Saving on health care at the cost of people’s health

Health care spending in the US has slowed because fewer people can afford health services.

Supporters of U.S. President Barack Obama''s healthcare law, march outside the Supreme Court in Washington
Nearly 50 million people in the US have no insurance at all, while tens of millions more are "under-insured" [Reuters]

In his recent State of the Union speech, President Obama remarked in one short sentence that “Already, the Affordable Care Act [ACA] is helping to slow the growth of health care costs”. That was the extent of his comments on the historic health care bill he signed into law in March 2010 after more than a year of pushing health reform through Congress. It is true that total health care spending in the US has slowed, but it does not have much to do with the ACA. Instead, it is another symptom of the ailing market-based health system in the US which is causing poor health outcomes and growing inequality.

The US is unique among industrialised nations when it comes to health care. All other wealthy nations have some type of national universal health system that is publicly financed. The US relies primarily on a market-based health care system in which most private health insurance is tied to employment. There are public programmes, Medicaid, for those who are in extreme poverty, but these are subject to state-balanced budget pressures and struggle to meet the needs of their populations. And there is a public-private system for people 65 years of age and older, Medicare, that is financed through taxes at the Federal level. Overall, health coverage is private except for many people who do not qualify for public programmes and find private health insurance unaffordable.

Privatised health system: A failed experiment

The US health system is a failed experiment. Since the 1980s when the US moved aggressively to privatise the financing and delivery of health care, the cost of care, health disparities and the number of people without insurance have climbed. The US spends more per capita on health care than any other country and has excellent health facilities, but in the US, patients receive the amount of health services they can afford rather than what they need.

In fact, health care spending per capita in the US is two and a half times what the average OECD (Organisation for Economic Co-operation and Development) nation spends. Total health spending constitutes a greater piece of the Gross Domestic Product (GPD), currently at 17.9 percent, than the OECD average of 9.5 percent. Yet, nearly 50 million people in the US have no insurance at all. And tens of millions more are under-insured, meaning they have insurance but suffer significant financial barriers to care and face bankruptcy in the event of a serious accident or illness. 

 US healthcare law leaves millions without coverage

A study using data from 2007 found that 62 percent of all personal bankruptcies were due to medical illness and costs and nearly 80 percent of those who experienced medical bankruptcy had some sort of health insurance. In the US it is not uncommon for communities to hold fundraisers when someone is diagnosed with cancer or other significant health conditions. It is also not uncommon for parents to forego care when they have a terminal illness and die prematurely rather than leaving their family behind with no home or other assets.

In a 2009 study, it was estimated that there are 45,000 excess deaths among uninsured adults in the US each year due to lack of access to care. That adds up to more than 120 adults each day. And uninsured children are more likely to die as well. The total number of preventable deaths is probably higher. Another study estimated that there would be over 100,000 fewer preventable deaths in the US each year if we had a high-functioning health system like France, Australia or Japan.

Considering the amount of money invested in health care, the US reaps a poor return in health outcomes. A recent report by the Institute of Medicine indicates that life expectancy in the US for both men and women is falling. And the US fares poorly in a number of categories such as infant mortality, chronic diseases, disability and violent and drug-related injuries. The report points to a number of causative factors such as the lack of a universal health care system and lack of a social safety net. It also points out the severe degree of wealth inequality in the US and the social effects on health that coincide with that such as lack of education, drug abuse and violence.

Wealth inequality in the US is worsening. The most recent US Census Bureau data show that one in three people in the US are living in poverty or are low income. The Gini index which measures inequality grew for the first time since 1993, by 1.6 percent, pointing to rising inequality. This is not surprising. Following the economic crisis of 2008, the purported recovery has only been realised by the wealthiest 1 percent who received 121 percent of the income gains due to falling income in the bottom 99 percent. In real terms, what this means is that two-thirds of US families do not have a safety net to see them through personal emergencies. And the US may be entering a double-dip recession.

Rising out-of-pocket costs lead to self-rationing

The majority of families in the US routinely have to make financial choices about necessities. When it comes to keeping their homes, putting food on the table and meeting their children’s needs, seeking health services is a low priority unless it is an emergency. This results in self-rationing, and it is the cruelest form of rationing because it is not based on the needs of the population but on ability to pay.

Over the three years following the economic crisis of 2008, total health care spending slowed in the US to just below 4 percent each year, down from around 6 percent each year. This decrease in spending began before the ACA was passed and continues at the same pace, so far being unaffected by the ACA. Rather, the decrease in spending is the result of greater shifting of health care costs onto individuals who are unable to afford it and so are using fewer services.

Since 2008, there has been a steady decline in the number of people who are seeing their doctor. One reason is that people lost their jobs and with that their employer-sponsored health insurance. But even those who have private health insurance have been making fewer physician visits. That trend started to reverse in 2012, but only for preventative health services, because the ACA requires greater coverage for those. Of concern is what these patients will do if a serious health condition is diagnosed because in the US, having health insurance does not guarantee that necessary care will be covered and most people face significant deductibles that they must pay before their benefits begin. So, the effect of more preventative care on actual health outcomes remains to be seen. 

“Two-thirds of US families do not have a safety net to see them through personal emergencies.”

There is a debate currently over whether we are in a temporary downturn in the use of health services and health spending or whether this is the new normal. I argue that unless there are significant changes in the financing of health care, we are reaching a new normal in the US of under-insurance. There has been a consistent trend of rising costs of health insurance premiums and pharmaceuticals while a greater proportion of the burden is being shifted onto the individual.

A root cause of this trend is that private health insurance corporations are first and foremost responsible to their investors to provide income. This is achieved by charging high prices for insurance premiums and avoiding payment for health services. A new tool to accomplish this, called Consumer-Driven Health Plans (CDHPs), entered the market about 10 years ago.

Publicly the CDHPs were promoted as common sense plans that would prevent overuse of health services by putting more financial responsibility in the hands of patients who were then expected to make wiser decisions about how to spend their dollars on health care. This was called “having skin in the game“. But in reality, CDHPs have only created greater financial barriers to care and increased the number of people who experience medical bankruptcy while private insurance corporations’ profits have soared.

Studies show that patients are not able to discriminate well between necessary and unnecessary care, and so they avoid both. The consequence of avoiding or delaying necessary care is that conditions are then more difficult and expensive to treat and have worse outcomes, unless of course the outcome is death which leads to overall cost savings. And a recent study described the toll that cost-sharing takes on families, writing: “We found that high levels of cost sharing precipitated considerable anxiety and substantial debt problems, as well as disruptions of medical care.”

US health law increases under-insurance

The ACA will increase the number of people who have insurance, but most will have CDHPs with low levels of coverage. The highest quality health plans have traditionally been those that are employee benefits. But under the ACA fewer employers are planning to offer health benefits. Some will drop coverage altogether and pay a fine instead, which ends up costing less. Other employers are shifting more positions to less than full time or to consultants in order to avoid providing health benefits. And other employers are planning to offer funds for their employees to purchase their insurance individually. More than half of the plans purchased in the individual market are lower benefit plans.

Beginning in 2014, states are required under the ACA to create health insurance exchanges where individuals will purchase health insurance or face a penalty for being uninsured. The exchanges will sell tiers of plans, ranging from those that will pay for 90 percent of covered health services (Platinum) to those that only cover 60 percent (Bronze,) and insurance lobbyists are pushing for even lower coverage. Federal subsidies will be available for people whose income is below a certain level and for whom premiums would cost more than 9.5 percent of their income, but these subsidies will only apply to the “Silver Plans” which pay for 70 percent of covered services which is grossly insufficient.

I emphasise covered services because one way that insurance companies avoid paying for care is to say that a service is not covered. And it was recently revealed that the 9.5 percent cut off only applies to individual coverage. This means that if a person’s individual coverage is less than 9.5 percent but family coverage is higher, they do not qualify for the subsidy. The IRS will not charge the employee a penalty for their uninsured spouse and children.

The ACA has only added more complexity and bureaucracy to an already overly complex and bureaucratic health care system in the US. Over a third of health care spending goes to administration and marketing for the multitude of health plans. And this will grow under the ACA due to the costs of the new exchanges, the new regulations for insurers that must be enforced and the new tax penalty that will be assessed for those who do not purchase insurance. In fact, the State of California which is suffering huge budget difficulties and is struggling to fund health care, just received a $674m federal grant to market and administer its state exchange. Imagine what that would mean if instead those dollars were invested in new health facilities or payment for health care. 

 Discussing US health care reform

The rise in administrative costs, as well as the failure to include proven cost controls, will lead to the ultimate failure of the ACA. In the meantime, as prices rise and coverage shrinks, we can expect increased self-rationing. This may mean a slower rise in overall health care spending, but at what cost to the population. More people will find themselves unable to afford necessary care. This will lead to greater suffering, greater disability and more people dying from preventable causes. This will be the new normal in the US.

Future of global health systems: Public or private?

There is another path. The US could recognise the failure of its market-based health system and instead adopt evidence-based health reform. The US could join the rest of the civilised world and create a universal, lifelong, comprehensive and publicly-financed health system. In the US, we call this Single Payer (meaning the health system is financed by the government through taxes) or Medicare for All.

Current health spending in the US is sufficient to cover a single payer system. And the majority of people and health professionals support this approach. The major barrier is corporate influence over the US political process. Health insurance, pharmaceutical and private hospital corporations spend millions to lobby and elect legislators who are favourable to their interests. Legislative staffers are often hired from these industries and lobbyists for the industries are often former legislative staffers. For example, staffers and lobbyists were very successful in making certain that the ACA would protect their profits.

It is not likely that the US will move to Single Payer unless a strong grassroots movement demands it. And corporate forces, including corporate political parties, do what they can to prevent this. During the health reform process, tens of millions of dollars were given to grassroots groups and labour to support the ACA and the White House made sure that they complied with the Democrat’s messaging. Now, these same groups are allying with the health insurance corporations to promote the purchase of their products.

Instead of learning from the rest of the world, the US is pushing its failed market-based system on other countries. The new Trans-Pacific Partnership is expected to degrade top health systems in Australia and Japan. The President announced in his State of the Union address that he is pushing a new and similar trade agreement on the European Union. And, unfortunately, many EU nations are privatising their systems due to pressure from international financiers despite popular protests.

We are at a crossroads globally. There is a long-term body of strong evidence that publicly-financed universal health care systems improve health and control costs. But as transnational corporations gain greater power, they will expand their reach throughout the globe in order to profit from those who have the means to pay for care. What will be the human cost of this path? As one colleague said about the current environment: “If you aren’t exploitable, you’re expendable.”

Margaret Flowers, MD, served as Congressional Fellow for Physicians for a National Health Program and is on the board of Healthcare-Now. She is co-director of It’s Our Economy and co-host of Clearing the FOG Radio Show.

Follow her on Twitter: @MFlowers8