Insurance Modalities: Managed Care,
Medicare, Medicaid
Sections:
Section 1: Managed Care Foreword In a recent study of the number of
people covered by some form of health insurance, private health insurance was
estimated to cover approximately 61 percent of the American population, where
as federal government health insurance programs such as Medicaid covered 10
percent and Medicare covered 13 percent (See Chart 1). Although it represents 61 percent of the
American population, the private health insurance sector covers 32 percent of
the national health expenditure.[1] Additionally, the study found that
currently, 42.6 million American people remain uninsured.[2] This chapter will discuss the history of
private health insurance/managed care, pertinent legislation, the problems with
this type of health insurance, and the current health care crisis of the United
States: the fact that spending is on the increase, coverage is on the decrease,
and the problems are only getting worse.
While the topic of health insurance coverage is a very broad one, this
chapter will provide a broad overview of many of the issues. For more specific information about these
issues, many URLs are provided at the end of this chapter in the references
section. Additionally, the following
site provides links to numerous links on topics related to health insurance:
http://www.nih.gov/sigs/bioethics/healthcare.html#insurance Chart 1: Health Insurance Coverage,
1999 Source: U.S. Census Bureau, March
2000 Current Population Survey Chart 2. Breakdown of National Health Expenditure Source: U.S. Department of Health
and Human Services, Health Care Financing Administration, March 2001[3] A. Employment-based
private insurance Currently,
there are two major problems with employer-based private insurance. The first is that during times of
unemployment, many Americans do not have needed health insurance coverage. In fact, according to a study done by the
Commonwealth Fund, 37 percent of workers who lose their job also lose their
health coverage.[4]
The second problem with
employer-based private insurance is that health coverage and the number of
health benefits are some of the first cuts that employers make during an
economic slowdown. Similarly, workers have to pay more
of the health insurance premiums during such periods. In fact, according to a recent study by the Kaiser Family
Foundation and Health Research and Education Trust, 44 percent of employers
report that they are "very likely" or "somewhat likely" to
increase what employees pay out of pocket for health premiums in the next year.[5]
This is especially true as the technology of health care continues to advance
and become more expensive, providing less incentive to employers to insure
their workers. Thus, this decline in
employer-based private insurance has become the greatest source of the growth
of the uninsured in the United States. The
problems of employer-based insurance may become more widespread in the current
economic climate. This is because the
number of employees who have access to health insurance is likely to fall as
the recession continues and unemployment rises, according to a new RAND study
that was published in the February issue of International Journal of Health
Care Finance and Economics. The study,
which was written by RAND economists M.
Susan Marquis and Stephen H.
Long, found that employers are more likely to offer insurance, and to
contribute a larger share of its cost, in communities where labor markets are
tight. That is, where local
unemployment rates are higher, employer health insurance offer rates are
lower. In fact, a two percentage point
increase in the unemployment rate is associated with a two percentage point
decline in the number of small employers offering insurance, said the
report. "I wouldn't go so far as to
say that the employment-based health insurance system will unravel as a result
of the recession," Marquis said.
"But these findings indicate that we ought to be concerned."[6] Some of the key findings of the report
include: B. Health
Maintenance Organization The term
“health maintenance organization” was coined by Paul Ellwood in 1970. According to Health Services
Administration of the Department of Health, Education, and Welfare or Rockville,
Maryland, a health maintenance organization has four characteristics: A) an
organized system of health care that is in a geographical area B) a
specified set of basic and supplemental health maintenance and treatment services C) a
voluntarily enrolled group of persons D) a fixed and predetermined payment
that is made by or for the person covered by the HMO and which is regardless of
the amount of actual services that that person is provided with.[8] C. The Health
Maintenance Organization Act of 1973 This act
was established in 1973 to spur the growth of the prepaid group practice by
stimulating interest in investing in HMOs.
To do so, it provides grants, loans and demonstration projects, and
prevented local medical societies from trying to enact state legislation
against such prepaid group practices, given the amount of initial backlash that
such plans brought about. From 1974 to
1980, the federal government granted $190 million in grants and loans to HMOs and
private investment had reached $784 million by 1974. In fact, by 1975, almost six million people were enrolled in the
approximately one hundred and seventy-five HMOs that existed in the United
States. Additionally,
the act also required that employers who had more than twenty-five employees to
whom they provided health insurance benefits must offer federally qualified HMO
coverage if it was available in that area.
Federal qualification of HMOs included a set of requirements: certain
mandatory benefits were required, community rating, a restriction was placed on
how much patients could be charged for out-of-pocket expenses, a thirty-day
open enrollment period each year had to be offered, quality assurance programs
had to be offered, and there had to be a provision for consumer participation and
health education opportunities.
Amendments to the act in 1976 made these requirements even less
stringent, increasing the number of plans that federally qualified from
fourty-two in 1977 to seventy-nine in 1978.
From 1978 through the early 1980s, enrollment in HMOs increased with
some stunted growth in 1982, which is most likely due to a high national
unemployment level of greater than 8.5 percent. By 1987, however, enrollment growth slowed and the number of HMOs
began to decrease. Reasons sited for
this include increased competition from other health care products, employers’
increasing dissatisfaction with the inability of HMOs to use experience-based
premiums, and the employers increasing frustrations with the inability of HMOs
to provide group-specific data on costs, use, and quality. D. 1988 Amendments
to HMO Act The HMO
Act amendments that took place in 1988 addressed many of the concerns that
employers had. Because of the
amendments, federally qualified HMOs were now required to provide experienced-based,
prospective rate setting, which looked at the actual health of the employees to
determine what ratings would be set.
This was unlike the traditional method of charging a set rate for a
total population, regardless of healthier employers that worked for a certain
employer. These amendments also created
more flexibility in determining what amount of money employers had to
contribute to HMOs for their employees, as previously, they resisted because
they were suspicious of HMOs attracting their healthier employees, and believed
that their employees were healthier than the average person who was attracted
to HMOs. Thus, they felt that they were
unjustly bearing the costs of others’ health care using the prior community
ratings, and were not as flexible as they were prior to this amendment. E. Additional
Applicable Law for Private Health Insurance States
have traditionally been the regulators of private health insurance within their
borders. As seen with the passage of
the McCarran-Ferguson Act of 1945, Congress intended for the states to regulate
private health insurance without any government interference.[9] Specifically, the McCarran-Ferguson Act,
among other things, gave the states the authority to support existing and
future state systems for regulating and taxing the business of insurance.[10] Regulations
within states attempt to guarantee the solvency of health insurers by
prescribing capital and financial reserve requirements.[11] The protection of consumers is attempted by
requiring disclosure of contract information, standardized printing of terms of
coverage, and insurance company bonding and auditing.[12] A few states evaluate and approve the rates
charged by some insurers to some insureds.[13] Commercial insurer’s premiums are taxed in
all states and more than half also tax Blue Cross and Blue Shield premiums.[14] Lastly, to make insurance available to
persons who are otherwise uninsurable, about a third of the sates now tax
insurance plans to finance these risk pools.[15] Although
the regulation of the business of insurance and the delivery of health care has
traditionally been within the purview of the states,[16]
the federal government[17]
began to reassert its influence with the passage of the Employee Retirement
Income Security Act of 1974 (“ERISA”).[18] Congress originally enacted ERISA as a
protective measure for American workers, safeguarding benefit plans offered by
employers from corporate and union misappropriation.[19] Intending to establish uniform standards for
the regulation of benefit plans and federally protecting the plans from
inappropriate remedies, Congress also included a broad preemption clause so
that ERISA would supersede conflicting or inconsistent state regulations.[20] Courts
have scrutinized over the language of ERISA’s preemption clause for more than
two decades.[21] Key to the issue of preemption is whether or
not a state law “relates to” an employee benefit plan.[22] The language of the statute specifically
states that ERISA will “supersede any and all State laws insofar as they may
now or hereafter relate to any employee benefit plan …”[23] Until
1995, judicial precedent supported the view held by many ERISA experts that the
reach of ERISA’s preemption clause was virtually limitless and that state
statutes that even indirectly impacted ERISA plans would be invalidated.[24] Since 1995, however, Supreme Court
preemption decisions have signaled a potential change in the Court’s thinking,[25]
with most legal experts concluding that ERISA's preemptive language is not as
broad as was once thought.[26] Not
absolute, ERISA has an exception to the rule within the statutory
language. Although the legislation was
enacted to protect all employee benefit plans from state interference, the
“savings” clause[27]
of the statute explicitly saves from preemption any state law regulating
insurance, banking, or securities.[28] Furthermore, the “savings” clause also
provides statutory exemption for pre-ERISA acts.[29] In order
to frustrate states’ efforts to statutorily circumvent ERISA’s preemption of
state laws relating to employee benefit plans, Congress included within the
legislation a “deemer” clause.[30] It is designed to prevent states from
regulating employee benefit plans under the guise of regulating insurance.[31] The provision provides that: Neither an employee benefit plan …
nor any trust established under such a plan, shall be deemed to be an insurance
company or other insurer, bank, trust, company, or investment company or to be
engaged in the business of insurance or banking for purposes of any law of any
State purporting to regulate insurance companies, insurance contracts, banks,
trust companies, or investment companies.[32] In essence, this ERISA provision
prohibits a state law from deeming an employee benefit plan to be an insurance
company by claming to regulate the business of insurance.[33] Another area of federal law that has
usurped traditional areas of state law regulation of health insurance is the
Consolidated Omnibus Budget Reconciliation Act (“COBRA”).[34] COBRA amended, among other statutes, ERISA
in 1985.[35] The amendments require an employer, with
more than 20 employees,[36]
who sponsors a group health plan to give the plan’s “qualified beneficiaries”
the opportunity to elect “continuation coverage” under the plan when the
beneficiaries might otherwise lose coverage upon the occurrence of certain
“qualifying events,” including the death of the covered employee, the
termination of the covered employee’s employment (excluding cases of gross
misconduct), and divorce or legal separation from the covered employee.[37] Therefore, a “qualified beneficiary”
entitled to make a COBRA election may be someone covered by the employer’s plan
because of his own employment, or a covered employee’s spouse or dependent
children who were covered by the plan prior to the occurrence of the
“qualifying event.”[38] Furthermore, the statute states that
the continuation coverage offered to qualified beneficiaries are to be equal to
what the plan provides to plan beneficiaries who have not suffered a qualifying
event.[39] COBRA requires plans to advise beneficiaries
of their rights under the statute at both the commencement of coverage and
within 14 days of learning of a qualifying event,[40]
after which qualified beneficiaries have 60 days to determine if they will
continue coverage.[41] If a qualified beneficiary makes the
election to continue coverage, continuation coverage dates from the qualifying
event, and when the event is the result of termination or reduced hours, the
maximum period of coverage is generally 18 to 36 months.[42] Benefits may cease if the qualified
beneficiary fails to pay the premiums as required by the statute.[43] In addition, COBRA coverage may also cease
on: “the date on which
the qualified beneficiary first becomes, after the date of the election, “(i) covered under any other group
health plan (as an employee or otherwise), which does not contain any exclusion
or limitation with respect to any preexisting condition of such beneficiary, or “(ii)
entitled to benefits under title XVIII of the Social Security Act.”[44] Another piece of legislation that
has expressly preempted state laws in regards to health care is the federal
Health Maintenance Organization Act of 1973 (“HMO Act”).[45] This Act was a result of a push within
Congress and the Nixon administration to promote alternatives to the
ever-increasing expense of Fee For Service health care.[46] Specifically, the HMO Act provided HMO’s
meeting federal standards to demand that area employers of twenty-five or more
provide their employees a “dual choice option”[47]
in which the HMO could be offered to the employee along with whatever health
plan the employer had already arranged.[48] This statute gave states the power to
regulate where state laws had previously blocked the establishment of such
corporations providing health care and where federal laws had in the past
preempted state regulation of HMOs.[49] In addition, the HMO Act provided
detailed operational regulations for HMOs to comply with before they could
become “federally qualified” and receive federal grants or loans.[50] To qualify for this federal support, HMOs
were required to offer comprehensive benefits and meet onerous requirements,
such as consumer representation on governing boards, community rating (all
insureds must be charged the same rate regardless of usage), open enrollment,
and mandatory inclusion of low-income and elderly patients.[51] Upon becoming qualified, the HMO would be
continuously subject to Secretarial supervision.[52] Between the years 1973 and 1983, a total of
$145 million in grants and $219 million in loans were made available to 115
HMOs because of the program, setting up what health care has become today.[53] The last federal impact on private
health insurance that will be addressed, and maybe the most significant, is the
area of tax laws.[54] Under the federal income tax laws, employer
contribution for the purchase of employee health insurance is exempt from
taxation.[55] This exemption results in a substantial
subsidy for the purchase of employment related health insurance.[56] F. History of
Managed Care The
Ross-Loos Clinic formed to provide the employees of the Los Angeles water
department with a group of physicians who were paid on a prepaid basis for
their services. Similarly, the Elk
City Cooperative developed to provide low-cost health care to the rural
communities of Oklahoma who needed health care in the time of the
depression. This prepayment plan was
met with a lot of opposition from the general public, and between 1924 and
19854, the county and state medical societies made numerous attempts to disband
the program: many of the plan’s physicians were removed from the local medical
society, hospitals revoked staffing privileges, and some even attempted to revoke
medical licenses. Thus, these
prepayment plans replaced the traditional fee-for-service payment method,
particularly because of the need for a less uncertain cash flow, given the
depression. The 1932 American Hospital Association’s
prepayment plan marks the definitive transition from fee-for-service payment to
prepayment plans. This plan evolved
from a plan used my Baylor Hospital and resulted with the first Blue Cross
Plan. This plan collected fixed
premiums for specified hospital benefits and reimbursed providers on the basis
of the costs that they incurred.
Hence, if costs increased, the consumers had to bear them as a higher
premium, deductible or co-payment. Similarly,
the Group Health Association was initiated by employees of the Homeowners Loan
Corporation in 1937 to reduce the number of mortgage defaults that they
experienced. This was because a large
majority of the foreclosures were due to catastrophic illnesses. One of the
largest groups that emerged during World War II was Kaiser Industries, who merged with Grand Coulee plan (a plan
that provided for employees of a dam project) to form the Kaiser-Permanente
Foundation. This plan was opened to the
general public after the war was over, and spread along the West Coast quite
rapidly. Similar prepaid plans were
also developed, including the Health Insurance Plan of New York in 1944, the
Group Health Cooperative of Puget Sound in 1947, and the Community Health
Association of Detroit by the United
Auto Workers in 1956. Also, the Group Health
Mutual Insurance Company began offering prepaid health services in 1956. Thus, as physicians obtained more experience
with such plans, these “health maintenance organizations” began to spread more
rapidly. G. Growth of the
Individual Practice Association Model (IPA) During the
1980s, the Individual Practice Association (IPA) model became the predominant
type of HMOs in existence. This type
of model involves groups of physicians across the United States who contract
with insurers or HMOs and collect a fixed fee from insurance carriers from each
patient that they enroll. This fee is
allotted to them regardless of how much care the patient eventually needs
during the given enrollment period. The
physicians all take a collective responsibility for each patient‘s care and
stay within a fixed budget. These
groups can be very large and range from a few hundred physicians to
thousands. Nearly 400
IPAs existed in 1989 and had approximately 13.5 million people enrolled in
them. This growth marked a growth of
300 percent for the number of IPA plans increased and an enrollment increase of
700 percent from the years 1980 to 1989.
There were multiple reasons for this tremendous amount of growth, namely
the appeal to physicians, who liked the fact that they could join an IPA and
still maintain the fee-for-service arrangement that they used in the past. Additionally, IPAs required lower start-up
costs and thus, were more easily finance.
Finally, consumers also seemed to like IPAs more because they were
allowed a greater choice in physicians and many could retain the physician that
they had before they enrolled in the IPA.
While in the 1970s, most HMOs were nonprofit, most IPAs operate on a
for-profit basis, and help to maintain the current trend of HMOs operating on a
for-profit basis. H. Problems Facing
Managed Care A large problem that also has
ethical aspects to it is the fact that many managed care organizations provide
their physicians with an “illegal kickback arrangement”[57]
that provides monetary rewards to physicians who decide against administering
costly tests for patients who could benefit from these services. They do so simply because the managed care
organizations have told them that if they keep such costs down, they will
receive these monetary rewards for their compliance. While in the past, doctors could potentially abuse the
fee-for-service arrangement by ordering extraneous tests that were not deemed
medically necessary, these tests at least safeguarded the patient and was not
potentially damaging like the withholding of tests can be.[58] Denial of
care is another important problem that managed care creates. Currently, more than 70 percent of health
dollars go toward caring for the ill.
Hence, for-profit managed care organizations wish to attract healthy
patients and screen out the high-risk groups.
These for-profit organizations also limit the services that attract the
sick and disabled so that they can select for healthier patients without being
accused of discriminating against sick people.[59] Another problem with managed care is their
use of report cards. Health plans are
creating such report cards and acquiring information from members of their
plans who are typically less sick and thus, have little contact with the
system. Thus, the quality reports of
health plans are much higher than they actually are overall, as the
administrators of these health plans are manipulating the selection of
participants. According to recent
reports from the Medical Outcomes Study as well as the Robert Wood Johnson Foundation,
people actually showed “significantly worse access, satisfaction, and outcomes
for the poor, sick and elderly in managed care.”[60] The final
and perhaps one of the most important problems that managed care creates is the
fact that it diverts revenue away from hospitals and clinics (to go toward
paying administrative costs and hefty salaries to managed care CEOs’
salaries). In fact, such administrative
burdens also create patient and physician satisfaction because it takes time
away from the physician-patient relationship.
Rather than having the time to spend time with their patients explaining
procedures or their diagnosis, physicians are dealing with “armies of corporate
utilization managers spend[ing] millions of hours chasing approvals, correcting
inappropriate denials and dealing with conflicting formularies, all of which
leads to skyrocketing administrative costs.”[61] Thus, this waste exacerbates the problem of
accessing health care, and is a burdensome problem for the millions of people
who are uninsured and cannot attain access to voluntary care that could be
given to such patients instead. This
problem and the current health care crisis of the United States will be
discussed in the remainder of this chapter.[62] I. Current Health
Care Crisis of the United States Please
note: there are more detailed chapters in this online text that discuss the
fact that health care spending is increasing in the United States and the fact
that many people lack health care insurance in the United States. However, for the purposes of this chapter,
these topics will be merely touched upon in an effort to provide a framework
for the present situation of health care and thus, to show how the proposed
solution might address some of these problems better than the current health
care insurance systems that are in place both privately and federally. Currently,
the United States spends more than $1.3 trillion each year on health care. The current population size of the United
States is 281 million[63]
and the infant mortality rate is 6.82 per 1,000 live births.[64]
Life expectancy is 74.24 years for men and 79.9 years for women[65]
and the per capita gross domestic product (GDP) is $33,900[66] with
$4,373 per person per year spent on health care (or, 12.9 percent of GDP).[67] Despite this phenomenal spending trends of
the United States, almost 39 million Americans, including 8.4 million children,
lack basic health coverage. Currently, the total number of people without
health insurance makes up 14 percent of the total population of the United
States,[68]
but this percentage has historically risen and fallen depending upon the state
of the economy. The ethnic background
of the millions of Americans without insurance include: 1) Ethnic
Background of Uninsured Americans Table I-1 Source: Department of Commerce, Health
Insurance Coverage 2000. (Washington,
DC: Department of Commerce, September 28, 2001). 2)
Ramifications of lack of health coverage for all The
ramifications of not being insured are drastic. Often, many people forgo health care, even when they are in the
early stages of a chronic condition, so as to avoid treatment costs. This results in their needing even more
expensive care later on, as well as a deterioration of their conditions that
might have otherwise been avoided.
According to the Universal Health Care 2000 Campaign, the uninsured are
four times more likely to forego needed medical care, to postpone care due to
costs and to not fill a prescription.
They are also hospitalized at least 50 more often than the insured for
avoidable hospital conditions such as pneumonia and uncontrolled diabetes.[72] 3) U.S.
Spending on Health Care is on the Increase Despite the fact that the United
States already spends more on health care than any other industrialized
democratic nation but does not achieve comparably better results, health care
spending is increasing in the United States.
In fact, by 2011, health care spending in the United States is expected
to reach $2.8 trillion - a 115 percent increase from the $1.3 trillion spent on
health care in 2000 - according to a new report by the Centers for Medicare and
Medicaid Services. The report,
published in the March/April issue of Health Affairs, projected that national
health spending will grow at an average annual rate of 7.3 percent from 2001 to
2011. By 2011, health care spending is
expected to comprise 17 percent of the U.S.
gross domestic product - up from 13.2 percent in 2000 - with the
increase largely attributed to legislative-driven increases in public spending
and a weaker economic outlook. "From
2003 to 2011, real health spending is expected to outpace real economic growth,
resulting in a continually growing share of the nation's resources being
allocated to health care," wrote the report authors. The report
contains a number of spending projections including private spending, public
health spending, Medicare, Medicaid, out-of-pocket costs, hospitals, government
public health, prescription drugs and nursing homes. Among the report's predictions and findings: Chart 3. Past and Projected U.S. Health Expenditure Source: U.S. Department of Health
and Human Services, Health Care Financing Administration, March 2001. 4) Why the
United States Spends More on Health than other Nations Currently, the United States spends
more on health care than other industrialized nation. In fact, this has been the case since World War II. For example, the United States spent
approximately 5.2 percent of its gross domestic product on health care in 1960,
compared to the 3.8 percent of GDP that the Organization of Economic
Cooperation and Development, made up of 29 industrialized nations, spent on
average in 1960. These numbers jumped
from 12.6 percent in the United States in 1990 compared to the 7.2 percent OECD
mean, and 13.5 percent in the United States in 1997 compared to the 7.5 percent
OECD mean.[74]
There are several reasons why the United States spends more on health care than
in other countries. Among the
reasons cited for the difference in health care costs is that the United States
uses much more technology in its practice of medicine than do other
countries. An illustration of this
statement is the fact that the United States has three times the number of
computerized tomography scanners and five times the number of magnetic
resonance imaging units per million population than the average of other
industrialized nations. Also, in 1996,
the average cost per day for hospital care in the United States was $1,128,
compared to $632 in Denmark, $489 in Canada, and less than $350 per day in 20
other industrialized nations.[75] Another
problem with the United States in terms of costs of health care is that there
is a higher price placed on goods and services provided, especially for
pharmaceuticals. In fact, U.S. consumers pay about 25 percent to 100
percent more than customers who are in other parts of the world, even when the
medications are being produced by the same pharmaceutical companies. One example of this is the fact that
coronary artery "stents," which are medical devices that prevent heart
attacks, cost $500 more in the United States than they do in Canada. If a national health system existed that
bought all drugs from all the manufacturers, the system would be able to
negotiate prices that are far more reasonable than what one person or one insurance
company (or even a handful of insurance companies or individuals) can
negotiate. Hence, some Americans are
now going to Canada to purchase needed pharmaceuticals."[76] The third
burden to health care costs in the United States is that of administrative
waste, as approximately 25 percent of the cost of health care is spent on
non-clinical administration. These
administrative costs include determination of eligibility for insurance,
billing procedures, and marketing expenses.
The United States spends double the amount of what other industrialized
nations spend on such activities.[77]
The U.S. Medicare program has overhead
administrative costs of less than 5 percent, where as private insurance
companies have overhead costs in the 20 percent to 25 percent range.[78]
The discrepancy lies in the fact that private insurance companies review every
procedure that a doctor proposes and usually contests each one, even if it is
deemed necessary. Such practices result
in a delay of health care provision and cause doctors to waste both their time
and money taking care of paperwork for the justification of procedures and
billing for the provision of delivery, rather than being able to spend time on
their patients. J. Potential
Solution to Lack of Health Insurance for Americans Given that
being sick is more costly to the Canadian economy than treating health care and
having productive members of society, the Canadian government implemented a
universal access to health care system in the 20th century. As a result of this, life expectancy has
increased dramatically from 59 ears in the early 1920s to 69 years in the 1950s
and 79 years by 1997. Furthermore,
older adults enjoy a better quality of life because of the extension of the
number of years that they are living.
In fact, the Canadian life expectancy is one of the longest in the
world, second with Iceland and behind Japan.
Health care also costs much less in Canada than it does in the United
States. In fact, the per capita health
care cost in 1994 in the United States was $3,510 as opposed to $1,982 in
Canada.[80] Similarly, administrative costs as a percentage of
the total cost of health care in the United States are 26 percent, whereas it
comprises only 9 percent of total costs in Canada.[81] Another difference is that the cost
for a typical family of four with a gross income of $35,000 per year with
average coverage in the United States is $5,780. The total is paid by the individual in premium contributions,
out-of-pocket expenses, co-payments and uncovered services and falling wages as
employer health care costs rise. On the
other hand, for full coverage in Canada, the cost is only $3,595, which is paid
through a public tax system that is shared fairly by all and based on a
national budget.[82]
Thus, the Canadian health care system is far better than the U.S. system in that for almost half the price, it
achieves far superior results. Section 2: MEDICARE The
Medicare program was first established in 1965 as Title XVIII of the Social
Security Act.[83] In passing this legislation, Congress
separated Medicare into one common definitional part, Part C, and two
substantive parts, Part A and Part B.[84]
The purpose of Medicare was to provide the same type of health care as could be
provided by a comprehensive insurance plan by a private entity.[85] Specifically, Medicare was to provide a
coordinated and comprehensive approach to federal health insurance and medical
care for the aged and disabled.[86] The
Medicare program went into effect July 1, 1966.[87] It entitles persons age 65 and over (and
their spouses who are at least age 65) who have paid into the Social Security
system or Railroad Retirement benefits to federal health insurance coverage.[88] In addition to those over the age of 65, the
program also covers two categories of person under age 65: those with end-stage
renal (kidney) disease and disabled persons who have been receiving Social
Security disability benefits for 24 months.[89] Medicare is an entitlement program and is
not a needs-based program like Medicaid,[90]
a federal-state program of medical assistance.[91] Today,
Medicare provides health care coverage for more than 40 million Americans.[92] Enrollment into Medicare is projected to
reach nearly 77 million by 2031 when the Baby Boom generation is projected to
be fully enrolled.[93] Such figures have generated concern with the
future viability of the Medicare system.
Faced with this concern, politicians have been calling for reform to
ensure Medicare’s survival for future generations (Please see President Bush’s
reform strategies below). The
administration of the Medicare program is delegated to the Department of Health
and Human Services (DHHS), which is a department in the executive branch of the
federal government.[94] The Social Security Administration (SSA), a
department within the DHHS, is responsible for Medicare eligibility and
enrollment, and the Health Care Financing Administration (HCFA) establishes all
the rules, regulations, and health-related policies governing the Medicare
program.[95] The HCFA contracts with private insurance
companies throughout the United States to process Medicare claims.[96] Each state has an intermediary, a private
insurance company that processes Part A claims, and a carrier, a private
insurance company that processes Part B claims.[97] Medicare
is funded from payroll taxes, general taxes, interest accumulated from the
Health Insurance Trust Funds, and monthly premiums paid by Medicare
beneficiaries.[98] Furthermore, beneficiaries are responsible
for paying deductibles and coinsurance amounts.[99] As
mentioned above, Medicare is divided into two parts: Part A, hospital insurance
(HI); and Part B, medical insurance (also called supplemental medical insurance
or SMI).[100] Medicare does not pay for all of a
beneficiary’s health care costs; it only pays a portion of it.[101] Because of this, many Medicare beneficiaries
supplement their coverage with private health insurance.[102] When a
person enrolls in Medicare, he or she will not have to pay a monthly premium
for Part A.[103]
There is no monthly premium to pay for Part A because coverage has been earned
through a person’s payroll taxes deducted during his or her working years.[104] Part B, on the other hand, is voluntary and
requires a monthly premium, most often deducted from a person’s Social Security
check each month.[105] Medicare
Part A covers areas such as inpatient hospital stays, skilled nursing facility
stays, home health care, and hospice care.
In regards to inpatient hospital coverage, a person eligible to receive
this coverage must first be admitted into a hospital.[106] A Utilization Review Committee, a Peer
Review Organization (PRO), and a Medicare intermediary determine eligibility by
determining whether inpatient hospital care is “reasonable and necessary” for a
specific disease or illness.[107] The basic
inpatient hospital benefits under Medicare Part A include a semiprivate room;
meals, including special diets; regular nursing care; special care units, such
as intensive care; laboratory tests; drugs given while in the hospital;
radiology services, such as X-rays; medical supplies, such as casts; equipment
use, such as wheelchairs; blood transfusions after the first three pints
administered; operating room and recovery room costs; rehabilitation services,
such as physical therapy; medical social services, such as discharge planning;
emergency admission to the nearest hospital without a physician’s orders in
life or death situations; 190 lifetime days in a participating psychiatric
hospital; and care in participating Christian Science Sanatoriums if operated
or listed and certified by the First Church of Christian Science, Boston.[108] Program
beneficiaries are covered for 90 inpatient days each benefit period.[109] A benefit period begins when the person
enters the hospital and ends when the individual is released.[110] For the first 60 days of inpatient care,
Medicare covers all but a specified deductible.[111] If the individual’s stay goes beyond 60 days
in a benefit period, the patient must pay daily coinsurance.[112] For stays exceeding 60 days, there are an
additional 60 lifetime reserve days available, however, these days can only be
used once.[113] Once these reserve days are used up, they
are no longer available to the patient if an extended hospital stay is needed.[114] Another
area covered under Medicare Part A is skilled nursing facility care. This type of care does not refer to the type
of long-term care most people associate with nursing homes. To be eligible, the skilled care must be a
level of care that is provided under the direction of a physician or other
licensed professional, such as a registered nurse, licensed practical nurse,
physical therapist or speech pathologist, and the facility must include
treatments for inpatients that have illnesses or injuries that seriously affect
their life or health.[115] To qualify
for skilled nursing facility care a physician must certify that the patient
needs, actually receives, and will benefit from skilled nursing care and/or
skilled rehabilitation services on a daily basis.[116] The services provided include technical
services, observation and assessment of medically unstable patients, patient
instruction in the self-care of devices, and physical and occupational therapy.[117] Finally, the basic skilled nursing facility
benefits provided under Medicare Part A are much the same as the benefits
provided for inpatient hospital care discussed earlier. A
beneficiary is entitled to a total of 100 days in a Medicare-certified skilled
nursing facility.
Employment-based private insurance
began in the early 1930s as a result of the Great Depression. At this time, Blue Cross was formed because
very few people had the money to pay for their hospital bills after they were
discharged. Thus, to ensure that
hospitals survived, hospital insurance was created so as to guarantee that
funds continued to flow into hospitals.
These insurance rates were "community rated," which meant that
all of the community had to pay equally for the costs of care. Because the wages in World War II were
controlled, however, employers decided to offer private health insurance as
fringe benefits used to attract workers to their place of employment as opposed
to any other. These private insurance
companies, which became the dominate source of funding during the 1950s, took
business away from Blue Cross by offering lower rates for companies that had
younger and healthier workers who were less likely to need coverage.
· An employer's decision about a compensation package is
likely to be influenced by what other employers in the market offer.
· When there is a greater concentration of purchasers of
labor, there is a lower quantity of health insurance benefits. In fact, offer rates are about 2 percent to
3 percent lower in areas with greater concentration, and employer contribution
rates are about 3 percent to 6 percent lower.
· In 1993, offer
rates were about 3 percent higher and employer contributions were about 6
percent to 7 percent higher in areas with a greater share of employment in large
businesses.
· In 1997, offer
rates and contributions were higher in areas with a greater share of large
businesses.
· A positive
correlation was found between unionization and employer health insurance
benefits, with offer rates being about 2 percent to 5 percent higher in areas
with a greater share of union workers.
· Offer rates in both 1993 and 1997 were 2 percent to 3
percent higher in areas in which the workforce is, on average, older.
· Offer rates were
about 5 percent higher in areas with a more educated workforce in 1997.[7]
Prepaid Group Practice (PGP) were
developed in the 1920s and 1930s. They
included groups of physicians who organized to provide comprehensive health
care to patients. While they were not
a serious alternative to solo practice, their emergence began to increase
rapidly in other large cities when the Mayo Clinic was established in
Rochester, Minnesota in 1883.
Generally, however, the turning point of the modern movement of PGPs is
considered to be in 1929, with the establishment of the Ross-Loos Clinic in Los Angeles, California
and the Elk City Cooperative in Elk City, Oklahoma.
One problem with health
maintenance organizations are that people's choice of hospital and physicians
are restricted to those that are listed on the plan. To address this issue, many HMOs have created what are termed
"Preferred Provider Organizations," which provide panel of health
providers for the person to choose from or give the option of choosing another
health care provider but having to pay an additional co-payment. (The other type of plan that is typically
created by HMOs is a "Point of Service Plan," which allows patients
to see anyone that they want who is willing to accept the plan's reimbursement
rate. In this plan, the patient usually
covers about 20 percent of the fee). 
The average person in the United
States spends approximately $1 out of every $6 on health care and pays for the
majority of primary care services that he or she receives out of his or her own
pocket.[69]
In fact, 60 percent of all U.S. health
expenditures come from private sources (i.e., personal income).[70]
Patients may pay a portion of health costs as a co-payment supplemented by
insurance, or the patient may bear the full cost of care. This full payment can be necessary because
the patient does not have insurance, as approximately 43 million people in the
United States do not have.
Occasionally, a patient does actually have insurance but does not have
coverage - often unknowingly - for the particular product or service that the
patient needs. According to data from
1996, the average American spends $470 per year on health care out of his or
her own pocket. Furthermore, the
sickest 10 percent of Americans spend $1,864 and the sickest 10 percent of
Americans who are lacking insurance pay $1,966.[71]
· Government public health spending will increase in 2001 and
2002, reaching 16 percent in 2002, due to funding increases to upgrade the
public health system to defend against the threat of bioterrorism.
· Private spending for health care grew 8.9 percent in 2001
and peaked at 9.4 percent for 2002, due to the effect of recent rising
household incomes, less restrictive forms of managed care and rising price
inflation.
· Private spending growth will decline to 5.9 percent by
2011, due to slower per capita real income growth, the revival of more
restrictive forms of managed care, an increase in the number of uninsured
people and an increase in consumer cost sharing.
· Public health spending will grow at an average annual rate
of 7.3 percent from 20022011.
· By 2003, annual Medicare spending growth will fall by 5.5
percentage points and annual Medicaid spending growth will fall by 3.5
percentage points.
· Out-of-pocket costs
will fall to 14.1 percent of total personal health care spending in 2011, down
almost 5 percent from 2001. However, because
employers are continuing to shift the costs of health care to their employees
and because the number of uninsured people continues to rise, the declines are
expected to be slower than in the 1990s.
· The growth in
prescription drug spending will decelerate from 17.3 percent in 2000 to 10.1
percent in 2011, because of weaker disposable income from the slowing economy,
a decreased impact of direct-to-consumer advertising and incentives to use
lower-cost drugs.
· Hospital spending
increased to 8.3 percent in 2001, due to increased Medicare spending in 2001
and in private spending through 2002.
· Nursing home
spending is expected to grow 5.5 percent per year from 20012011.[73]
The Canadian economy has found
that the burden of ill health is more costly than the amount to treat it, in
that there is time taken off from work or other regular activities by the
person who is sick, there is time taken away from work by the person who is
treating the sick and that potential productivity and output is lost when
someone dies young. According to a
study released by Health Canada in 1997, these type of costs are double the
costs of health care, when calculating the direct costs of illness (the amount
of money that was spent on treatment, care, and rehabilitation), as well as the
indirect costs (productivity that was lost due to premature death and short- or
long-term disability). However,
intangible values such as the value of the time that was spent taking care of a
loved one, were immeasurable. The
findings of the study for 1993 were that the total cost of illness was about
$157 billion, of which more than $85 billion came from indirect costs. The report also found that the leading
sources of costs included heart disease and stroke (about $20 billion),
musculoskeletal disease (about $18 billion), injuries (about $14 billion) and
cancer (about $13 billion). These
diseases combined accounted for slightly more than 50 percent of the costs that
could be classified by type of illness and each were characterized by much
higher indirect costs than direct costs.[79]A. Medicare Part A