US Health Care – a Thousand Systems – for Better or Worse

Lecture presented at the St Petersburg Summer School of Public Health


Claes Ortendahl, Director General rtd

When the American Health Care System is debated in my home country, it is basically used as warning -this is what could happen unless we watch out.

There are three properties of the American Way of Health Care, that are seen as particularly dangerous.

  1. The large proportion of poor families and individuals that are not covered by health care insurance.
  2. The horrible costs involved
  3. The limited successes in bringing about public health

All these three perceptions of the American health care are correct. But it is very far from the whole story.

And while Europeans in general are extremely critical to the “Wild West of Health Care”, we tend to look away from the fact that part of our critical views derive from the fact, that no other health system is so documented, researched and debated as the American. While I belong to the critics of the American Way of Health, I certainly wish that I had a chance of being as certain of my views of my own system as I am about the American.

A first misconception should really be confronted already at this point. In the strict sense, there is no American Health Care System. There are at least 50. Every state has its own – sometimes diverging to an extent that makes them more than “versions” of the one and only. And since the individual choice does play quite a role, the final number is even higher – why not a thousand?

It goes all the way from Tennessee, which is very close to a universal coverage system and to states were charity plays an important role to help those in very low income categories.

A second misconception is that it is a neoliberal system of benefits sold at the marketplace according to what you can pay. That is not correct. Much of the American system, particularly for people above 65, is as Bismarkian as any European system. The American formula of a Bismark health plan is Medicare, serving everyone – basically – over the age of 65. But for other age groups the market place metaphor is still relevant.

A third misconception is that those that have access to the systems, get wonderful, high tech treatment with exceptional outcomes. They do exist these wonderful institutions. But most of them are no worse or no better than their European counterparts showing the same kind of broad quality variation, that is typical also of European health care institutions.

So let us put these three misconceptions behind and analyse what is really there.

This rather complicated picture tries to differentiate some of the basic elements in the American system.

First of all – who is covered by it, and who is not - and by what means?

Let us start by Medicare:

The basic form of Medicare – here referred to as Medicare A – is free of charge if you are 65, if you – or your spouse - have worked in medicare-covered employment for at least 10 years. That is the basics. You will also be eligable for Medicare, if you are younger but with a chronic disability or if you have a chronic kidney disease. But Medicare A does not cover everything. And even with Medicare, you have to pay a part of your health care costs yourself. You can increase coverage and reduce co-payment by adding Medicare B and buying yourself a Medigap policy. But I am not going to trouble you with that.

Medicare is simply for most old people – there are exceptions, I will come back to that below – a health insurance giving you basic health care whenever needed. It is a respected system with a good many supporters.

Medicare is partly financed by the federation and partly by the state. But the states are today the driving force in implementing it and in creating further development of the system. That is not to say that Congress has lost all its influence. Congress may – depending on the outcome of coming election – also regain some of its initiative.

The situation for the nonelderly is more troublesome. The fundamental routine solution for them is private insurance – either through their employer or paid by themselves. Among those that need to prepare to pay for themselves are students, people in between jobs divorcees that have no special agreements to keep the services for them granted in insurance policies for “dependants” and other groups not permanently in the labour market.

For many of these groups the “poverty solution” and the solution for socio-economic emergencies - Medicaid – is not available.

The following figures may give you an idea of the size of the problem:

As you can see, there is – during this period – a slight decrease in coverage. Now, this happens over time. It may not be a definite change in coverage. But an article in the New England Journal of Medicine from January 1999 indicates that it could be a part of a long term trend.

Insurance coverage is not a stable phenomenon even for those that here are indicated as having protection by insurance. The American Census Bureau reported 1998, that as many as 71.5 million Americans go through a period during a year when they lack coverage – usually for employment reasons. So the problem is more serious and larger than the figures above

Note: Percentage of Uninsured Workers And Total Population Under Age 65 1979-1995. Source: Kronich and Gilmer in Health Affairs 18:2 1999.

seem to show. The historic development can be made even clearer by focusing on the

development for workers as indicated in graph above:


Who, then, lacks coverage?

Poor and low-income persons, as well as members of minority groups, are most likely to have periods without coverage. Twenty-five percent of non-Hispanic whites had at least one month without coverage over a two year period. 37 percent of Blacks had the same experience and 50 percent of Hispanics.

While 16 percent of all Americans lacked insurance in 1997, 24 percent of those with incomes of less than 25.000 USD had no coverage. Fifty percent of persons under the poverty line had at least one month without insurance.

High costs for the individual household are the main cause for lack of coverage. One study reports, that a person with an annual income at the poverty threshold would need to pay 25 percents of that income to purchase health insurance. In more expansive parts of USA, this cost may rise to 40 percent for a family of four.

The ratio between household relative cost for healthcare and the number of uninsured households is illustrated in this graph:

Note: Percentage Uninsured Among Workers, By Per Capita Health Expenditures Divided By Personal Income, 1995. Source: Kronich and Gilmer in Health Affairs 18:2 1999.

A second important cause for lacking insurance coverage is eligibility criteria for Medicaid. These criteria used to be a federal matter. But the republican congress changed all that and States now set their own criteria, determining not only determining economic criteria but also the type of benefits that are included and the duration.

A third problem of fundamental importance is that of portability. If you loose your job at the age of 55, soon going into health care age, you may have paid health insurance all through your healthy life, but now when you start to nee it – you are out.

Particular concern has been expressed in relation to coverage for children. Using earlier eligibility criteria 21,3 million children are included. But one recent federal study indicated that 4,7 million children do not get it.

The number of Medicaid clients differ very much between states. In Tennessee an effort was made to expand eligibility to achieve universal coverage. And they have basically succeeded to do so with 22 percent of the population benefiting from the system. In Hawaii – not a very prosperous place – only about half that figure is achieved.

It is not all a question of eligibility criteria. To benefit from Medicaid, you have to apply for it. And many do not – although they clearly are entitled to it. In the search of explanations for a relatively high “drop out” incidence, on factor is particularly interesting. In poor areas access to health care is so low, that people do not enter into the culture to seek medical assistance. And some doctors even refuse to see Medicaid clients.

So what happens to those that lack insurance coverage when they absolutely need to see a doctor?

As indicated on the graphic presentation there exists also a fourth system to cover for medical expenses. Charity is to a European a rather remarkable form of health care – but it does play quite an important role in the United States. It should be understood that the traditions of a civil society responsibility in America have strong roots and a long lifeline. And what is done is often quite impressive. But it is not only a form of charity in our meaning of the word. As a matter of fact, the public sector plays quite an important role also for these particularly vulnerable groups by supporting charity programs over the state, or municipal, budgets.

In many States, hospitals are obliged to accept emergency cases at hospitals. And there are forms of compensation to hospitals for these services. Medicaid often overcompensates hospitals to create some additional room for caring for uninsured. And in many parts of the country state and municipalities have created particular resources to serve the uninsured population in their own areas and at very low, or no, cost.

Many universities have clinics in areas with underprivileged population and it is not uncommon that medical students do voluntary work there. And churches in America have chains of charity clinics offering good services.

But nevertheless – uninsured poor and uninsured ethnic minority groups remains a very big problem with far-reaching consequences also for public health. It has been a major political issue in series of presidential and congressional elections. And it will quite certainly remain so for the foreseeable future.

Why has America, the Worlds economic superpower, not managed to handle this extremely important matter? It seems not to be because of lack of voter support. Explanations need to be looked for in the structure of American health industry. It is an economic factor of colossal importance. And the Health Industry looks after its interests very professionally. And I guess that they still remember what happened in the 50-ies in Canada, when private health insurance was nationalised. And their lobbying groups are among the strongest, in media, in Congress and in many influential organisations.

From government point of view the alternative to expand Medicaid to form a universal coverage system could be done in different ways. One alternative is of course to do just that – but it would mean ruin for a number of Insurance companies. On the other hand, it could subvention insurance costs for the poor and thus make it possible for them to get private insurance. That would be to serve insurance companies with a permission to print their own money – and ruin for government.

One very important lobby group in the American Health debate is the American Medical Association (AMA). Traditionally it has been seen as an advocate of the traditional system, but in a recent policy statement, they suggest a reform aiming at the introduction of a Universal Coverage Insurance. They see the root of the problem in America in a system that permits employers and selfemployed to deduct costs for employees health insurance from their taxable incomes. No such provision exists for individually purchased health insurance. They mean – rightly so – that the present system in effect provides a higher subsidy for those with higher income. The AMA system would create far more individual insurance policies and decrease the importance of the employers choice. I would also create a system, based on an inversed income-related deduction from income tax for health insurance costs.

Those that have a very low income whould be have special low income support to make it possible for them to purchase insurance.

Much more could be said of the proposals from AMA, but that would take us somewhat outside the scope of this lecture. The interesting thing about AMA:s proposal is that now, also the main organisation of medical doctors – normally seen as a fortress of conservative/republican America, seeks solutions to the issue of universal coverage. It may be an important step in health policy development that makes differences between the American system and the European less dramatic.

And some things are going on even on our side at the Atlantic that might serve the same purpose.

Recently, the introduction of the Balanced Budget Amendment in the Constitution created some major needs of redesigns both to Medicare and to Medicaid. Generally the solutions found was to decrease the number of activities that are covered by these insurance systems and to introduce complementary systems – Medigap and Medicare Plus – that are financed much more outside the normal public budget and basically by the insured themselves.

These measures, and the introduction of more and more effective forms of Managed Care, I will soon go into that, managed to bring health care cost increase to a standstill on 13,5 percent for a number of years. But recent discussions in Congress indicate that increases are coming back very soon, as a consequence of the post-war generations entry into “health care age”. The figure foreseen for three years into the new millennium is 16 percent of the GNP.

An important reflection may be that USA has reached a level of health care costs that may make it absolutely impossible to achieve universal coverage without a fundamental change of its fiscal system.

So let us for a moment put ourselves in the position of the citizen in America looking for solutions to his/her insurance and health care problems. What can he expect?

First of all, insurance is mostly not something you handle yourself. Few can make total choices on their own. Their employer who offers insurance as part of their remuneration takes the basic decisions. In classic American labour market relations, the big auto-makers had their own health care facilities that were offered their employees on a life time basis. These arrangements do still exist, but are gradually under reform. The big manufacturing companies that have served their workers this way are increasingly selling their hospitals and clinics and establishing relations with workers using insurance companies instead.

Employers often work with insurance brokers to reach the most favourable deals with insurance companies. Since health insurance is a tough burden for employers new designs have been drafted over the last years. The employees often have to carry part of the costs themselves. And co-payment has increased when the benefits in the insurance policies are used. Another important part of development of insurance through employers, is that the number of services that are covered have been reduced.

Lately you can see examples of employers forming groups that do collective shopping for insurance. Interestingly enough this may prove to be a very important development, in which new demands are put on providers and strict cost and quality controls with economic incentives for performance, are introduced.

The insurance company that has struck a deal with the employer often offers several alternatives within the framework of the policies. The most expensive would be a policy that offers the Fee For Service (FFS) alternative and a broad range of services. Fee for service means that you can turn to any health care institution, get services and be compensated economically. But normally you will have to co-pay for 20 percent of the total costs.

A less costly alternative is POS-policy. POS means a Point of Service. The understanding of POS is – often – that you select a primary health care physician, who will serve you, but also advice you on were more specialised services can be found. The insurance company, or Medicare or Medicaid, that both work is if they were insurance companies, have made a list of providers. It includes all sorts of services and they have concluded agreements with them on compensations levels. You are not forced to use these providers. You can go outside the advised net-work. But it will cost you dearly. The primary health care physician is the active gate-keeper in the system. To get access to specialised services you have to go through him. And he will have to act in accordance with directives issued from the POS-organisation.

POS is a part of Managed Care. Managed care is a system that is basically well known particularly in the West European Countries. The important differences are three:

  1. Providers are often private or at least competing with private providers on similar conditions.
  2. Decisionmakers in managed care are normally not responsible for their decisions to voters in general elections.
  3. A managed care organisation does not have the monopoly in a geographic are that is customary in European heath care but is strongly exposed to competition and subject to the scrutiny of critical and cost-conscious customers such as Medicare and Medicaid.

But many of the ideas that have been introduced to European health care have been chosen from the policy idea bank that has been built up based on managed care.

What services will you then be offered through your insurance plan?

Basic services included in the health plan, would normally amount to the following:

You can pay more and get more. Standards extra items in a health plan for which additional insurance can be bought are often the following:

A tougher version of POS is HMO – Health Maintenance Organisation. It does not provide for services outside the agreed network. You are given a complete system of health services, but once you want a choice of other facilities than offered inside the HMO, you will have to pay yourself.

A more liberal version is PPO – Preferred Provider Organisation, where the client is served with a network of providers and a negotiated scale of fees. But he has still a possibility to go elsewhere. He will have to pay a higher price, but some compensation from insurance will also be available.

But Managed Care is not only a question of organising a network of services to save money and increase competition between providers. The main idea is that of a regulated program of work by providers in relation to defined conditions of unhealth. This program is streamlined to combine both good quality health care and low costs. Generic drugs are often recommended. Luxury procedures are not paid fore. And quality control and compliance control is quite strict.

Doctors and hospitals are paid through the health plans in different ways. Particularly important has been a development in the direction of capitation., Providers and the HMOs are paid for with a fixed sum per patient and year. And in procurement process made up by employers, by Medicaid and Medicare, the capitation level is the decisive matter to be discussed. In the bidding procedures Medicare and Medicaid simply state what they are willing to pay per capita and year and providers will than have to choose if they wish to have a relation with that particular financier of health services – or not.

Capitation as a means of paying providers is not as crude as it may seem. Patients are subdivided into groups depending on age, gender and other individuals characteristics.

Captitation is not the only answer. Increasingly also so-called performance targets are set out to providers and Managed Care organisations – predominantly HMOs. A small part of the capitation is set aside as a “risk-premium”. If performance of providers and HMO is in accordance with performance targets, they get paid the full capitation. If not, they loose their risk premiums.

In a well-known, case such performance targets were set for customer (employee/patients) service, member (employer) satisfaction and quality of care. A very important result has been a dramatic increase in accountability to the general public, to financiers and to patients. It is quite probable that this movement spreads from its present Californian domicile to America at large. It is also quite probable, that performance targeting leads to a more standardised technique to measure quality both as a process – how is the patient being met and how is the financiers handled by the providers – and as outcome – how good was diagnose and therapy.

Personally I would consider this as one very important change in the American system, that has every chance of spreading from America and to other countries as well.

These increased constraints and controls of professional work by doctors and other health care staff, has created a reaction of frustration among professionals. One reaction has been to form providers co-operatives that offer their services to Medicare, Medicaid and insurance companies in order to keep things inside “the family” – the profession itself.

The health industry has also – sometimes – reacted negatively. It does see a threat to its long standing high returns on investments, and there is similar economic reasoning behind some of the reactions from professionals as well. The increase in doctors incomes has slowed down considerably. Some doctors have lost a lot of money by involving themselves in co-operative undertakings that have gone bankrupt – victims of fierce competition. As a consequence many more doctors today wish to become salaried doctors rather than traditional American self-employed physicians.

Many physicians see themselves as engaged in a power struggle, says Thomas Bodenheimer, in an article of New England Journal of Medicine. And Managed Care – particularly HMOs were for a long time seen as the winners.

But in the past two years, a reversal has taken place. Profits for HMOs is going down. The public and the medical profession are demanding that legislators to regulate Managed Care Plans. The control on professional work is easing as a consequence. And the more liberal alternatives to HMOs are gaining ground. Doctors have started a new era of intraprofessional co-operation. Capitation, which has been the dominating way of compensating doctors in HMOs is no longer the only alternative. A slight retreat to fee-for-service arrangements seems to take place.

If this backlash vis a vis Managed care continues, effects on cost containment – a very vulnerable issue – may be very serious.

One important effect of strict cost-containment initiatives has been an increase in productivity and lower costs. That is clear. But a side effect has been less time with patients. This is one of the points of criticism that has played a role to create a reaction against managed care also among patients. There are typically also qualitative aspects of time spent with patients. In one survey, half of the patients reported having left their physicians office not knowing what they had been told to do or what they were supposed to do. As a consequence some of them loose trust and seek services from alternative medicine. Americans made 1997 a total of 629 million visits to alternative-medicine practitioners – a number exceeding the total number of visits to primary care physicians.

Discontent among doctors and patients have also led to less rigid forms of primary health care gate-keeping. And primary health care doctors thereby return to earlier competition with specialists for patients.

Managed care was – and is still – a bold experiment. It seems unlikely that things in US will go back to earlier practises if commercial managed care should fail. The reaction against managed care is directed against just those features in the American Health Care system that were built to contain a very serious form of health inflation. American economy is still booming, but employers have been focusing on reducing their health care costs for quite some time now. And patients cannot pay more – they are already opting out of the system as a consequence of their high out-of-pocket costs.

The prophecy seems therefore rather certain. America does not have an answer to the future of health care – neither for them nor for Europe. But than – who has?

But it certainly has a number of very interesting ideas.