Health Insurance

How To Fix HealthCare In The US

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 13 minute read

“I have to tell you, it’s quite intricate. President Donald Trump told Republican governors at the 2017 National Governors Winter Conference that “no one thought that healthcare could be so hard.” Because healthcare in the United States has developed in such a haphazard and frequently inadvertent way, many people think the President’s comment is the understatement of the year.

Despite the newest political attempt to reform the most inefficient and costly medical system in the developed world, there are still steps you can take on an individual level to save costs. 

The Republican majority in the House of Representatives had been vowing to repeal the Affordable Care Act (ACA) for seven years and had voted more than fifty times in the past four years to do so. However, they were unable to agree on a replacement plan. Therefore, the ACA will remain in place, with all of its advantages and disadvantages.

You’ve come to the proper place if you’re curious about our journey to this point. Below, we’ll discuss the evolution of healthcare in the United States, the many reforms that have been attempted, the most contentious points of contention, potential approaches, and more.

Our Current Health-Care System

The current national healthcare expenditure is $3 trillion per year, or $9,523 per individual. Deloitte, a consulting organization, reports that the United States has the highest healthcare expenditures per capita in the developed world, at over $7,000, more than $2,500 more than the United Kingdom, and more than $1,600 more than Germany and $2,000 more than Canada.

However, the U.S. healthcare system is ranked towards the bottom in terms of objective metrics such as access, efficiency, and efficacy. For instance:

  • In 2014, the United States scored 50 out of 55 countries on Bloomberg’s Health Care Efficiency Index (the latest year for which figures were available).
  • The Commonwealth Fund was founded in 1918 as a private organization to fund non-profit research into healthcare concerns. On metrics of access (due to cost), efficiency, and equity, the United States has consistently placed last or close to the bottom since 2004. (lower-income individuals are least able to see a physician, take a recommended test or treatment, or fill a prescription when needed).
  • The United States was ranked eighth in life expectancy (behind countries like Australia, France, and the United Kingdom) and twelfth in immunization coverage for one-year-olds and sixth in the number of physicians per 10,000 population by the Milken Institute School of Public Health at George Washington University.

According to a study published in 2016, The Guardian found that despite “fostering excellence and innovation in places,” the United States has the highest healthcare costs and some of the worst overall health outcomes in the developed world due to a “messy combination of underinsurance and overinsurance.”

What brought us here?

When it comes to universal health care coverage, the United States was one of the last developed countries to do so. In 1883, Germany was the first country to require its citizens to carry “sickness” insurance; by 1912, the practice had spread to Sweden, Denmark, Austria, Hungary, Norway, Great Britain, France, Switzerland, and the Netherlands. Their programs eventually developed into government-run, universal health care systems.

Even among the working class, where some reformers had been pushing for a similar scheme, enthusiasm for a national system was low. Attempts to make health insurance mandatory were unsuccessfully fought off on a few occasions due to opposition from groups like:

  • Concerned doctors who feared for their income slammed the initiative as “socialized medicine.”
  • Unions fear losing power over their members if the government implements a program.
  • Companies worried about rising prices and their bottom line have reason to
  • For profit-driven insurance firms, the potential impact on life and death policies is cause for concern.
  • Those in politics who have called national health insurance “German socialist insurance” have been its hated enemy since World War I.

The Pittsburgh Post-Gazette reports that until the late 1930s, most medical care, including births and operations, was provided in private homes. Even though birth mortality rates were high, midwives were still the norm until anesthetic became widely available.

In comparison to modern medicine, hospitals back then were “mental wards and homes for the impoverished, administered by nurses and nuns, treating exclusively certain ethnic or religious groups.”

The American Health Care Act: Repeal or Reform? (AHCA)

The conservative viewpoints that were expressed in public information regarding the Republican-sponsored Act were:

  • Everyone will be able to get the medical care they need if they can afford it.
  • Health care costs may and should be reduced thanks to healthy competition in the market. Competitors will come from the medical community, the manufacturing sector, and the distribution sector of the pharmaceutical and medical device industries.
  • Only doctors and patients will have input into treatment plans.

While the proposal eventually discussed by Republican House members is sketchy at best, the new Act would reportedly do the following, according to press accounts.

  • Alter both the financing and management of Medicaid. The ACA’s expansion of Medicaid will be rolled back and replaced with either a per capita allocation or a State block grant, both of which will be eliminated under the AHCA. This means that the federal government will have less of a role in financing healthcare in the future, and that individual states would be responsible for setting their own minimum coverage standards. After 2020, the federal government will restore funding for states that expanded Medicaid under the ACA to pre-ACA levels.
  • Subsidies for health care under Obamacare should be swapped out for refundable tax credits. Individuals (including dependent children up to age 26) will be eligible for age-based rather than income-based refundable tax credits to help cover the cost of individual health insurance. (Someone aged 50 will be eligible for a $3,500 credit, while someone aged 25 will receive $2,000) Taxpayers with MAGI over $75,000 will see a reduction in their available credits, and only those without access to health care through their work or the government will be eligible for credits at all. The goal of monetary penalties in the ACA is to prevent adverse selection, the phenomenon in which healthy individuals delay getting health insurance until they become sick. The AHCA would compel those who cancel coverage to pay a 30% increase in rates for a year.
  • Healthcare savings accounts should be made more widely available. Health savings account contribution limits would increase from $3,400 for individuals and $6,750 for families, respectively, to $6,550 and $13,100, respectively. High-deductible health insurance and other specified medical costs would be paid for with the money.
  • Fund innovative projects at the state level. Pre-existing diseases and exceptionally high healthcare costs will be covered through state-run high-risk pools, much like they were before the ACA was passed. To be distributed to the fifty states between 2018 and 2026, the proposed law would establish a $100 billion fund. The state is free to utilize the money anyway it sees fit, whether it to support high-risk pools or enact policies to increase enrollment in private health insurance.
  • Permit cross-state sales of medical insurance. The AHCA was a plank in the presidential platforms of both John McCain and Mitt Romney, the Republican contenders. Current legislation limits elderly policyholder premiums to no more than three times the amount paid by younger policyholders. If implemented, the proposed increase in the disparity would be 500%.
  • Don’t be soft on those whose insurance coverage has lapsed. The Republican proposal would impose a 30% premium increase for a year on individuals who cease coverage, as opposed to the ACA’s levy on people who do not have health insurance. The goal of this provision is to reduce the impact of selective pressure.
    Get rid of the taxes associated with the ACA. Medical gadgets, health insurance, and both prescription and over-the-counter pharmaceuticals will all be subject to new levies under the proposed proposal. For those with incomes over $200,000 (or $250,000 for couples), the 3.8% tax on investment income and the 0.9% payroll tax are both eliminated.
  • Do away with vital health advantages. The plan would save costs by eliminating or severely limiting ACA-mandated features including maternity care, mental health and drug addiction coverages, and disability rehabilitation programs.

Attempts to Reform Healthcare Following WWII

The Wagner-Murray-Dingell Act of 1943 proposed a payroll tax to finance universal health care. Opponents were successful in their claims that it was just another branch of the International Labor Organization (ILO), which had been formed after World War I. 

Apparently, the ILO has plans to socialize healthcare over the world “one nation at a time,” as was reported in an anonymous essay published in Medical Economics and cited by the American Journal of Public Health. For the remaining fourteen years, the measure was proposed in every session until ultimately dying in committee.

The American Medical Association, the American Hospital Association, and the American Bar Association all united in their opposition to President Harry Truman’s proposal for a mandatory national health plan, which prevented a Congressional hearing on the issue. The American Medical Association (AMA) argued that doctors would be forced into servitude if a national plan were to succeed, and it raised the issue, “Would socialized medicine lead to socialization of other areas of life?” Lenin agreed. Socialized medicine, he said, “is the cornerstone to the structure of the communist state.”

Despite the passage of Medicare for the elderly in 1965, no serious efforts were made to create a national system of health insurance until Bill Clinton was elected president in 1992. The Heritage Foundation was one group that spoke out against Clinton’s plan.

  • Government regulations will be costly and widespread.
  • Doctors and patients will have less freedom.
  • Taxes will rise dramatically, or care will be reduced.

Derek Bok of Harvard University found that the healthcare issue attracted a total ad spend of nearly $100 million (or $167 million in 2016 currency). Annenberg School of Communications at the University of Pennsylvania determined that 59% of the advertising were deceptive, including false statements like “involuntary euthanasia,” losing the ability to choose one’s doctor, and having “no access to health care.” Another attempt at sweeping health care reform has fallen flat.

Barriers to an Acceptable System

The new administration has found that it is extremely difficult, if not impossible, to find a political agreement on how to best offer Americans with affordable, high-quality healthcare. All suggested remedies will be influenced by the following elements.

  1. The Association Between Age and Health-Care Costs

The expense of medical treatment is proportionally higher for the elderly. The yearly costs for the elderly are around four to five times those for those in their early twenties, according to a study released by the National Bureau of Economic Research.

Within the Medicare population, individual health care costs climb precipitously with increasing age. Health care costs are three times higher for individuals 85 and older than they are for those 65 to 74, and twice as high for those 75 to 84.

The birth rate has decreased below the replacement level, from 3.7 births per woman in 1957 to 1.9 births per woman in 2017. (the number of children needed for a couple to replace themselves). Due to this, the average American is now 37.8 years old, up from 29.5 in 1960. The U.S. Census Bureau estimates that by the year 2056, the number of those 65 and older will outnumber those younger than 18 for the first time.

Because of this, healthcare needs are expected to grow substantially during the next quarter century. Medicare, the principal payer for healthcare expenditures for the elderly, may undergo future changes in financing and benefits as a result of the aforementioned financial strain.

  1. Medical and technological breakthroughs

An estimated 40-50% of the yearly growth in healthcare costs is attributable to advances in medical technology, reports The Hastings Center. Congress and its people are averse to regulating the development of technology because of the benefits it has brought them, such as “vaccines, antibiotics, enhanced heart disease care, wonderful surgical improvements, and refined cancer therapies.” Many [people] will view cuts to technology spending as unethical, if not downright immoral.

Some research suggests that health care expenses might rise as a result of medical progress leading to longer life spans because of the increased number of years in which people would require assistance.

The present Medicare budget crisis is an indication of this consequence. There have been proposals for reforms to the program from both parties, but in President Trump’s first address to a joint session of Congress, he made clear that he would make no alterations to the program.

Health care costs as a percentage of GDP have more than tripled since 1960, from 5.2% to 19.1%, more than double the amount allocated to education. As a nation, the United States is willing to pay whatever it takes to fund medical research that might one day put an end to disease, old age, and death thanks to the optimistic view that technological development will bring about these outcomes.

  1. Long-standing Special Interest Groups

Special interests in the healthcare industry spend an estimated $500 million annually to influence federal regulation and policymaking, as reported by Modern Healthcare. Spending this kind of money is usually a wise decision.

On a list of the top spenders on lobbying the Federal government, the Pharmaceutical Research and Manufacturers of America (PhRMA), the American Medical Association (AMA), and the American Hospital Association (AHA) come in at numbers six, seven, and eight, respectively.

According to MapLight, between 2008 and 2016, the three groups gave a total of more than $511 million to politicians in an effort to safeguard their interests. Thus, the pharmaceutical business has extensive patent rights and little regulation of prices. Americans today pay the highest costs in the world for these life-saving pharmaceuticals, which are far more expensive in the United States than in other developed nations.

The New Yorker reports that the AMA has consistently fought against healthcare improvements. As a result of their resistance, FDR eliminated health insurance from Social Security, Harry Truman’s universal insurance proposal was defeated in the most costly lobbying effort in American history, and Bill Clinton’s reforms were derailed in 1992. The magazine argued that medical professionals were against universal health coverage because they expected government intervention to result in lower reimbursement rates.

A similar amount of money was used in 1992-1993 by the Health Insurance Association of America (HIAA), the lobbying arm of health maintenance organizations (HMOs), to air television, radio, and print advertising (“Harry and Louise”) against Clinton’s reforms.

Consumer organizations like AARP (previously the American Association of Retired Persons) are equally adamant that health care services will not be curtailed, nor will prices of care increase, whereas business groups reject healthcare changes out of worry that their expenses would increase.

After fifty years of trying, it’s still highly doubtful that the two sides will be able to reach a mutually agreeable settlement.

  1. Public Opinions Regarding Government Services

When he stated, “No man’s life, liberty, or wealth is secure while our legislature is in session,” Benjamin Franklin echoed the sentiments of his fellow Founding Fathers. Two centuries later, Ronald Reagan said, “I am from the government and I am here to help you” are the ten most scary phrases in the English language.

According to a Pew Research Center survey conducted in 2015, just around 20% of respondents believed that the government could be trusted at least sometimes. This is a significant drop from 1958, when 72% of respondents held this view. According to a survey conducted after the fact, Americans are the most likely of any nationality to attribute their achievements solely to their own efforts rather than external factors.

Therefore, it should come as no surprise that the majority of Americans, especially blue-collar conservatives, do not see “taking care of the poor” as a fundamental obligation of government, as discovered in the American Enterprise Institute/Los Angeles Times 2016 Poverty Survey.

Most survey takers agreed with the statement “that government programs create dependency,” reasoning that impoverished individuals have their pick of occupations, yet nevertheless choose to live off of assistance.

  1. National Priorities at odds

Every government must make choices about how to allocate tax dollars while weighing the competing demands of the future, the present, and the past. Government revenue and spending reveal a nation’s values and objectives.

  • Taxes. According to OECD data, the United States earns less tax revenue as a share of GDP (26.4 percent in 2015) than 31 of the other OECD member countries. Tax revenue is lowest in Mexico, Chile, Ireland, and Korea. In the OECD, this figure averages up at 34.3% of GDP. American for Tax Reform reports that 219 Republicans in the House and 49 Republicans in the Senate have signed a commitment promising not to raise taxes.
  • Spending on Major Areas. Defense accounts for $609.3 billion, or 15.9%, of the overall government budget, followed by Social Programs at $2.33 trillion, or roughly 61%, followed by Education at $102.3 billion, or 2.67%, and finally Interest on the National Debt at $221.9 billion, or 5.97%.
  1. Adverse Selection

In order to charge premiums that are consistent with actuarial expectations, health insurance companies scrutinize their insured populations. That is, they shy away from clients who look like they’ll use more medical care than they bargained for. That is, preventing an unexpectedly large share of older, sicker policyholders. In this scenario, healthcare costs rise, leading to decreased earnings or even losses.

In the past, health insurance companies could pick and choose which customers they would accept as risky underwriting before the ACA. Today, premiums may only vary depending on factors like where you live, your age, and whether or not you smoke; neither your health status nor any preexisting conditions can impact your premium.

The Affordable Care Act mandated that, unless exempt, everyone have health insurance or face an escalating monetary penalty, with the goal of ensuring that only those in dire need of medical attention would purchase coverage.

A percentage of revenue or a flat rate penalty, whichever is higher, will be applied. In 2016, for instance, a family of four with an annual income of $60,000 would have been subject to a fine of $2,085. Insurance companies incur losses due to adverse selection, which are subsidized by the fees collected.

Many insurance companies have experienced adverse selection due to a lack of young, healthy customers enrolling through the new health insurance marketplaces, as reported by Modern Healthcare. As a result, the disparity between the fine and the cost of insurance widened as many insurers withdrew from unprofitable areas or drastically hiked prices for individuals obtaining individual policies.

Bottom Line

Rejecting the lessons of other developed nations makes fixing our healthcare system much more difficult. It’s a waste of time to hope that premiums will go down due to market competition if we’re also ignoring the real factors that drive healthcare costs.

Costs in the healthcare system result from both provider pricing and patient use. Hospitals, doctors, and pharmaceutical corporations all stand to lose money if prices were lowered, therefore they fight back hard against the idea. However, there is a risk that limiting access would lead to more needless suffering and death.

That question defies a simple solution. If there is a method to give greater coverage for less money, as Professor Field pointed out, “then [Trump has] got a completely new business line, even better than resorts and hotels.”

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