1 The U.S. National Health Care System PH 150 November 2004

2 Outline (1)Overview of U.S. system compared to other developed countries (2)Private insurance (3)Current policy issues

3 Overview Characteristics of U.S. System: –Big –Patchwork of insurance coverage –Relies on marketplace

4 Per Capita Expenditures in U.S. Dollars Ratio of Expenditures to the United States’ Level Percentage of Gross Domestic Product Spent on Health Australia $ % Canada2, France2, Germany2, Japan1, Netherlands2, Sweden2, Switzerland3, United Kingdom 1, United States4, Total Health Care Expenditures, 2001

5 RELATIONSHIP BETWEEN NATIONAL WEALTH AND HEALTH EXPENDITURES Source: Huber, M “Health Expenditure Trends in OECD Countries, ” Health Care Financing Review 21(2):

6 Acute Care Bed Days per Capita* Physician Visits per Capita** Coronary Artery Bypass Operations per 100,000+ Coronary Angioplasty Operations per 100,000++ Australia Canada France Germany JapanNA16.0NA Netherlands NA Sweden NA Switzerland United Kingdom United States Utilization of Select Services

7 AustraliaCanada United Kingdom United States Waiting times for non- emergency surgery for themselves or a family member: None Less than one month months months or more Source: Donelan, K., et al “The Cost of Health System Change: Public Discontent in Five Nations.” Health Affairs 18(3): Self-Reporting Waiting Times, 1998

8 Life Expectancy at Birth (years) Infant Deaths per 1,000 Live Births Australia Canada France Germany Japan Netherlands Sweden Switzerland United Kingdom United States Life Expectancy and Infant Mortality Rates, 1998 * * Data for Canada are for 1997.

9 Patchwork of Coverage Medicare: over 65 or disabled Medicaid: some (about ½) of poor Employer-sponsored private insurance (if offered, if you are eligible, & if you by it) Individual private insurance Military or veterans coverage Indian health services Uninsured (safety net providers)

10 Percentage of Population Covered Australia 100 Canada100 France99.5 Germany92.2 Japan100 Netherlands74.2 Sweden100 Switzerland100 United Kingdom 100 United States45.0 Eligibility for Health Care Benefits Under Public Programs * (percentage of population)

11 Private Insurance (1)Development (2)Current statistics (3)Issues in private insurance -underwriting -adverse selection -moral hazard

12 Development of Private Insurance Story begins around 1930 in U.S., although earlier in countries such as Germany First example: 21-day hospital benefit for $6/year (Baylor University, Dallas, 1929) –Hospitals then banded together to give choice of facility; gave them $$ even if beds in Great Depression even when beds were empty, which led to the formation of “Blue Cross”

13 Development (continued) A.M.A. was worried that insurance could lead to “socialized medicine,” so “Blue Shield” plans didn’t form till 1940s –10 tenets of coverage (MDs have complete control over care, free choice of MD, etc.) WWII stimulated development; with labor shortage and wage controls, health insurance became attractive fringe benefit, and courts later ruled it not taxable income

14 Development (concluded) Medicare & Medicaid in mid-1960s –Compromise between liberals who wanted social insurance, and providers who didn’t want excess government interference Compromise: 3-pronged approach put together by Congressman Wilbur Mills: –Part A of Medicare, hospital insurance, is like social insurance, financed from payroll taxes –Part B, physician coverage, voluntary and partly paid by beneficiaries and partly from general revenues – but with generous reimbursement rules –Medicaid was not made an entitlement program, but a rather welfare-like program for poor people.

15 Statistics: The Uninsured Percentage of population under age 65: -total population: 17% (39 million people) -age 18-24: 29% -Black: 21% -Hispanic: 34% -Below poverty: 35% % FPL: 37% % FPL: 27%

16 Issues in Private Insurance Medical underwriting Adverse selection Moral hazard

17 Medical Underwriting The methods used by insurance companies to decide whether or not to insure an individual or group, and how much to charge in premiums (done by actuaries) In U.S., private insurance is “experience rated” (in contrast to “community rating”) – the more you or your group will cost, the more it will be charged. As a result, many find it hard to get affordable coverage

18 Adverse Selection When an insurer gets sicker people than anticipated (when it set premiums); the opposite is “favorable selection” Adverse selection is a big problem for insurance markets, as insurers are reluctant to enter risky markets for fear that they will get lots of sick people, raising premiums and making coverage unaffordable Up till now, FFS has experienced adverse selection, and HMOs, favorable selection

19 Moral Hazard When possession of insurance makes it more likely that you will file a claim (as well as more expensive claims) In medical care, this is a “downward sloping” demand curve Various ways to deal with it. On demand side, higher copayments. On supply side, utilization review, practice guidelines, limiting supply of medical resources available

20 Current Policy Issues (1)Access/equity -About 40 million uninsured -Getting access to care in HMOs (2) Rising costs - Higher premiums, higher cost sharing - Especially pharmaceuticals - Movement away from tightly managed care (3) Quality - Does competition improve or deter quality? - Do HMOs provide as good quality of care?

21 Legislation California Bill SB-2 Tax credits to reduce number of uninsured Medicare reform

22 Medicare Beneficiaries’ Out-of-Pocket Drug Spending Under New Medicare Rx Benefit, ~$420 in annual premiums Deductible $250 No Coverage Catastrophic Coverage Partial Coverage up to Limit $2,250 $5,100 (equivalent to $3,600 in out-of-pocket spending) 25% 5% $2850 Gap Beneficiary Out-of-Pocket Spending Note: Benefit levels are indexed to growth in per capita expenditures for covered Part D drugs. As a result, the Part D deductible is projected to increase from $250 in 2006 to $445 in 2013; the catastrophic threshold is projected to increase from $5,100 in 2006 to $9,066 in Medicare Pays 75% Medicare Pays 95%