Starting With Curious

My son Evan, when he worked on political campaigns, liked to say “yard signs don’t vote.”  You need to actually convince voters to support your candidate and get them to cast a ballot.  In a similar, though less catchy, way, one might say “slogans don’t create policy.”  Access and affordability of health care remains one of the top issues on the minds of Americans, and it is likely to have a marquee role in the 2020 elections.  The phrase “Medicare For All” has attracted a lot of attention from candidates and media, but what exactly does it mean, and how would it play out as policy?

To explore this question, I want to start with an overview of our current “system.”  I put that word in quotes because in reality we don’t have a health care system, we have a health care hot dish, a patchwork of various private and public methods of payment and delivery.  Let’s start with payment.  The annual spend on health care in the US is about $3,500,000,000,000 ($3.5 trillion – but it looks more impressive with all those zeroes, doesn’t it.)  Although the largest individual slice of that is from private insurance, cumulatively, public spending is almost half.  In fact, surprisingly, as a percent of GDP, government spending on health care in the US is almost the same as in other industrialized countries; the difference is we also spend far, far more from private sources.  Here is the breakdown (numbers may not add to 100% due to rounding):

1. Private insurance (35% of total spending). As I said, this is the largest single source.  Most of this is provided by employers, with the cost of the premiums split between the employer and the employee.  It also includes private insurance obtained by individuals on the so-called Affordable Care Act-created exchanges or marketplaces.  Of the 167 million Americans covered by private insurance, roughly half are in for-profit plans (e.g., United HealthCare, Aetna) and half in not-for-profit plans (Kaiser, many Blue Cross/Blue Shield).
2. Government insurance (41%). While the total here is higher than for private, it actually includes multiple different programs:
3. Medicare (20%). This is a government insurance plan for elderly and certain disabled individuals; essentially all people 65 and older are eligible for Medicare, which covers some 62 million people. It is akin to the Canadian single-payer system (which is also called Medicare): government pays for the care, but is not the provider.  Medicare is paid for and administered entirely by the federal government, which pays for medical services either directly to providers, or indirectly through various private insurance companies which act as a sort of middleman (via “Medicare Advantage” plans).  The government share of the funding comes from a dedicated Medicare payroll tax, and individuals also pay a monthly premium based on their income.  Payment rates to providers are established nationally.  Importantly, while the figures are different for hospitals and physicians, overall the total reimbursement from Medicare tends to be less than the actual cost of providing the care, by 8-10%.
4. Medicaid (17%). Like Medicare, this is a government insurance plan, but with some key differences. Eligibility is determined by income, rather than age; this is a plan primarily to cover the poor and some others with disabilities, totaling approximately 68 million people.  More importantly, this is a joint federal-state program.  Funding comes from a combination of federal and state sources, and the program is administered by the states, so while there are common standards set by the federal government, states have a good deal of flexibility to set eligibility criteria, benefits, and reimbursement rates to providers.  On average, the gap between Medicaid payments and the actual cost of care is larger than for Medicare, about 12-15% less, though in some states like Minnesota it is as much as 30% less than the cost. (The tradeoff is that Minnesota covers more people; we have very few uninsured.)  As with Medicare, payments may be made directly to providers, or indirectly via insurance companies who contract with the state to provide Medicaid managed care.
5. Veterans and military (4%). The Department of Veterans Affairs and Department of Defense run systems more like the British National Health Service where government is not only the payer but the provider for some 15 million people.
6. Individuals (10%). This includes out-of-pocket cost sharing (copayments, deductibles, coinsurance) for those people with one or more of the forms of private or public insurance above, as well as the cost of care for the 27 million people who remain uninsured.
7. Other (14%). This includes a host of things including public health programs, Indian Health Service, school health, worker’s compensation, liability insurance, etc.

A few key observations (and I will want to get back to these in part 2 of this blog):

1. The system is very complicated, even in this ridiculously oversimplified rendition. (I don’t even get into the issue of people who qualify for more than one, such as the elderly poor who may be on both Medicare and Medicaid, or kids with disabilities who may have both Medicaid and private insurance.)  And while most other countries have managed to figure out how to provide universal coverage at a lower cost than the US, their systems are also relatively complicated.  None of them is easily described by a simple slogan.
2. It is incorrect to say we do not have a government health system in the US. As you can see, government spending is as high as private.  Moreover, when you account for tax deductions for employer-provided insurance and health savings accounts, subsidies for exchange-based plans, etc., the government’s indirect spending (tax expenditures) is another $280 billion on top of the direct spending of $1.1 trillion.
3. On the other hand, while health spending in the US is predominantly by the government, providers are primarily private: roughly 54% of hospitals are private not-for-profit, 24% private for-profit, and 22% public.
4. Government sources of insurance do not cover the cost of providing care; doctors and, to a greater extent, hospitals tend to lose money when treating patients under Medicare or Medicaid. This has worked thanks to cost shifting.  For decades, private insurance has paid higher reimbursement to make up for the difference.  This has been a sort of social compact, stabilizing the system.  As the shortfalls from government programs grow, and costs of private insurance outpace inflation, this social compact is unraveling.

I’ll let you digest that for a couple of days and then consider “Medicare For All.”  Spoiler alert – it’s not as simple as it sounds.

This entry was posted on Tuesday, May 28th, 2019 at 3:17 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.