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A Possible Future for the U.S. Health Care System by Roy Goldman

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A Possible Future for the U.S. Health Care System by Roy Goldman HEALTH WATCH HEALTH NOVEMBER 14, 2019 SECTION A Possible Future for the U.S. Health Care System By Roy Goldman edical costs continue to rise faster than the gross domes- tic product (GDP). There has been no fix to the individ- Mual markets under the Patient Protection and Affordable Care Act (ACA) of 2010, and the underinsured rate, if not the uninsured rate, has risen.1 Some people are now suggesting that private insurers who pay the benefits and take risk in place of tra- it would simply be better to cover “everyone” in a “single-payer ditional Medicare.4 In addition, the entire retail prescription drug system.” But what is meant by a single-payer system? What are component of Medicare (Part D) is insured by private payers. the pros and cons of such a system, and how could it be made to 2 work in the United States? And who is everyone? Fifteen years ago, Medicaid could be considered a single-payer system in each state. But today, 69 percent of Medicaid members SINGLE-PAYER SYSTEM have comprehensive coverage with private managed care plans.5 The user of this term usually expects the federal (or state) gov- States have found that they can pay insurers less than they were ernment to finance health insurance coverage for all residents. paying for fee-for-service and require insurers to meet quality The government is both the payer of claims and the insurer standards the states never had. (i.e., the risk-taker). Despite the rhetoric, Canada and Taiwan are the only two industrialized countries with this type of sys- tem, although in Canada, each providence is a separate payer.3 Do not confuse funding with risk-taking. Part D plans receive per capita payments along with reinsurance and low-income Is a single-payer system “socialized medicine”? No; neither subsidies from the federal government. These payments come Canada nor Taiwan are examples of socialized medicine, as their out of general taxes along with insureds’ monthly premium pay- governments do not own the hospitals and other facilities, nor ments. Part A is funded from payroll taxes, while Part B is fund- do they employ the physicians and other providers. In the Unit- ed by general taxes and insureds’ premium payments. Medicaid ed Kingdom, the National Health Service (NHS) is funded by the government, but NHS—not the government—owns the fa- cilities and employs the providers. This is an example of “social- ized medicine.” In the U.S., the Veterans Health Administration A possible future single-payer is another example of socialized medicine. alternative would designate Sometimes people mistakenly refer to a “single-payer system the federal government as the like Medicare.” But the federal government is not the single pay- single payer and insurer … but bid er or risk-taker. Only traditional Medicare (Parts A and B) can be considered a single-payer system, although the actual pay- out management of the health ments and benefit decisions are made by private administrators system to private companies … under contracts with the government. Over one-third of Medi- care beneficiaries have Medicare Advantage (MA) plans through Copyright © 2019 Society of Actuaries. All rights reserved. HEALTH WATCH | 1 A Possible Future for the U.S. Health Care System funding is shared between federal and state taxes with the for- also ration care, as access, quality and affordability all vary based mer now covering a majority of the costs in each state.6 on income, geography and race. UNIVERSAL HEALTH CARE COST SAVINGS Often, the term single payer is used when what is meant is “uni- In a single-payer system, there are administrative cost savings versal health care.” As defined by the World Health Organiza- but not necessarily medical cost savings. tion, a universal health care (UHC) system provides all people with access to needed health services in sufficient quality to be Administrative Savings effective without exposing the user to financial hardship.7 There certainly would be cost savings in administering a single- payer system. Currently, every insurer negotiates payment rates A single-payer system is only one type of UHC. Most countries’ with every type of health care provider, and every provider tries systems fall in one of two broad categories: to strike the best deal with insurers. Every insurer has different procedures, even if the claim forms are uniform. Clearly, there • Insurance mandates. All citizens must purchase standard would be savings if all providers had to follow one payer’s rules. minimum coverage from private insurers (usually nonprof- But who would set the providers’ payment rates and rules? We it) or a public option. Often there is no underwriting, and will discuss this topic further in the next section. subsidies exist for low-income families. Examples include Switzerland, Germany, Japan and the Netherlands. Some argue that there would be additional savings from the profits that insurers make. But health insurers’ profits as a • A combination of single-payer and private insurance. percentage of revenue are lower than that of most industries,13 Examples are the U.K., France, Singapore and Sweden. and sometimes they lose money as in the individual market under ACA. Any insurer, including a nonprofit insurer, needs It is important to note that the U.S. is the only industrialized coun- to have margin to operate a financially viable risk program. try in the world without a UHC system. Meanwhile, it spends about A government-run plan would need some margin as well, and, 18 percent of GDP on health care,8 while Switzerland spends as will be explained further, the government will have to hire about 12 percent, and countries like Germany, France, Sweden, administrators to manage insureds and providers. Japan and Canada spend about 11 percent.9 Some point to traditional Medicare’s low administrative costs PROS AND CONS OF SINGLE-PAYER compared to private insurers (as a percentage of claims paid) as SYSTEM VERSUS OTHER UHC an example of savings we could expect in a single-payer system. Compared to the other 35 Organization for Economic Co- But this analysis is too simplistic. Medicare’s administrative costs operation and Development (OECD) countries, U.S. health are misleadingly low for several reasons. The most important care is the most costly per capita. In 2018, the U.S. spent about one is that Medicare’s administrators exercise very little over- $10,600 per person. The next highest country was Switzerland sight over the quantity or medical necessity of claims submit- at $7,300, and the average OECD country spent $4,000.10 The ted for payment. There is evidence among private insurers that cause is not a mystery: Studies show that the unit cost of health care higher administrative costs can produce lower total costs. is simply greater in the U.S than in other countries.11 Unlike private insurers, Medicare does not employ nurses, phy- However, despite spending more, the U.S. ranks quite low com- sicians, pharmacists or social workers who provide services di- pared to other OECD countries on certain quality-of-life mea- rectly to beneficiaries and providers to: sures, such as life expectancy at birth and infant mortality rate. On the other hand, it has some of the best acute care in the • Coordinate care, especially for those with complex conditions world, excelling, for example, in cancer care. We also rank high • Encourage preventive care in innovation and patient-centered care.12 • Monitor drug utilization • Reduce unnecessary hospital stays and duplicative tests Other countries achieve better public health outcomes, but it cannot all be attributed to their health care spending as many Private insurers incur these additional expenses to keep mem- countries have more generous spending for social services. This bers healthier, reduce unnecessary care and reduce total medical is not a minor point, though, and one the U.S. can emulate con- expenses without reducing quality.14 sidering that social and medical needs are intertwined, especial- ly for the most complex cases. As a result, many countries have An indication of the proof of this statement is the fact that MA higher general tax rates than the U.S. The main disadvantage plans’ bids to provide Part A and Part B are less than traditional often cited for other countries’ systems are delays in access to Medicare benchmark rates in most parts of the country while routine procedures and fixed budgets that lead to rationing of also meeting dozens of quality measures.15 I refer to Medicare care. Of course, an argument can be made that in the U.S., we because one can compare the single-payer features and results of Copyright © 2019 Society of Actuaries. All rights reserved. HEALTH WATCH | 2 A Possible Future for the U.S. Health Care System traditional Medicare with private payers under MA. But Medi- Medicare and traditional Medicaid has shown that simply hav- care covers only 14 percent of the U.S. population. Employers ing the centralized power to set providers’ rates is not sufficient cover 49 percent of the population, Medicaid 21 percent, and to control the growth of health care costs. As shown by private just 6.6 percent have individual insurance.16 Fortunately, these insurers in both Medicare and Medicaid, there needs to be some same utilization and engagement techniques are used by private control over utilization as well. insurers to reduce health care trend rates in Medicaid, individ- ual and employer-sponsored plans as well. Unfortunately, these Option 3 would be nirvana. With chronic disease accounting for efforts do not apply uniformly throughout the country or to all 90 percent of health care costs,17 I have heard estimates that as providers and all insureds.
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