Americans spend an enormous portion of their income on health care, making the system the largest in the world. However, the rate at which consumers make purchases in the industry has gradually slowed down over the past decade, due in no small part to changes in the way in which Americans buy health care, says The Economist.
One of the fastest-growing means of consumption in the health care sector is the "consumer-driven health plan" in which the individual is charged with overseeing costs and expenditures from a private spending account.
In 2006 only 10 percent of workers had to pay at least $1,000 before their insurer picked up the rest of the bill, but this figure had more than tripled by 2010.
The gradual shift has been supported by the participation of large firms, including GE, which shifted its salaried employees into the new plans in 2010.
The new system, which empowers individuals and encourages them to take greater responsibility for their spending, brings to the forefront the need for transparency in the industry. Consumers often find themselves confused by terms, unable to determine costs, and bewildered by complicated policies. This limits their ability to make informed choices about their health care consumption.
However, the private sector is attempting to fill this void. Intermediary firms are attempting to offer more information to consumers that, in tandem with a consumer-driven market, will increase efficiency.
Thomson Reuters analyzes, for example, prices from prior purchases to show consumers the cost of a given procedure at different hospitals and clinics.
Castlight Health of California posts information online so that consumers can shop for physicians and see previously posted reviews by other patients.
These efforts are supplemented by government policies -- the Government Accountability Office has found that more than 30 states have either proposed or passed laws to promote price transparency.
This is not to say that proponents of transparency will not face obstacles. Health care is a complicated industry, and even those who specialize in disentangling it will face issue. Furthermore, some market participants are incentivized not to share information, such as insurance companies that have brokered contracts with individual providers.
Source: "Shopping around for Surgery," The Economist, February 4, 2012.
In order to stem the gap from the passage of the Affordable Care Act (ACA) to its implementation in 2014, the legislation allowed for the creation of federally funded high-risk insurance pools throughout the states. These pools would provide immediate health care access to patients without insurance and suffering pre-existing conditions. However, despite expectations from the Obama administration that the pools would be substantially over-subscribed, they have experienced participation far below expectations, says Politico.
The pools were allotted $5 billion to provide coverage for all participants -- an allowance that many thought would quickly be depleted with so many subscribers.
While participation has varied from state to state, the programs on the whole are providing care for very few people.
Just about 45,000 people have signed up in total -- well short of the 375,000 the Medicare actuary had predicted for the end of 2010.
The dearth of subscribers has caused some to question the much-publicized blight of the uninsured and those suffering from preexisting conditions. However, though the lack of involvement caught many analysts by surprise, a number of explanatory factors have been proposed.
The costs to sign up for the high-risk pools are high -- after all, insurers know that the majority of those signing up will require costly care for serious ailments.
Additionally, the new pools are competing with "legacy pools" (pools that the individual states had already created for the same purpose long before the ACA), which have attracted some 222,000 enrollees.
As of last summer, government figures showed that seven out of 10 people who entered these new high-risk pools were enrolling in legacy pools as opposed to the federal systems.
Even the US Government managed and funded High Risk pool put into place for the State of Georgia has had enrollment of only 10% of expectation. Georgia had no legacy high risk pool and was assigned the US Pool.
Source: Jason Millman, "High-Risk Insurance Pools Short on Enrollees," Politico, February 13, 2012.
With rising health care costs and the retirement of baby boomers, it is widely accepted that the costs of administering Medicare are set to skyrocket. To address this, a number of policy options are available to lawmakers in Washington -- two that are radical and one that is evolutionary in its approach, says J.D. Foster, the Norman B. Ture Senior Fellow in the Economics of Fiscal Policy at the Heritage Foundation.
The first radical option is to do nothing and allow Medicare expenditures to slowly engulf an ever-growing portion of the federal budget.
The second radical possibility is to transform the health care sector into a European-style system where all are covered under tight government control -- the Affordable Care Act was an incremental step in this direction.
The third option, which is thoroughly more moderate that the previous two, is to build on the current system instead of scrapping it entirely.
Under the third option, seniors who qualify for Medicare support would be encouraged to select their own plan from the private market. Upon selection, their premiums would be subsidized by Medicare, allowing an inverse relationship between the income of the senior and the proportion covered by the subsidy. Such a plan would enable the natural efficiency of the private sector and expand seniors' choice.
Detractors argue that this is in fact a revolution of the Medicare organization, as it largely privatizes the government program. However, this argument fails to take into account the fact that Medicare is already largely driven by private forces.
In 2011, nearly 12 million seniors (about 25 percent of all Medicare beneficiaries) were on Medicare Advantage, which allows them to choose their own health care plan.
As participants in Medicare Part D, 34.5 million seniors selected their prescription drug coverage from among many private plans.
In 2008, about one in six Medicare beneficiaries (about 7 million seniors) purchased extra Medigap insurance in the private market.
It is clear that Medicare is already a largely privatized program, and that implementation of premium support would simply take better advantage of this characteristic.
Source: J.D. Foster, "Premium Support Is Incremental, Not Radical Medicare Reform," Heritage Foundation, February 7, 2012.
Because of a thriving economy and a multitude of job opportunities, Americans enjoy an income that far exceeds that of all other nations. However, Americans also spend a disproportionately large share of their income on health care, far exceeding allocations by all other countries, says Christopher J. Conover, a research scholar at Duke University's Center for Health Policy and Inequalities Research and an adjunct scholar at the American Enterprise Institute.
The U.S. health system as a whole is massive, accounting for more than one-third of an estimated $6.4 trillion in health expenditures across the world in 2009.
As such, the system is equivalent to the fifth-largest economy in the world.
The United States' share of world expenditures on health care is greater than its share of global income and far exceeds its share of the world's population.
Comparison with other countries' health care expenditures is difficult, largely because prices and currency are difficult to hold constant across economies. However, through the use of purchasing-power-parity, studies are able to assess the cost of an identical basket of goods (doctors' visits, hospital stays, prescription drugs, etc.) between nations.
On average, global per capita income is only about 22 percent of the U.S. average; in contrast, global per capita health spending amounts to only 13 percent of the average American's.
More than 70 percent of the world's population currently lives in nations with health spending per capita that is below 10 percent of U.S. levels in 2009
Less than one-tenth of the world's population has a level of health spending that exceeds half of what the average American spends on health care.
In assessing this spending differential, it is important to mention that health care prices in America are on average 25 percent higher than other OECD countries.
It bears mention that, despite these trends, Americans' share of global health care spending is shrinking.
In 1995, the percentage of global health spending accounted for by the United States was nearly 40 percent; by 2009, this share had declined by nearly one-tenth.
Meanwhile, the so-called "BRIC" countries (Brazil, Russian Federation, India, and China) saw their share of world health resources increase by nearly one half since 1995.
On the whole, the health care gap between rich and poor nations is narrowing.
Source: Christopher J. Conover, "Is U.S. Health Spending on Another Planet?" The American, February 13, 2012.
It’s been a staple of health care politics for years -- the claim that preventive care saves money. A little money up front, lots of money saved on the back end. Patients living longer and healthier lives. That makes sense, right?
But while there’s little doubt that preventive care saves lives, the money is a different story. In general, academic studies do not support the idea that paying for preventive care ultimately saves money.
We first published that conclusion in 2009, when we rated True a claim by New York Times columnist David Brooks that preventive care does not save the government money. When President Barack Obama claimed it did save money in a September 2009 speech to Congress, we rated it False.
On Feb. 10, 2012, Obama revived this line of argument. His comments came during a media briefing to announce a partial reversal of a policy that would require church-affiliated organizations such as hospitals to provide a package of free preventive coverage, including contraception. Catholic groups criticized the policy -- which was set in motion by Obama’s health care law in 2010 -- on the grounds that it conflicted with churches’ religious beliefs.
In announcing a partial shift of policy, Obama said, "As part of the health care reform law that I signed last year, all insurance plans are required to cover preventive care at no cost. That means free check-ups, free mammograms, immunizations and other basic services. We fought for this because it saves lives and it saves money –- for families, for businesses, for government, for everybody. That’s because it’s a lot cheaper to prevent an illness than to treat one."
However, as we wrote in 2009, it’s not true that preventive care generally "saves money."
Brooks' critique relied on estimates by the Congressional Budget Office. "The evidence suggests that for most preventive services, expanded utilization leads to higher, not lower, medical spending overall," CBO director Douglas Elmendorf wrote in an Aug. 7, 2009, letter to Rep. Nathan Deal, the top Republican on a congressional subcommittee involved in the debate.
Elmendorf explained that while the cost of a simple test might be cheap for each individual, the cumulative cost of many tests adds up:
"But when analyzing the effects of preventive care on total spending for health care, it is important to recognize that doctors do not know beforehand which patients are going to develop costly illnesses. To avert one case of acute illness, it is usually necessary to provide preventive care to many patients, most of whom would not have suffered that illness anyway. ... Preventive care can have the largest benefits relative to costs when it is targeted at people who are most likely to suffer from a particular medical problem; however, such targeting can be difficult because preventive services are generally provided to patients who have the potential to contract a given disease but have not yet shown symptoms of having it."
In fact, a government policy to encourage prevention could end up paying for services that people are already receiving, including breast and colon cancer screenings and vaccines, Elmendorf said.
Other studies backed up the CBO's analysis, including a Feb. 14, 2008, article in the New England Journal of Medicine that was written in response to campaign promises for more preventive care.
"Sweeping statements about the cost-saving potential of prevention ... are overreaching," according to the paper. "Studies have concluded that preventing illness can in some cases save money but in other cases can add to health care costs." They write that "the vast majority" of preventive health measures that were "reviewed in the health economics literature do not" save money.
"Some preventive measures save money, while others do not, although they may still be worthwhile because they confer substantial health benefits relative to their cost," the authors write. "In contrast, some preventive measures are expensive given the health benefits they confer. In general, whether a particular preventive measure represents good value or poor value depends on factors such as the population targeted, with measures targeting higher-risk populations typically being the most efficient."
Meanwhile, a separate study conducted by researchers from the American Diabetes Association, American Heart Association and the American Cancer Society concluded that, while interventions to prevent cardiovascular disease would prevent many strokes and deaths, "as they are currently delivered, most of the prevention activities will substantially increase costs."
To make sure that the data hadn’t changed dramatically since we last looked at this issue, we contacted Peter J. Neumann, director of the Center for the Evaluation of Value and Risk in Health at the Institute for Clinical Research and Health Policy Studies at Tufts Medical Center. He was one of the three co-authors of the New England Journal of Medicine article.
He said the patterns his group found in 2008 have not shifted dramatically since then.
"Sometimes preventive measures save money, sometimes not," Neumann said. "The general message is that it depends."
Milton C. Weinstein, one of Neumann's co-authors, agreed. "In general, the comparative effectiveness literature supports the general proposition that preventive care does not save money," said Weinstein, a professor of health policy and management at the Harvard School of Public Health.
Our ruling
As a general notion, the idea that "preventive care … saves money, for families, for businesses, for government, for everybody" is no more true today than it was in 2009. Yes, preventive measures often save lives and keep patients healthier. Certain preventive measures may save money as well. But the findings of CBO and physicians who have studied the medical literature indicate that Obama’s sweeping generalization that preventive services save money is not accurate. We rate the statement False.
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Many Americans complain that there is too little competition between health plans. To some degree, this is true. However, promises that the Affordable Care Act's (ACA) implementation will increase competition between plans are misleading. On the contrary, concentration among health plans has largely occurred subsequent to government action. A comparison of premiums in the small-group market in 2008 (before the ACA) and 2010 (after the ACA) demonstrates this point, says John R. Graham, director of health studies at the Pacific Research Institute.
Of the 37 states that had available data, 36 experienced an increase in the average premium paid after the passage of the ACA (the lone exception was Utah).
The median percent increase in premiums amongst the states was 20 percent.
The state with the highest percent change was Washington, which experienced a 68 percent increase in the average premium paid.
This before-and-after comparison demonstrates that the promised drop in premiums that would result from increased competition did not occur. In fact, the opposite has occurred with insurance consumers in almost every state paying higher rates.
ACA advocates also point to the broadened use of "prior approval" as another means of controlling premium increases. A prior approval rule will require insurance providers to obtain permission for premium increases from a state's insurance commissioner. However, the aforementioned study of 37 states also demonstrates the inefficacy of this policy.
Of the 37 states, 18 already used prior approval, 16 were standard file-and-use states which merely required providers to file increases with insurance commissioner without seeking permission, and 3 states were completely unregulated.
The median increase over the period was 17 percent for states requiring prior approval, 22 percent for the file-and-use states, and 14 percent for completely unregulated states.
The highest increase in the file-and-use states was 50 percent (in Tennessee), the highest in the states that required prior approval was 68 percent (in Washington), and the highest unregulated state was 22 percent (Georgia).
Finally, the only state that experienced a decrease in premiums, Utah, is a file-and-use state.
These mixed results lend little credence to the argument that the ACA's spreading of prior approval rules will aid efforts to arrest premium increases.
Source: John R. Graham, "Overregulation Reduces Choice in Health Insurance: An Update Health Policy Prescription," Pacific Research Institute, December 2011.
Efforts to change how Americans pay for health care are gathering momentum on a national scale as UnitedHealth Group Inc., the largest U.S. health insurer, becomes the latest carrier to say it is overhauling its fees for medical providers, says the Wall Street Journal.
UnitedHealth, like other insurers, is targeting the traditional system that pays hospitals and doctors for each service provided, rewarding them for more care but not necessarily better care.
Under the new plan the carrier is rolling out, part of medical providers' compensation could be tied to goals such as avoiding hospital readmissions and ensuring patients get recommended screenings.
UnitedHealth has been trying such efforts on a more limited scale, but now the company says it plans to roll out new contracts nationwide that could include financial rewards for care the company considers high-quality and efficient, and in some cases potentially withhold expected increases if certain standards aren't met.
UnitedHealth says it expects the new efforts to save at least twice as much money as they cost.
UnitedHealth's push comes as other carriers, including WellPoint Inc. and Aetna Inc., are announcing similar moves.
Driving the shift is the growing belief among industry and policy experts that the current health care payment system, with its fees for each service, is flawed. In addition to the worry that it encourages volume but not quality, health care experts believe oversight of patients is often fragmented -- no one tracks people to ensure they get proper preventive care, or coordinates to avoid duplication.
Among the measures that might be tied to pay are, for hospitals, rates of readmissions, use of radiology services, mortality rates for certain conditions and hospital-acquired infection rates, as well as patients' satisfaction. For doctors, the goals might involve their rates of inpatient admissions and emergency-room use, the total cost of patients' care, and quality measures such as the share of patients getting recommended screenings.
Source: Anna Wilde Mathews, "New Way to Pay Doctors," Wall Street Journal, February 9, 2012.
If Health Spending Is Increasing Slower, Why Are Premiums Rising Faster?
The financial crisis of 2008, which resulted in a significant jump in unemployment, meant that the number of Americans with private coverage dropped. As a result, the overall rate of private health spending has decreased, compared to recent years, says John Graham, director of health care studies at the Pacific Research Institute.
According the federal Centers for Medicare and Medicaid Services (CMS), the annual rate of increase in spending by private health insurance was 7.8 percent in 2007, but has since dropped to just 2.4 percent in 2010.
CMS data also shows that the "net cost of health insurance" (that is, the share of health insurance that does not pay for medical claims) shrank by an average of about 2 percent annually in 2008 and 2009.
These results are expected during a recession. However, these trends were rapidly reversed with the signing of the Patient Protection and Affordable Care Act (PPACA) in 2010, as premiums rapidly increased.
The "net cost of health insurance," which as mentioned above actually decreased in 2008 and 2009, jumped by 8.4 percent in 2010.
CMS' analysts pointed out that the rate of growth in total private health insurance premiums was greater than the growth in total benefits for the first time in seven years in 2010.
The Kaiser Family Foundation's latest survey of employer-based health benefits reported a significant increase in total health costs of 9.5 percent from 2010 to 2011.
As these premiums become increasingly unaffordable for many small businesses, enrollment will drop as the proportion of small firms offering health benefits already decreased from 69 percent to 60 percent just from 2010 to 2011.
The rapid turnaround and subsequent increase in premiums is due to two separate factors. First, the PPACA introduced a number of "consumer protections" that inherently increase costs, such as the expansion of coverage to children until age 26.
Second, as insurers consciously reduce market share in a burdensome and uncertain market, those who can bear the regulations benefit from decreased competition, allowing them to increase rates without consequence. This drives up costs for recession-hit individuals and families nationwide.
Source: John Graham, "If Health Spending Is Increasing Slower, Why Are Premiums Rising Faster?" Pacific Research Institute, January 2012.
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