1. The U.S. Healthcare SystemThe U.S. Healthcare System
Prepared by
Norma Perry

2. Reform Occurs When and WhereReform Occurs When and Where
Problem, Policy, and Politics MeetProblem, Policy, and Politics Meet
• Kingdon’s Model of Agenda Setting says:
Political
Stream Policy
Stream
Problem
Stream
Window of
Opportunity

3. Reform Occurs When and WhereReform Occurs When and Where
Problem, Policy, and Politics MeetProblem, Policy, and Politics Meet
• Kingdon’s Model of Agenda Setting says:
Political
Stream Policy
Stream
Problem
Stream
Window of
Opportunity
Grassroots
mobilization
Cost Crisis, Economy,
Rising Unemployment

4. The Health Care System is Broken:The Health Care System is Broken:
There is a Cost to Doing NothingThere is a Cost to Doing Nothing
Costs are out-of-control:
• $2.4 trillion spent on health care in 2008
– Represents 16.6% of Gross Domestic Product
– By 2015, it is projected be 20% of GDP
Health Insurance Coverage is in Crisis:
• 47 million people are uninsured (15.5%)
– 52 million people are considered medically disenfranchised (i.e.
they do not have a usual source of care, even if they are
insured)
– 13.2 million (28%) of the uninsured are aged 19-29
The Delivery System is Strained:
• Disparities in quality and access
– Medical errors, birth weight outcomes, hospital readmit rates,
and waiting times for ER visits and specialty care indicate that
we do not have the best health care system in the world.

5. Health Care Costs in the U.S.Health Care Costs in the U.S.

6. Source: The Commonwealth Fund, calculated from OECD Health Data 2006.
Health Care Spending per Capita,1980-2004
- adjusted for cost of living differences -
U.S.: $12,357
per person,
20% of GDP
by 2015

7. Health Spending in the U.S. Compared toHealth Spending in the U.S. Compared to
Other Industrialized Countries, 2003Other Industrialized Countries, 2003
Source: Organisation for Economic Cooperation and Development Health Data (OECD), 2006
1,551
1,053
1,114
1,056
2,473
843
670
666
675
709
509
467
581
454766
- 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500
U.S.
Japan
Germany
France
Canada
Per Capita Health Spending (in U.S. Dollars)
Inpatient Outpatient Ancillary
Home Health Pharmacy Nursing Home

8. Source: Yu & Ezzati-Rice, Medical Expenditure Panel Survey Statistical Brief #81, AHRQ, May 2005.
22%
49%
64%
97%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Top 1% Top 5% Top 10% Top 50%
Percentage of Population Ranked by Spending
PercentageofExpenditures
Half of the Population Uses Very Little Health Care:Half of the Population Uses Very Little Health Care:
97% of all health spending is concentrated in half of the population!

10. Health Care CoverageHealth Care Coverage
in the U.S.in the U.S.

11. Do We Even Have a “System”:Do We Even Have a “System”:
Filling in the GapsFilling in the Gaps
• Financing and Structure of the System are Intertwined
• Different Components of the Health Care System are
financed and regulated in different ways
– Public Health Activities
– Care for the Uninsured
– Government Programs
– Hospitals
– Community Health Centers
– Free Clinics
– Private Physician Offices
– Medical Groups
– TriCare/CHAMPUS/Military
– Employer-based Insurance
– Individually-Purchased
Insurance
– Indian Health Services
– HIV/AIDS-related care
– Insurance Companies
– Veterans’ Affairs (VA)
Health Care
– Workers’ Compensation
– Children’s Health Care

12. The Challenges of Basing a SystemThe Challenges of Basing a System
on Employer Provided Insuranceon Employer Provided Insurance
• As health care costs increase, employers are faced with
difficult choices:
– Reducing benefits or not offering
– Reducing choice of potential plans
– Offering high deductible, catastrophic plans
– Establishing different requirements for health benefit
participation
• Minimum hours, waiting periods, workers must higher
percentage of employer-negotiated premium
• Employers negotiate directly with insurers for benefits
and premiums
– Smaller employers have less leverage due to smaller risk pool
– Can represent a significant cost when workforce and retirees
age, get sicker, and ultimately use more health care

13. Sources of Commercial InsuranceSources of Commercial Insurance
• Group (Employer-Based)
– In the past, commercial insurance was known
as “Major Medical” – Benefits similar to
Medicare Part A
– Currently, employer-based insurance benefits
are more comprehensive
• Individually Purchased (Non-Group Market)
– Premium and Benefits based on risk profile of
the individual policyholder
– Tends to be more expensive for the individual
– Limitations due to pre-existing conditions

15. Insurance Status in the U.S., 2007Insurance Status in the U.S., 2007
Type of Coverage Number (millions) Percent
Private 201.7 67.9%
Employment Based 177.2 59.7%
Individual 27.1 9.1%
Government 80.3 27.0%
Medicare 40.4 13.6%
Medicaid/SCHIP 38.3 12.9%
Uninsured 47.0 15.8%
Note: Percentages exceed 100% because type of coverage is not mutually exclusive;
individuals can have more than one category of coverage.
Source: U.S. Census Bureau Analysis of March 2007 Current Population Survey

17. Main Governmental Sources ofMain Governmental Sources of
HealthHealth InsuranceInsurance CoverageCoverage
• Two programs were voted into law in June of
1965 and implemented in July of 1966.
– Title XVIII (Medicare) and XIX (Medicaid) of the Social
Security Act
– Medicare is “social insurance”
• Designed for people with disabilities or the elderly who meet
specific requirements, lifetime benefit
– Medicaid is a “welfare program”
• Designed for needy people who are categorically eligible (not
a guaranteed benefit)
• State Children’s Health Insurance Program
(SCHIP)
– Created in 1997 as part of the Balanced Budget Act

20. The Uninsured: At Serious RiskThe Uninsured: At Serious Risk
• The uninsured in the U.S. face huge obstacles when
attempting to access health care:
– Many private providers will not accept them
• The burden is placed on community health centers, public
hospitals, and emergency rooms
– Difficult to find medical home
– Some are considered uninsurable due to pre-existing
conditions, but cannot qualify for Medicaid
– Cannot afford full cost of visits
• This can lead to medical bankruptcies and foreclosures
• There is some evidence that cost-shifting has resulted in the
uninsured being billed for full charge, even higher than
commercially insured patients

21. Source: Kaiser Family Foundation, 2006
Note: All respondents are under age 65

22. Health Care DeliveryHealth Care Delivery

24. U.S. Life Expectancy in 2003 LowerU.S. Life Expectancy in 2003 Lower
than Countries that spend far lessthan Countries that spend far less
Organisation for Economic Cooperation and Development Health Data (OECD), 2006
74.8
78.6 78.4 76.7
72.7
68.6
75.2
78.180.1
85.6
82.7 83.8
77.6 76.9
79.9
83
0
10
20
30
40
50
60
70
80
90
U.S. Japan Sweden France Mexico Hungary Denmark Australia
LifeExpectancyinYears
Male Female

25. The U.S. also faces problemsThe U.S. also faces problems
related to:related to:
• Health Care Disparities
– Racial/Ethnic, Language, and Gender differences in outcomes
and access
– These differences persist even with insurance coverage
• Medical Errors
– 44,000 to 98,000 preventable deaths
• Emergency Room overcrowding
– Waiting Times
– Throughput, Discharge Planning, Staffed Bed Supply
• Some areas do not have appropriate numbers of
primary care and specialty physicians (i.e. physician
maldistribution)
• Hospital Re-Admission Rates

26. The Intersection of Costs,The Intersection of Costs,
Coverage, and DeliveryCoverage, and Delivery
of Health Careof Health Care

27. The Flow of the Dollar
• Costs, Payment, Delivery, and Insurance Coverage are completely
intertwined in our system!
Insurance
Company
Individually
Insured
Government
Insured
Employees
Uninsured
Physicians
Employer
Publicly
Insured
Payment made to this entity
Service provided by this entity to individuals
Source: Roby DH. 2009 (forthcoming). Impacts of Being Uninsured in Handbook of Health Psychology (edited by
Suls, Kaplan, Davidson), Guilford Publications: New York, NY.

28. Controlling CostsControlling Costs
• Government has been a major proponent of cost
controls
– Prospective Payment
• Use of Diagnosis Related Groups
– Managed Care
• Capitation (HMO and POS)
• Discounted Fee-for-Service (PPO and POS)
• How do differential cost controls impact
hospitals, clinics, and physician providers?
– Lower payments for Medicaid and Medicare
– Insurance companies have increased leverage to
negotiate prices due to managed care contracting
– Cost Shifting impacts delivery and coverage

29. Impacts of Medicare ProspectiveImpacts of Medicare Prospective
Payment System (PPS): 1985-2006Payment System (PPS): 1985-2006
Cost Shifting
Hospital Payment Per Dollar of Care
Medicare Medicaid Private
1985 $1.020 $0.943 $1.171
1990 $0.895 $0.801 $1.278
1998 $1.019 $0.966 $1.158
2004 $0.919 $0.899 $1.289
Source: American Hospital Association/The Lewin Group, Trends Affecting Hospitals
and Health Systems, TrendWatch Chartbook, April 2006.

31. Government Spending Outpaces PrivateGovernment Spending Outpaces Private
Company Spending in our SystemCompany Spending in our System
Source: National Health Expenditures, Centers for Medicare and Medicaid Services, 2007
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Spending(inthousands)
Total Spending Out-of-Pocket Spending Commercial Health Insurance Public Funds

32. Billions spent to close the ‘gaps’ inBillions spent to close the ‘gaps’ in
Medicaid/Medicare payment andMedicaid/Medicare payment and
Uncompensated CareUncompensated Care
• Disproportionate Share Hospital (DSH) Payments
– Medicaid and Medicare DSH
– Based on percentage of caseload from uninsured, Medicaid, and
Medicare
– “Safety Net Financing”
– Medicaid DSH administered by states and subject to federal
match (FMAP)
– Often public/county, teaching facilities, large trauma centers
• Community Health Centers (Section 330) Funding
– Comprehensive Primary Care (FQHC) clinics receive grant
subsidy based on uninsured and Medicaid
– Sliding fee scale
– Administered by the Bureau of Primary Health Care
– 40% of patients are uninsured

33. Source: Stan Dorn, Bowen Garrett, John Holahan, and Aimee Williams,
Medicaid, SCHIP and Economic Downturn: Policy Challenges and Policy Responses, prepared for the Kaiser
Impact of Unemployment Growth on Medicaid
and SCHIP and the Number Uninsured
1%
Increase in
National
Unemployment
Rate
=
1.0 1.1
Increase in
Medicaid
and SCHIP
Enrollment
(million)
Increase in
Uninsured
(million)
&
$2.0
$1.4
$3.4
Increase in
Medicaid and
SCHIP
Spending
(billion)
State
Federal

34. Why Does the U.S. Spend SoWhy Does the U.S. Spend So
Much More on Health Care?Much More on Health Care?
• Compared to other Industrialized countries, the U.S. has:
– Fewer physician office visits per capita
– Fewer hospital inpatient admissions per capita
– Lower Average Length of Stay (ALOS) per admission
– Fewer hospital inpatient days per capita
– Higher (but not the highest) use per capita of selected high-
tech procedures (MRI, CT, angioplasty, dialysis)
• If expenditures = prices x quantity, and quantities are not higher in
the U.S., then prices must be higher!

35. Profits for Health InsurersProfits for Health Insurers
• Profits for health insurance companies and pharmaceutical
companies continue to increase
– In 2006, the top 18 health insurers made $15 billion in profits
– In 2006, pharmaceutical industry profits were 19.6%
• 2nd
most profitable industry, behind the oil industry
• Insurers profit from privatized government programs
– The Medicare Advantage (Part C) program results in $18 billion
in overpayment to insurance companies when compared to
traditional Medicare Fee-for-Service (FFS)
• Outcomes are not better for Medicare HMO enrollees
• Rates paid to private insurers are much higher than cost of
Medicare FFS claims

36. What are we doing wrong?What are we doing wrong?
• We are the only major industrial nation that does not
provide comprehensive health benefits to all its citizens
• We have the largest private market for health care financing
of any nation
• We spend more per capita than any other nation, but allow
greater disparity in spending for different portions of our
population
• Our political system favors incremental changes, based on
market-oriented solutions, rather than fundamental reform
– From the inception of Medicare/Medicaid, to SCHIP, to present, we
are often working within the existing framework and accomplishing
smaller, incremental changes

37. Opportunities and theOpportunities and the
Need for ReformNeed for Reform

38. Possible Reforms andPossible Reforms and
Future FinancingFuture Financing
• Restructure our Current System
– Indirect Subsidies and Consolidation could be used to insure
Uninsured
– There is enough money in the system to care for everyone, but it
is not being used efficiently and effectively! (Obama and Baucus)
• Market-Based Approach
– Consumer Choice – high deductible plans, health savings
accounts, provider fee transparency (McCain)
• Complete Dismantling of Current System
– Can universal health care survive in a for-profit system?
(Conyers)
• Is Universal Insurance required, or Universal Access?
– President G.W. Bush’s health care reform efforts were based
upon expanding the safety net (Community Health Centers),
rather than insuring the uninsured.

39. Current Reform ModelsCurrent Reform Models
• Policy Choices are numerous, if there is political
will and priority given to health care:
– Individual Mandate
– Employer Mandate
– Pay-or-Play Provision
– Tax Credits for Health Insurance
– Expansion of Safety Net Providers
– Health IT (EMR) and Comparative Effectiveness
• Designed to create efficiencies and save money on services,
avoid duplication
– Introduction of Public Health Insurance Plans
• Benchmark Plan
• Based on community rating, risk adjustment/reinsurance
• Will insure those who cannot get other coverage
– Pre-Existing Conditions

40. Where is Reform Occurring?Where is Reform Occurring?
• Since Clinton’s failed attempt at universal health care in
1994, most efforts have been at the state-level
– Massachusetts’ recently passed a universal health care reform
• Individual Mandate – requires all residents to have insurance
coverage, while providing subsidies to those who cannot
afford to buy on the private market
• Health Insurance Connector
• Expansion of state Medicaid and SCHIP eligibility plans
• Other states have tried and failed
– California was close to a compromise to allow for an individual
mandate, similar to Massachusetts
– Budget problems derailed the reform effort
– Hawaii was able to enact an employer mandate in 1974
– States are considered “laboratories of democracy”

41. Problems with State-Level ReformProblems with State-Level Reform
• Complications due to:
– State Budgets
• Current economic situation can derail efforts
– ERISA
• Employee Retirement and Income Security Act
• Federal Law that preempts state laws mandating employer
provision of specific benefits
– Centers for Medicare and Medicaid Services (CMS)
• Changes to Medicaid or SCHIP state plan require approval of
waiver or change in federal regulations
• G.W. Bush was not supportive of changes in eligibility
requirements
• Obama administration is supportive and actively pursuing
expansions

42. Obstacles to ReformObstacles to Reform
• Frequently, universal reform efforts have been led by
elites
– Clinton’s health care plan was written in a “vacuum”, rather than
seeking consensus from political figures
• Even proponents of universal health care opposed Clinton’s plan
• Interest groups, especially business, are powerful
• Campaign financing is loosely regulated
• Political Parties are weak and de-centralized
• Pharmaceutical companies, the American Medical
Association, and other special interest groups have interest
in maintaining status quo  Health Care = $$$$
• Major Stakeholders and Politicians cannot agree on the
best solution
– Universal coverage can have many different forms
– Grassroots mobilization could turn the tide
• This economic downturn, with its rising unemployment, could create
class of uninsured and underserved that is vocal, motivated, and in
serious need of reform

43. Senator Baucus’ ProposalSenator Baucus’ Proposal
• Individual Mandate: All Americans will be required to purchase
coverage if it is available to them
• Creation of purchasing pool or “health insurance exchange”
• Requirement that carriers accept all applicants regardless of pre-
existing health problems.
– By bringing everyone into the system, Senator Baucus believes the
average cost of insuring each American will be reduced.
• Allows those between the ages of 55-and-64 to purchase Medicare
if they lack access to public insurance programs or a group health
plan.
• Expansion of the State Children’s Health Insurance Program to
include children in families at or below 250 percent of the federal
poverty level ($44,000 for a family of three)
• Lift the ban preventing legal immigrants to enroll in SCHIP until
they’ve been in the country for five years.
• Like President Obama, Senator Baucus supports tax credits for
small businesses that provide health insurance coverage and for
individuals and families, below 400 percent of the federal poverty
level, who purchase their own coverage.

44. President Obama’s ProposalPresident Obama’s Proposal
• Employer Mandate – Large employers would be required to pay
portion of payroll tax into fund (Pay-or-Play) – 5% or more
– Lower costs for businesses by covering a portion of the catastrophic
health costs they pay in return for lower premiums for employees.
• Require insurance companies to cover pre-existing conditions so all
Americans regardless of their health status or history can get
comprehensive benefits at fair and stable premiums.
• Create a new Small Business Health Tax Credit
• Establish a National Health Insurance Exchange to allow individuals
and small businesses to buy affordable health coverage.
• Subsidy through personal tax credits based on income
• Additional steps to create efficiencies and reduce costs:
– Health Information Technology (HIT) investment
– Disease Management for chronic illness
– Limits on overhead; greater transparency
– Allow safe pharmaceuticals from other countries
– Prevent insurers from overcharging doctors for their malpractice
insurance
– Reduce preventable medical errors.

45. Reform Occurs When and WhereReform Occurs When and Where
Problem, Policy, and Politics MeetProblem, Policy, and Politics Meet
• Kingdon’s Model of Agenda Settting says:
Political
Stream Policy
Stream
Problem
Stream
Window of
Opportunity

46. Reform Occurs When and WhereReform Occurs When and Where
Problem, Policy, and Politics MeetProblem, Policy, and Politics Meet
• Kingdon’s Model of Agenda Settting says:
Political
Stream Policy
Stream
Problem
Stream
Window of
Opportunity
Grassroots
mobilization
Cost Crisis, Economy,
Rising Unemployment

47. Are we there yet?Are we there yet?
• It appears that the window of opportunity may be open
– Economy is in crisis
– Unemployment and loss of insurance are big problems
– Reformers need to take advantage of these opportunities
• Obama has made health care reform a priority in his
federal budget plan
• Various Interest Groups are getting involved
– Coalitions are being developed around different proposals
– Broad Based Coalition and Grassroots support will be vital
– Those impacted by the health care system (i.e. nurses,
physicians, the underinsured and uninsured) need to be
involved, empowered and given a voice.
• Obama has expressed interest in signing health care
reform that comes out of the legislative process
– Different from President Clinton’s approach