned with collaboration across providers to promote efficiency. Hospitals and clinics are beginning to implement systems that use a healthcare home model as a foundation for providing services to patients. The Affordable Care Act reinforces this shift in philosophy with projections for significant cost savings as a result of promoting preventative and rehabilitative strategies. This has the potential to make a significant impact in ICU spending as this area of care accounted for $81.7 billion and 13% of total hospital costs in 2005. The primary factor driving costs related to the ICU is patient length of stay. Utilizing physical therapists would appear to have the potential to reduce the average time that a patient remains in an intensive or critical care unit. A 2008 study published in the Journal of Critical Medicine found that providing mobility therapy to critically ill patients both reduced length of stay in the ICU, and overall number of days spent in the hospital.

Physical therapy programs adapting curriculum to meet critical care needs

As a way to better meet the increased need for physical therapists in critical care settings, institutions providing training in physical therapy have begun to develop curriculum to prepare graduates for potential work in the ICU. The University of Buffalo published a report in the American Journal of Physical Therapy which detailed its addition of an extensive critical care simulation with an initial involvement of 43 physical therapy students. Study coordinators measured student confidence in managing care for a patient in the ICU both prior to and following participation in the curriculum and simulation. Overall student confidence increased from ‘somewhat confident’ to ‘confident’ and associated response to the simulation was extremely positive. Similar simulation strategies using both electronic and live resources have been utilized by other physical therapy programs as detailed in the Cardiopulmonary Physical Therapy Journal.

Obesity: A Clear and Present Public Health Crisis in the United States

Over the past thirty years obesity has emerged as the most pressing chronic disease in the United States. The increase in fast food restaurants and casual dining establishments, have mirrored the rise in technology and sedentary careers. Americans eat the majority of their meals outside the home and most come in the form of cheap calories based heavily around subsidized crops such as corn. The easy availability of corn based food products has also drastically changed the options available at grocery stores. Items high in calories, saturated fat, and sodium such as chips and processed meals are significantly less expensive than nutrient rich foods like vegetables, fruits and lean meats including chicken and fish.

Obesity epidemic

A significant percentage of American adults (35.7%) are currently classified as obese, or having a body mass index score greater than or equal to 30. This is a group that has expanded dramatically since 1980 when only 13% of US adults were identified as obese. Demographically obesity especially impacts those who occupy lower-education levels and ethnic minorities. Rates for Blacks (49.4%) and Hispanic Americans (39.1%) are much higher than those of non-Hispanic Whites (34.3%).

Healthcare costs tied to obesity related illnesses account for a significant portion of overall expenditures. The CDC estimates that around $150 billion is spent annually treating obese patients a figure that represents 10% of total healthcare spending in the United States. Not only is obesity a primary contributor to rising healthcare costs at a national level but for individuals as well. The average obese patient spends $1,429 more per year on medical care then a patient at a healthy weight.

Strategies for managing obesity available at weight loss clinics

In response to the overwhelming demand for preventative strategies to combat weight gain and obesity numerous treatment options are currently being offered at designated weight loss clinics around the country. Many of these facilities offer extensive counseling related to eating and exercise habits from trained nutritionists and medical physicians. These services can be enhanced through the use of customized diet and exercise plans that are constructed specifically for an individual based on their behavior, family history, and resources available. In addition to coaching and program development it is common for weight loss clinics to provide guidance on prescription medication that can increase metabolism and reduce appetite.

Aggressive treatment options are increasingly available at weight loss clinics. Minimally invasive procedures such as gastric-bypass surgery, lap-band, duodenal switch, and realize band can promote extreme weight loss and may be a good fit for patients who are morbidly obese as being 100 pounds or more overweight is the second leading cause of preventable death in the United States. According to the CDC 18 million individuals fall into this classification, a number that is expected to continue to rise in the future. Unsurprisingly the number of bariatric procedures performed has risen dramatically in the last twenty years from 16,000 in 1990 to 158,000 in 2005. Insurers have increasingly offered supplementary coverage for elective weight loss surgery, and it may also be partially covered by Medicare for elderly patients who are able to meet several specific criteria.

The Postponement of Mandated Employer Insurance Coverage

The continued implementation of the health reform package known as the Affordable Care Act has been partially delayed by the treasury department due to stated concerns from the business sector over the mandate to provide full-time employees with medical coverage or face a fine of up to $3,000 per individual.  In general this is a further representation of the conflict that exists between supporters and opponents of the entire health reform bill. It was only three years ago that the United States engaged in an extremely contentious debate over what form alterations to the healthcare system should take. Ultimately the product of this debate was the ACA that is considered by most to be an imperfect and uneasy compromise that has the potential to improve access and drive down healthcare cost growth over the long term.

Employer mandated coverage delay may not impact many businesses

While the vast majority of the affordable care act implementation is unaffected by the treasury department decision there are several specific components that will be pushed back at least until 2015. The central issue of course is the mandate for employers with over 50 full-time staff members to provide insurance coverage. While this was very well publicized and critics within the business community were prominently featured on news networks in the days following the announcement it may actually have little impact on a broad scale. This is due to the fact that over 90% of employers of this size already provide insurance coverage to full-time employees. A study cited by NBC News projected that less than 6% of businesses in the United States over the employment threshold would have potentially faced a government fine.

Support for delay likely driven by political considerations

It appears likely that the concerns voiced by opponents of the business mandate specifically and reform in general is framing these objections to position themselves politically for the upcoming mid-term elections in 2014. For instance House Speaker John Boehner was quoted as saying that "If businesses can get relief from Obamacare, the rest of America ought to be able to get relief as well," and following that up with a commitment to a House vote on delaying the individual mandate for coverage.  This sentiment was echoed by House majority leader Eric Cantor who stated "I never thought I'd see the day when the White House and the president came down on the side of big business but left the American people out in the cold.” Clearly Republicans in Congress view the delay as a major opportunity to push for further weakening of healthcare reform. This could significantly damage public confidence in the ACA and provide an anti-reform platform for conservative Congressional candidates in 2014. The absence of the employer mandate for a year also reduces the amount of revenue that was to be expected through fines and increased need for individual subsidies. A primary funding source for the affordable care act is through penalties and fees and without which the cost to taxpayers could rise substantially. As the national deficit is a constant area of concern for the American public and government spending is a popular topic around election season, a more expensive ACA presents an easy target for politicians.

Historical Weaknesses of Healthcare Delivery in the United States

Healthcare resources haven’t equaled quality care

It seems to be a common belief that because the United States spends by far the most per capita ($7,290, 2.5 times higher than the OECD average) on health services, that it must also be providing the highest quality of care. In looking at comparative health data this appears to only be sporadically true. The United States has an infant mortality rate of 6.7, which is significantly higher than the OECD average of 4.7. It’s also middle of the pack in life expectancy (28^th in the world, at 78.2 years), trailing far behind countries like Japan (86.4 years) that spend about a third as much as the U.S. per capita. In terms of access, the United States is the only OECD country that has a significant population that has been left uncovered by the healthcare system. Staffing is another measure where the United States lags behind the OECD average, with regard to doctors per capita (2.7 physicians per 1,000, OECD average is 3.1), and nurses per capita (8.1 per 1,000, OECD average is 9.0).

Historical system inefficiency tied to crippling administrative costs

A primary factor in the rise of health care costs has been escalating financial inefficiency in the form of extraordinarily high administrative expenses present in both the private and public sectors. A Harvard study conducted in 1999 found that healthcare costs associated with administration were $294.3 billion and equated to $1,059 per capita in the United States. It’s important to remember that these aren’t costs for providing actual medical care, but rather the bureaucratic processes involved in maintaining the system. Overhead costs, particularly in the private insurance sector made up a sizable percentage of overall administrative costs. In 1999 for instance, private insurance entities spent 11.7% of total premiums collected on administrative overhead, compared with Medicare (3.6%), and Medicaid (6.8%). Hospital administration also accounted for a significant percentage of total costs (24.3%), at $315 per capita. In order to put the high level of these costs into context the study compared the data with that from equivalent sectors in the Canadian health care system. The administrative costs in the United States were consistently much higher than those in Canada, especially when considered at a per capita level. Total administrative costs were $1,059 per capita, compared to only $307 in the Canadian system. It’s important to note that Canada operates under a publicly funded national health system, whose uniformity effectively cuts out much of the bureaucracy, and allows for the elimination of many of the administrative expenses present in the public/private system.

Rise of medical malpractice awards and insurance

One of the primary concerns both inside and outside of the health industry in recent years has been the increase in the amount physicians are required to pay for malpractice insurance and an associated reduction in the workforce. This has mirrored a general rise in the number of annual malpractice lawsuits over the past 50 years in the United States. Data presented in the Journal of Health Affairs indicated an increase from 1.5 suits per 100 physicians in 1956 to 15 lawsuits per 100 physicians in 1990. The average amount of damages paid has also risen dramatically moving from $154,000 in 1991 to $291,000 by 2003. In an effort to combat this trend 38 states have adopted policies that place a cap on the maximum amount of damages that may be awarded. Typical limits are $250,000 for suits against individual physicians and $500,000 for those involving hospitals or clinics.

The ACA and SHOP

The health reform package known as the Affordable Care Act or “Obamacare” is scheduled to begin full scale implementation in 2014. This will effect up to 20 million individuals who will become eligible for medical insurance coverage through the expansion of government programs such as Medicaid. In addition to the extensive measures taken to broaden access to publicly provided coverage is the establishment of state insurance exchanges for both individuals and small businesses.  These present the potential for greater consumer choice and the ability to receive a comprehensive level of medical benefits at a subsidized price.  Additionally the ACA introduces several strategies to address the historical difficulty of small firms to provide medical benefits to their employees due to prohibitively high costs.


A primary component of the affordable care act specifically for use by small businesses is known as the Small Business Health Options Program (SHOP). Similar to state insurance exchanges that will offer government subsidized and regulated individual insurance plans SHOP provides a competitive marketplace for companies with 50 or less employees to acquire coverage. A key feature of this program is the opportunity for businesses to qualify for significant tax credits of up to 50% of their total premium costs. Small businesses with less than 50 employees are also exempted from the general requirement to provide a minimum level of health insurance coverage by 2017. The eligibility requirements for a maximum tax credit include employing 25 or under full-time employees, with an average salary of $50,000, and employer coverage of at least 50% of premiums.

The Congressional Budget Office (CBO) projects that as many as 4 million small businesses may qualify for either partial or maximum tax credits once the SHOP program becomes fully implemented in 2016. In addition the CBO expects at least $40 billion in tax credits will be awarded to small businesses over the next ten years. These estimates are supported by a report published by the Urban Institute projecting a 6% increase in the number of businesses with 100 or less employees who will be able to offer insurance coverage as a result of provisions such as SHOP within the Affordable Care Act. This increase in access will likely be due in part to the projected 7.6% drop in per capita costs to small businesses and larger numbers of employees purchasing subsidized insurance coverage through a state exchange.

Insurance companies operating in state exchanges must provide minimum level of health benefits

It is important to note that both the individual and SHOP exchanges will operate under strict guidelines with regard to the services that must be covered by participating insurance providers. There are ten medical services identified by the ACA as essential health benefits. These include ambulatory patient services, emergency services, hospitalization, maternity and newborn care, hospitalization, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness and chronic disease management, and pediatric services. This provides a reasonable amount of assurance for consumers and businesses that measures have been taken to preserve quality of care in an era when insurance companies may have greater incentive to restrict services covered under policies offered in state insurance exchanges.

 

Healthcare in Europe

Healthcare delivery on the European continent has traditionally reflected a strong government presence in design that echoes political history and cultural expectation. The vast majority of countries have established publicly funded and administered healthcare systems that rely primarily on tax revenue and a high level of public trust. In general this structure has been associated with a high level of efficiency, access, and quality of care across many western European countries. A study conducted in 2007 by the World Health Organization (WHO) measured and ranked the efficiency of 181 countries healthcare systems. All of the nations in the top 7 were located in continental Europe and included France, Italy, and Spain.

Using single payer and hybrid models as routes to success in healthcare delivery

Both France and Italy have utilized a single-payer model in providing coverage of medical services directly to all citizens and legal residents who reside within their borders. Important features of this model include financing that comes in the form of both income/corporate and value added tax revenue. Choice is a central feature in both systems as individuals are free to choose their providers, often this begins with a general practitioner who has the authority to both prescribe medication and refer patients to specialists.

A second approach to healthcare in Europe has been established in Germany and involves a public-private partnership approach similar to that which served as the foundation of the Affordable Care Act recently passed in the United States.  Under the German model health insurance coverage is mandatory for all citizens and legal residents and is provided by non-profit, heavily regulated insurers.

These two strategies have produced generally positive results in both access, quality of care, and efficiency.  France and Italy have achieved nearly universal coverage and boast above average life expectancies, low infant mortality rates, and low administrative costs[i].

Russia

In stark contrast to the high quality of care being provided by the countries discussed above is the growing health crisis in Russia. On the surface it would seem that they have implemented a functional universal healthcare system operated by a central government agency in the Ministry of Health. However the Russian system is one marred by a general lack of public trust in insurance providers, government corruption, an inability to offer adequate health services in rural areas, and an adherence to a “polyclinic” style of delivery that emphasizes quantity of patients served over quality of care. These issues are reflected in a relatively low life expectancy[ii], high infant mortality[iii], and with only 6% of GDP devoted to providing health services there doesn’t appear to be the resources available to introduce meaningful reform.

Effect of European austerity on drug coverage

The future of universal healthcare systems across Europe is uncertain due to the recent economic downturn that has forced many countries such as Italy, Greece, and Spain to drastically cut government spending.  An area of healthcare that has been especially impacted by cuts is prescription and over-the-counter drug coverage. Countries have responded to austerity by reducing negotiated drug costs while at the same time shifting the burden of payment to its citizens. For example Italy has introduced an additional €10 co-pay on all prescription drug orders. Drug companies operating in Europe have experienced an associated reduction in product sales and instituted large-scale layoffs[iv] that have worsened already tenuous economic conditions on the continent.

 

Sources

Novak, S. (2012, February 13). Austerity in Europe Puts Pressure on Drug Companies. Retrieved May 13, 2013, from New York Times: http://www.nytimes.com/2012/02/24/business/austerity-in-europe-puts-pressure-on-drug-companies.html?pagewanted=all&_r=0

OECD. (2012). OECD Health Data: 2012. Retrieved May 13, 2013, from OECD: http://www.oecd.org/els/family/CO1.1%20Infant%20mortality%20-%20updated%20081212.pdf

Reuters. (2013, April 28). Austerity Having A 'Devastating Effect' On Health, Researchers Find. Retrieved May 13, 2013, from Huffington Post: http://www.huffingtonpost.com/2013/04/29/austerity-health-reduces-healthcare-increases-depression_n_3175576.html

The Commonwealth Fund. (2012, November). International Profiles of Healthcare Systems: 2012. Retrieved May 13, 2013, from thecommonwealthfund.rog: http://www.commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2012/Nov/1645_Squires_intl_profiles_hlt_care_systems_2012.pdf

University, J. H. (2012, March 8). Structure of the German Healthcare System. Retrieved May 15, 2013, from American Institute for Contemporary German Studies: http://www.aicgs.org/issue/structure-of-the-german-health-care-system/

 

 

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[i] [i] Life expectancy:

France: 78 M/85 F

Italy: 80 M/ 85 F

 

Infant Mortality:

France: 3.3/1000

Italy: 3.36/1000

 

[ii] Russia life expectancy: 60.4 M/74.1 F

[iii] Russia infant mortality: 15.13 per 1000

[iv] Pharmaceutical job cuts (2007-2012):

AstraZeneca-28,000

Novartis-2,000

Pfizer-6,000

Affordable Care Act

The inefficiency and excess costs associated with the healthcare system in the United States has been of primary concern to lawmakers since the early 1990’s, when the Clinton administration tried unsuccessfully to get a bill passed that would have fundamentally changed the way healthcare is delivered and administered in America. Since that time the primary cost issues associated with the healthcare system have continued to worsen, and with the rise of chronic disease reached an unsustainable level. The rise in costs has both facilitated and resulted from the enormous number of people who are uninsured, topping 50 million in 2010 (1). With this level of lack of access given the amount of resources being devoted, it was unsurprising that the Obama administration decided to make healthcare reform one of it’s most immediate priorities.

The country engaged in a heated national debate on the best strategy to address the given system issues. An early casualty of this debate was the idea of transitioning to a single-payer system similar to those previously implemented in many other industrialized countries. While most of the research showed that this would dramatically reduce costs associated with administration, it also made people uncomfortable in that to some, it brought to mind images of a socialized political system getting dangerously close that of China or communist Russia. This fear was used as a tool by lobbyists and politicians to fight against the notion of any fundamental change in the structure of the current system.

One of the other major points of contention was the proposed “mandate” for insurance coverage. This is a provision that established a time period (ending in 2014) for people to gain access to the system and then face a significant tax-penalty ($95 in 2014, moving to $325 in 2015, and $695 in 2016, then based on cost of living thereafter) if they were still without coverage (2). The thought process behind the mandate seems to be that it would reduce the costs associated with catastrophic illness suffered by those without coverage and become a significant financial burden for the institution where they are treated. A well-publicized counterpoint to this argument was that it’s unconstitutional to “mandate” that an individual purchase any product. It’s important to note that this has been the case with car insurance in most states for many years now.

At the conclusion of the healthcare reform debate, President Obama signed the Patient Protection and Affordable care act into law on March 23, 2010 (2). While it doesn’t fundamentally change the way healthcare is delivered, it does contain several important alterations to government programs as well as the individual mandate for insurance coverage. Over the course of the next several paragraphs I will attempt to summarize the major ACA (Affordable Care Act) provisions and the projected effect on costs and access. I’ll also touch on what those cost projections were before the bill was passed.

The Affordable Care Act will significantly affect Medicare, the government program tasked with providing medical benefits to the elderly in several key ways. One is through a reduction in Medicare Advantage payments that began in 2010 and is estimated to save $34.9 billion by 2020 (4). This provision is operating off of the belief, backed by data, that the Medicare Advantage program has been severely over-funded and inefficient in the way that it allocates coverage.

The bill also expands a system of oversight designed to reward/penalize high and low quality plans. This is based on a 5-star rating system and rewards those plans that receive 4 stars or more with payment increases (1.5% in 2012, 3% in 2013, 5% in 2014 and beyond). Poor performing providers are judged based off of the “medical loss ratio” and must maintain a ratio of at least 85% or pay the difference between their figure and .85 multiplied by total revenue under Medicare part C. The government retains the right to cancel a provider’s contract that fail to meet the 85% threshold for five consecutive years.

Furthermore it addresses two critical issues in the Medicare part D, or prescription drug section. There had been a well-established “gap” in coverage that left many elderly without access to prescription drugs, that is at least partially remedied with a $250 annual rebate to be provided until 2020 (2). It mandates that coverage for generic and brand name drugs that are currently in the coverage-gap be extended to Medicare enrollees. For generic drugs this started in 2011 with a minimal amount of coverage, only equaling 7% of the overall cost, enrollees were expected to cover the other 93% through coinsurance. Coverage is expanding each year and Part D will be responsible for 75% of the cost by 2020. In regard to brand-name drugs, coverage will begin in 2013 at 2.5% and while this level will also rise each year, is much more limited, and will equal 25% in 2020 (2).

The second government program that has been significantly affected by the Affordable Care Act is Medicaid. Changes to this entity are the primary strategy for increasing access to the healthcare system. According to OACT projections, 24 million individuals will gain enrollment in Medicaid by 2016 (6). It accomplishes this by raising the level of eligibility to 133% of the FPL (Federal Poverty Line) standard an increase from a pre ACA threshold of 64% FPL (2). This provision also opens up access to many who were previously uncovered because they were single, without children and not pregnant. A related component that will be simplified is the way by which Medicaid eligibility is determined. The MAGI (Modified Adjusted Gross Income) test that was used as the method for qualifying people has been streamlined. In addition this test will begin to be applied across all insurance affordability programs, available in the form of a single application. Since Medicaid is primarily a state-based program but is provided annual financial support the through the Federal Medical Assistance Percentage (FMAP), the federal government has guaranteed to cover 100% of the initial costs of covering the large number of newly eligible individuals, and then provide staggered annual financing. As it’s scheduled right now the maximum amount each state would be responsible for covering would 10% of the cost of the newly eligible (4). Essentially it shifts the financial burden from the states to the federal government, eliminating what would undoubtedly be a significant obstacle to implementation of the Medicaid reforms.

(100% 2014-2016, 95% in 2017, 94% in 2018, 93% in 2019, and 90% for 2020 and beyond)

Given the significant expansion in the state Medicaid system it’s unsurprising that associated costs are projected to rise, at least in the short-term. The estimated increase in state expenditures between 2014 and 2016 is $12.6 billion, and $80.3 billion from 2012 to 2021 (4). However there is also a large amount of expected savings coming from a sharp decrease in “uncompensated care,” once many of the existing uninsured/underinsured are covered under the expanded FPL threshold.

Another major state-based component of the ACA, is the establishment of health insurance “exchanges,” with the primary goal of boosting the ability of small businesses and low-income individuals to purchase private insurance coverage. Each state is initially provided the opportunity to establish and oversee an exchange. If they elect not to, the Department of Health and Human Services is compelled by the ACA to step in and implement an exchange, with the responsibility of oversight and regulation (7). Health insurance providers who wish to operate in a state exchange must adhere to uniform guidelines with regard to levels of coverage and benefits offered. Coverage will be provided at four set tiers including platinum, gold, silver, and bronze based on the estimated value of provided benefits. There are ten medical services identified by the ACA as “essential health benefits,” and must be covered. These include ambulatory patient services, emergency services, hospitalization, maternity and newborn care, hospitalization, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness and chronic disease management, and pediatric services (2). In addition to the requirements of exchange insurers there are qualifications that people who wish to purchase coverage in an exchange must meet. Access is restricted to those who are U.S. citizens, legal immigrants, and those who aren’t incarcerated (7).

One aspect of the state exchange system that seems a little out of place considering the content of the rest of the ACA, is the creation of a not-for-profit, member run insurance company in each state. There are specific organizational requirements that insurers of this type must meet. They must not be an existing insurer, not be sponsored by a state/local government, administration must be in the form of a majority vote of it’s members, and any profits must be used to lower premiums or improve quality of care provided to beneficiaries. In theory it appears that these insurance companies would be similar in administrative organization as non-profit credit unions like BECU. Although the initial funding to set up the program would come from a $4.8 billion federal appropriation.

Prior to the passage of the Affordable Care Act, the apparent consensus on healthcare costs in the United States was that they were rising at a rate that would become unsustainable in a relatively short period of time. This is evident in the projections published by the Congressional Budget Office (CBO) in November 2007. According to this report share of GDP devoted to healthcare would rise from 16% (already highest in the world, and a jump of 8% over the last years) to 25% in 2025 and would hit 49% in 2082. In addition the burden carried by Medicare and Medicaid would also increase substantially, from 4% in 2007 to 19% in 2082. Per capita spending on healthcare has been growing at a faster rate (4.2% since 1975, vs. 2.2%) then the economy overall.

The projected effect of the ACA on healthcare spending in the near future is available through a report compiled by the Department of Health and Human Services. According to this document the initial phase of the policy reform bill would increase overall costs by $828 billion between 2010 and 2019, as millions of individuals are added to state Medicaid plans (3). Percentage of GDP is expected to be 21% in 2019, a .2% increase from pre-reform estimates. While it would seem that the ACA at least initially fails in controlling healthcare cost growth, in theory this may only be true in the short term. This is because the ACA does seem to be modestly successful in slowing the rate of healthcare spending after the first few years of implementation. This is reflected by a .1 and .15% decrease from a reduction in Medicare payments and a .05% decrease as result of newly implemented excise taxes (3). There would also be a shift in expenses from out-of-pocket to government of $237 billion. This illustrates that while overall government spending would increase, the financial burden placed on individuals would be lessened. Conventional wisdom would assume that with less money devoted to healthcare, people would spend more in other sectors of the economy.

1 MNT. USA wastes more on health care bureaucracy than it would cost to provide health care to all of the uninsured. Medical News Today, 2004 May 28. Disponivel em: .

2 HENRY J. KAISER FAMILY FOUNDATION. Focus on Health Reform: Summary of New Health Reform Law. The Henry J. Kaiser Family Foundation. Washington D.C., p. 1-11. 2011.

3 FOSTER, R. S. Estimated Effects of the "Patient Protection and Affordable Care Act," as Amended. Department of Health and Human Services. Baltimore, p. 1-17.

4 CENTERS FOR MEDICARE AND MEDICAID SERVICES. Medicaid Program; Eligibility Changes under the Affordable Care Act of 2010. United States Government. Baltimore. 2011.

5 CONGRESS OF THE UNITED STATES. The Long-Term Outlook for Health Care Spending. Congressional Budget Office. Washington D.C. 2007.

6 NCSL. American Health Benefit Exchanges. National Conference of State Legislatures, 1 February 2012. Disponivel em: . Acesso em: 15 February 2012.

Rising Health Care Costs in America and Contributing Factors

In the last thirty years there has been a significant increase in the amount of resources the United States devotes to providing medical care. In 1980 health care costs accounted for 9% of GDP, in 2004 this number had climbed to 16%. This upward trend is also reflected in per capita costs, rising from $1,106 in 1980 to $7,290 in 2007. Clearly this has impacted total annual health care spending, increasing from $255 billion in 1980 to $2.2 trillion in 2008. Taken together these facts point to fundamental challenges facing the healthcare system in the United States. To understand how costs have climbed so rapidly in recent years it’s critical to examine several contributing factors in detail. It’s also important to compare the quality of care delivered in comparison with other nations who on average, spend significantly less per-capita, and as a share of GDP.

A breakdown of the underlying factors that have collectively had an impact on rising health care costs in the United States could begin with the emergence of chronic diseases as the most common ailment and primary cause of mortality. Over 133 million Americans are classified as having a chronic illness, accounting for almost half of U.S. adults. Close to 70% of total annual mortality, or 1.7 million deaths, are caused by the presence of one or more of these afflictions. The top three diseases for mortality (heart disease, cancer, and stroke) are all of this type. This is a far cry from the days when communicable diseases such as small pox, syphilis, polio and others, were the main health concerns in America. Not only are chronic diseases much more rampant, they are also extremely expensive to treat. In fact over 75%, of total annual health care costs or $1.6 trillion, are attributable to chronic illnesses.

The impact of chronic diseases is also evident in the current distribution of health care costs in the United States. It’s a system that has become extremely top-heavy with regard to expenditures. A significant percentage of health care expenses (49%) are centered in a relatively small population (5%). The majority (61%) of the group was over 55. In addition, the top 15 most expensive health conditions make up 44% of total spending, and all but one are classified as chronic.

Another contributing factor in the rise of health care costs has been escalating financial inefficiency in the form of extraordinarily high administrative expenses present in both the private and public sectors. A Harvard study conducted in 1999 found that costs associated with health administration were $294.3 billion and equated to $1,059 per capita. It’s important to remember that these aren’t costs for providing actual medical care, but rather the bureaucratic processes involved in maintaining the system. Overhead costs, particularly in the private insurance sector made up a sizable percentage of overall administrative costs. In 1999 for instance, private insurance entities spent 11.7% of total premiums collected on administrative overhead, compared with Medicare (3.6%), and Medicaid (6.8%). Hospital administration also accounted for a significant percentage of total costs (24.3%), at $315 per capita. In order to put the high level of these costs into context the study compared the data with that from equivalent sectors in the Canadian health care system. The administrative costs in the United States were consistently much higher than those in Canada, especially when considered at a per capita level. Total admin costs for America were $1,059 per capita, compared to only $307 in the Canadian system. It’s important to note that Canada operates under a publicly funded national health system, whose uniformity effectively cuts out much of the bureaucracy, and allows for the elimination of many of the administrative expenses present in the public/private system.

Prescription drug costs are a third important component in the rise of overall health care spending. Expenditures associated with this industry have exploded in the last twenty years. In 1990 drug costs were at $40.3 billion, by 2008 this number had risen dramatically to $234.1 billion. For much of the 90’s and early 2000’s prescription drugs were the fastest growing health cost contributor (18% in 1999). Overall the prescription drug sector accounted for 13% of the total health care cost growth in a 10-year period from 1998-2008. During the same time-period the average cost of a prescription drug rose substantially, from $38.43 to $71.69. It’s evident that this is at least partially due to an increase in demand for prescriptions, which rose by 39%, or about a billion total prescriptions between 1999 and 2009. Another aspect of these high costs is the difference in price between generic and name brand drugs ($35.77 compared to $137.90). Pharmaceutical companies have a significant profit motive to retain exclusive patent rights for name-brand drugs beyond the 20 years allowed by the FTC. Often this takes the form of “pay-for-delay” deals in which firms holding expiring drug patents pay those companies developing a generic version not to release them. Arrangements such as these are responsible for several billion in additional prescription drug expenses each each year.

To provide context for the level of spending in the United States on healthcare it’s useful to compare it with other advanced nations. This comparison is with regard to both expenses and whether this equates to quality of care. It seems to be a common belief that because the United States spends by far the most per capita ($7,290, 2.5 times higher than the OECD average) on health care, that it must also be providing the highest quality of care. In looking at comparative health data this appears to only be sporadically true. The United States has an infant mortality rate of 6.7, which is significantly higher than the OECD average of 4.7. It’s also middle of the pack in life expectancy (28^th in the world, at 78.2 years), trailing far behind countries like Japan (86.4 years) that spend about a third as much as the U.S. per capita. In terms of access, the United States is the only OECD country that has a significant population that has been left uncovered by the healthcare system. Staffing is another measure where the United States lags behind the OECD average, with regard to doctors per capita (2.7 physicians per 1,000, OECD average is 3.1), and nurses per capita (8.1 per 1,000, OECD average is 9.0). While all of the preceding data indicates that the United States high costs haven’t led to a particularly high level of care, however there is one area where cost does seem to equal quality. The United States scores at or near the top of OECD rankings in the screening and treatment of many forms of cancer such as melanoma, prostate, breast, ovarian, cervical, and both Hodgkin’s and non-Hodgkin’s lymphoma.

Based on the research presented above the United States has been saddled with ever increasing health care costs due in part to the rise in chronic disease, drug prices, and an extremely inefficient administrative process. These are facts that were featured prominently in 2010, during the national debate based around exactly how to reform the system. The piece of legislation known as the Affordable Care Act, passed as a compromise in that debate, attempts to address the cost and access issues without fundamentally altering the structure of the system. The degree to which this effort will ultimately help contain costs won’t be seen for several years, as the act will not be fully implemented until 2014. However there are projected future cost and access levels available and will be examined in detail, with the specifics of the Affordable Care Act, in the next post.

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