Healthcare Policy - The Basics

7/29/2019 Healthcare Policy - The Basics

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John E. M cD onough, D r. P. H .

HEALTHCARE

POLICYT he Basics

HEALTHCARE

POLICYT he Basics


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T he Access Project is a national initiative of T he R obert Wood John son Fou ndation, in

partnership with Brandeis Universitys Heller Graduate School and the Collaborative for

C omm unity H ealth Development. It began its efforts in early 1998. T he mission of T he

Access Project is to improve the health of our nation by assisting local communities in

developing and sustaining efforts that promote universal healthcare access with a focuson people who are without insurance.

If you h ave any questions or wo uld like to learn m ore about o ur wo rk, please cont act us.

T he Access Project

30 W inter Street, Suite 930

Boston, MA 02108

Phone: 617-654-9911

Fax: 617-654-9922E-m ail: [email protected]

Web site: ww w.accessproject.org

Catherine M. Dunham, Ed.D

N ational Program Director

Mark R ukavina, MBA

Deputy Director for Programs and Policy

Gwen Pritchard, MPA

Deputy Director for Communications and Administration

If you w ish, you can dow nload a PDF version ofH ealt hcare P olicy: T he Basics from ou r

Web site.

1999 by The Access Project

7 /99


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Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Part I:The Basics of the American Healthcare System . . . . . . .5

1. Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

D emographic C haracteristics . . . . . . . . . . . . . . . . . . . . . . . .7

Workplace Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . .9

R egion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Children . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Why Does Health Insurance Matter? . . . . . . . . . . . . . . . . . .12

O ther Barriers to H ealthcare Access . . . . . . . . . . . . . . . . . . .13

2. Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

From Where Does All This Money Come? . . . . . . . . . . . . . .17Where Does All the Money Go? . . . . . . . . . . . . . . . . . . . . .19

H ow D o We Co ntrol Health System C osts? . . . . . . . . . . . . .20

T he G rowth of Managed Care . . . . . . . . . . . . . . . . . . . . . .23

3. Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

U nderstanding the N ature of Q uality . . . . . . . . . . . . . . . . .25

H ow G ood Is the Q uality of U.S. M edical Care? . . . . . . . . . .27

W hos M inding the Store? . . . . . . . . . . . . . . . . . . . . . . . . .29

Part II: Healthcare ReformAmerican-Style . . . . . . . . . . . . . .31

1. Initiatives Promoting Access to Coverage . . . . . . . . . . . . .32

Expanding Coverage in the Private Sector . . . . . . . . . . . . . .32

Expanding Coverage in the Public Sector . . . . . . . . . . . . . . .38

2. Initiatives Prom oting Access

to Care for the Uninsured . . . . . . . . . . . . . . . . . . . . . . . . .41

3. Managed Care Consumer Protection Reforms . . . . . . . . .46

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49

The Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

Appendix 1: Lack of Health Insurance Coverage,

by State, 199697 . . . . . . . . . . . . . . . . . . . . . . . . . . .51

Appendix 2: Section 1115 M edicaid Waivers:

Status as of April 1999 . . . . . . . . . . . . . . . . . . . . . . . .53


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Appendix 3: Key Health Agencies of the U .S. D epartment

of Health and Human Services . . . . . . . . . . . . . . . . . .55

Appendix 4: U seful R eadings in H ealth Policy and Public Policy . . .57

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59

Evaluation of Healthcare Policy:The Basics . . . . . . . . . . . . . . .63


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Introduct ion

Introduction

Getting involved in the world of healthcare policy for the first time can be

as exhilarating and intimidating as jump ing on a moving train. Everythingis in mo tion, change is constant, and the excitement o ften becom es infec-

tious. M any people, objects, and forces attract attention, but w ithout a clear

sense of struct ure and pur pose. Everyone appears preoccupied or busy.

M any compet ing voices clamor for attentio n, often saying oppo site things

with eq ual assuran ce. It is difficult to make sense of it all and harder still to

figure out how to become an effective agent for change within the system.

At the same time, wh at is going on here is impor tant, and it can be both

exhausting and exciting to become involved.

Welcome to the world of healthcare policy! This book was written to helpnew and future healthcare activists understand the basics of the American

healthcare system and to learn abou t ways to im prove it. It is wr itten in two

parts.The first describes the b asics of American h ealthcare po licy, organized

around th e three key elements of the system : (1) access; (2) cost; and 3) qual-

ity . T he second part describes ways that reform ers and activists have

attempted to improve the healthcare system, dating back to the creation of

M edicare and M edicaid in 1965, the advent of the m odern Am erican sys-

tem.This book was written because understanding these basics will enable

future activists to beco me m ore effective change agents on behalf of patient

and consumer rights.

T his book is written in a conversational stylew ithout footn otesin o rder

to be as accessible as possible to readers new to healthcare policy.A full exam-

ination of the American h ealth system would require many volumes. T hat

wou ld defeat the pu rpose of this bookto introdu ce future health leaders to

the key ideas and themes now shaping the system. At variou s po ints, it offers

recommendations for further readings as well as suggestions for activists.

W hile this may be many readers first or near-first boo k on h ealthcare poli-

cy, if it achieves its objectives, it will be followed by many m ore.

Entering the healthcare policy world for the first time can be an intimi-

dating experience because of the complexity and size of the healthcare

industry.Thus it is important to keep in mind that there is a constant need

for new community activists and leaders to emerge to join or to replace

others who run out of steam.The next generation of activists will redefine

Americas healthcare needs for th e new century: in some ways, they will

build on foundation s that have been laid over many years; in oth er ways,

they w ill move in novel and un heard- of direction s. Just as ou r healthcare


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system will always need physicians, nur ses, specialists, researchers, adminis-

trators, and o ther professionals, so w ill we always need individuals and com-

munity leaders to advocate on behalf of those for whom the system was

created in the first place.These people will play an important role in trans-forming our system from one in which unequal access to quality health

care is influen ced by such factors as insurance, incom e, and geography, to

one in which the benefits of American health care and medical care are

available to everyone. Training and em powering the next generation o f

leaders is a principal goal of The Access Project.

So, welcom e to th e dynamic world of healthcare policy and p olitics! You

have arrived just in time!


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Part I

The Basics of the American Healthcare System

A crucial distinctionbetween health and medicineis the best place to

begin.T hou gh called the Amer ican healthcare system, the overwhelmingshare of system resou rces is spent on sickness, on providing care to tho se

wh o are unhealthy in som e important way. O nly a small portion of the

resources spent by our medical care system is used to keep people healthy

and to prevent them from becom ing sick, through health promotion , dis-

ease prevention, and other public health programs. In recent years, mo re

people have recognized this disparity and have sought to focus more

resou rces on d isease prevention and health prom otion . M eanwh ile, it is still

more accurate to call it the American medical care system.

It is also important to recognize that while an important goal of the med-ical care system is to make sick peop le healthy, the mo st significant det er-

minants of good health are education and incom e.Th e higher on es incom e

and education, the m ore likely that ones health w ill be better. For exam-

ple, a 45-year-old w hite m ale who makes at least $25,000 can expect to live

6.6 years longer than a white male of the same age making less than

$10,000.Thus one valuable way to improve the health of the population is

to work to prom ote good education and to raise incomes. As D r. Geo rge

Kaplan of the University of Michigan said,We need to start thinking that

economic policy is the most powerful form of health policy.As we increase

peop les econom ic well being, we increase the health o f all.

There are numerous ways to present the structure of the American health

system. O ne o f the most familiar and h elpful ways is to d ivide the discus-

sion into three essential parts: access, cost, and qualityincreasing access,

con trolling costs, and improving qu ality. T hese are often described as the

three pillars of the healthcare system, or th e three legs of the h ealthcare

stoo l. W hile each leg is critically impo rtant in its

own right, the three are interrelated in every way.

Access initiatives will often affect costs and quality;

initiatives to control costs usually have an impact on

access and qu ality; and qu ality initiatives will have

cost and access effects, bot h p ositive and negative. In

the process of discussing each of these three ele-

men ts in turn , we tou ch on the issues that are mo st

important to know about the American healthcare

system.

W e need to start think ing that eco-

nom ic policy is the most

powerful form of health policy.

A s we increase people's economic

well being, we increase the health

of all .

Dr. George Kaplan


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1. Access

Am erica has the finest healthcare system in the w orld is an oft-repeated

phrase m ade by defenders of the U.S. healthcare system. Its truth dependson th e criteria used to evaluate the system. It is unden iable that the U nited

States has the most technologically advanced medical care system on the

planet, and that that system has dem onstrated extraordinary capacities to

diagnose and treat disease. But it is also arguable th at oth er nations have

done a better job emph asizing health prom otion, disease prevention, and

primary care services. T he o ne area in wh ich the U.S. healthcare system

undeniably falls behind the health system of every other advanced indus-

trialized n ation is in p roviding access to h ealth services for all citizens. In

the early 1990s, propo nen ts of universal coverage for all Amer icans no ted

repeatedly that amo ng advanced n ations, only the U nited States and SouthAfrica neglected to provide health coverage for all citizens. Since then ,

South Africa has embarked on th e path to un iversal coverage, leaving the

U nited States alone in this category. C anada, Den mark, France, Ger many,

Greece, Japan, and the U nited Kingdom all have less than 1% of their

respective populations witho ut coverage, wh ile 16.1% of the U.S. popu la-

tion did n ot h ave coverage in 1997, totaling 43.4 million Americans,

according to d ata from the U .S. Bureau of the C ensus.


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It is no t just the large num ber of Amer icans with ou t coverage that concerns

policymakers, it is the persistent rate o f growt h in the size of this popula-

tion. In 1980, the U nited States had about 25 m illion uninsured, and that

num ber has grown by about one million per year ever since, during goo dand bad econo mic times.R ecent projections indicate that by the year 2002,

the nu mber o f uninsured may grow to 45.6 million, or 16.2% of the pop -

ulation. U sing 1997 data from the U .S. C ensus Bureau, we know quite a lot

about these uninsured Americans. (N ote: these data do n ot account for the

new federal C hildrens H ealth Insurance Program,T itle XXI, established in

1997. W hen implemented, this program has the potential to reduce the

number of uninsured children from more than ten million to about five

million.)

Dem ograp hic Characte ristics

s Men are slightly more likely than women to be uninsured.

s We know that age has an impact. O ne- quarter of those ages 18 to 34

are uninsured.


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s We know that race and eth nic backgroun d have an impact. H ispanics are

more than twice as likely to lack insurance as non-Hispanic whites.

s More education is associated w ith a higher likelihood o f having insurance.

s As ones level of incom e rises, the ch ance of having no health insurance

coverage generally declines. W hile it is clear that lower incom e

Americans are hit hardest by the problem o f un insurance, this problem

is by no means confined to lower income Amer icans. Indeed, health

reform efforts in several states during the 1990s have focused on pro-

viding coverage for lower income Amer icans, leaving midd le and lower-

middle incom e Americans among the mo st vulnerable.


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Workp lace Characte ristics

Several variables related to ones workplace help explain the dynamics of

uninsurance.

s Workers in large firm s are more likely to have insurance th an wo rkers in

smaller firms.

s Full-time workers have coverage much more frequently than part-time,

part-year, or tem porary workers.

s Workers who are not members of a union are twice as likely to be unin-

sured than unionized employees.


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s The likelihood of being insured varies depending on the type of

employer, with som e sector s such as manufacturing and pu blic service

employers being mo re likely to provide benefits, wh ile firm s in con-

struction and the service sector (such as restaurants) are far less likely toprovide health coverage for workers.

O ne oth er factor relative to employment is impo rtant in understanding the

dynamics of health insurance and un insurance. W hen emp loyers began to

provide coverage in large nu mbers, they typically paid th e en tire cost of pre-

mium s. T he coverage offered was most frequently defined benefit coverage,

meaning that employers agreed to pay for an agreed-upon set of benefits,

wh atever the cost. As the cost of health insurance p remium s increased dra-

matically during the 1980s and early 1990s, emp loyers began t o shift m any

of the costs of coverage on to workers, in the form of premiums, deductibles,and co- paymen ts. M any employers moved to defined contribution plans, mean-

ing that th e em ployer provides a fixed dollar amo unt , leaving the emp loyee

exposed for all additional costs above that level.

Because o f this shift, increasing nu mbers of uninsured workers are offered

coverage at their workplaces, but choose not to accept the offer of cover-

age because the em ployee share is too expensive. Some of these workers get

coverage throu gh th eir spouses or from other sources, but m any simply

choose to go u ncovered because of the cost. R ecent data show that while

the percentage of workers who are offered coverage by their employers did

not change between 1987 and 1996, the percentage of workers wh o are

offered coverage and take it dropped from 88% in 1987 to 80% in 1996.

N ot surpr isingly, worker s wh o made the least amou nt of money (less than

$10 per hour) were the most likely to reject employer offers of coverage.

Region

Levels of un insurance vary depen ding on o nes region and state. Levels of

un insurance are lowest in the northeastern and midwestern parts of the nation

and h ighest in th e souther n and western regions. Levels of coverage vary sub-stantially from one state to the next.T he following map show s the states where

levels of un insurance are relatively low, mo derate, and h igh (see Appendix 1

for the actual rates of un insurance). It is interesting to note that som e of the

states with the highest levels of uninsurance among their citizens (Arizona

24.3%,Arkansas 23.1%, C alifornia 20.8%, and Texas 24.4%) have been amon g

the least active in efforts to expand health insurance coverage.


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Children

In 1997, about 10. 7 million ch ildren 15% of all people under 18 years of

agewere uninsured. In terms of income, about one-third of the unin-sured children were poo r, in families with incom es under 100% of the fed-

eral poverty line (about $16,400 for a family of four). Ano ther one- third

were in the near poor category, with incom es between 100 and 200% of

poverty, and the final one- third were in families with incom es above 200%

of poverty. O lder children between th e ages of 12 and 17 were less likely

to have coverage than children 11 or younger.As is true for the larger pop-

ulation, H ispanic children were mo re likely to be u ninsured th an African-

Americans or whites.

O ne key difference between adults and ch ildren is the large and increasing-

ly importan t role of Medicaid. As a result o f federal expansion s approved in

the late 1980s, as well as state health refor m activities imp lemen ted in the

1990s, M edicaid covers mo re children w ith family incom es below 133% of

poverty than do private em ployers (12 m illion versus 7 million). M ore than

20% of all U.S. children are covered by M edicaid versus 11% of the full pop-

ulation. T he State C hildrens Health In surance Program (SC H IP), estab-

lished by the U .S. C ongress in 1997, assures that over the coming years,

increasing nu mbers of children w ill be en rolled in M edicaid.


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R ecent research indicates that a substantial por tion of the nation s 10.7 mil-

lion uninsured children are eligible but not enrolled in their state Medicaid

programs. H ow can this be? W hen M edicaid was first created in 1965,

enrollmen t w as linked largely to categorical eligibility for other programs suchas Aid to Families with Dependent C hildren (now called Temporary Assis-

tance to N eedy Families or TAN F). Beginning in the mid-1980s, C ongress

began to expand eligibility for Medicaid to groups of children based on

their family income. H owever, state governm entsw hich administer

M edicaiddid not identify, reach, and enroll many of these children. A

new concern has now em erged with the creation of TAN F, which limits

the length of time that a family may receive public assistance benefits.

Because many families still qualify for Medicaid at the same time as wel-

fare, they m ay believe th at their M edicaid coverage ends as welfare benefits

begin to expire. H owever, many of these families may still be eligible forM edicaid because of their low incom es, althou gh they m ay not know this.

Policy activists, concerned that declining welfare rolls will mean growing

num bers of uninsured, are watching this situation closely.

T he attention drawn to un insured children by the enactment of SC H IP has

also drawn attention to children eligible for but unenrolled in Medicaid.

M any states are n ow establishing ou treach effort s to iden tify children eligi-

ble for SCHIP as well as those eligible for Medicaid under prior rules.

Success in these efforts to enroll children in Medicaid and other SCHIP

initiatives holds the promise of substantially reducing the numbers of un-

insured children in the U nited States. W hile the attention o f federal and

state po licymakers is focused on this challenge, it is impor tant for activists

to push hard to enroll as many children as possible.

Why Does Health Insurance M att er?

After learning so m uch about th e uninsured, the question arisesh ow

important is health insurance? Do people really need it? Dont the unin-

sured get care on e way or anoth er, anyway?

This question has been studied intensively by numerous researchers over

many years. T here is broad agreement th at those withou t health insurance

coverage have much more difficulty gaining access to the healthcare system

than do insured people. W hen th ey do gain accessthrough free clinics,

char ity care, etc. they receive less care and are mo re likely to suffer adverse

consequences due to delayed or postponed care.About 17% of the private-

ly insured po pulation repor t that th ey lack a usual sou rce of health care, as


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com pared with 33% of the un insured. N ational survey data show that fully

half of the uninsured have not seen a physician in the past year as compared

with about 26% of the insured population.

Because they do n ot seek preventive services, the uninsured end up being ho s-

pitalized for con trollable conditions that do not generally require ho spital care.

T he u ninsured are twice as likely to be hospitalized for diabetes, hypertension,

and immunizable conditions, all problems that can be well managed in a

physicians office. T he uninsured also have death rates 25% higher than th e

insured po pulation. Lack of health insurance can be a matter of life and death.

O ne further point is important to recognize: the cost of caring for the

un insured w hen they need urgen t care is considerable, and it is passed on

to the rest of the insured population through higher health costs and taxes.

Othe r Barriers to Healt hcare Access

W hile lack o f health insurance coverage is widely and appropr iately recog-

nized as the key barr ier to accessing health services, many o ther bar riers

also exist.T hese can be broken down into th ree categor ies: (1) oth er finan-

cial barr iers; (2) sociocu ltural barr iers; and (3) organizational barr iers.

1. O ther financial barriers include the use of co-

payments and deductibles in insurance poli-cies that discourage patients from receiving

timely and appropr iate care. In the late 1970s,

the R AN D H ealth Insurance Experiment

demonstrated conclusively that financial

incentives and disincentives affect the amount

of healthcare services that individuals and

families obtain. The experiment demonstrat-

ed that low-income families, especially, will

defer obtaining medically necessary care if

co-payments and deductibles are too high.

2. Sociocultural barriers are increasingly recognized as substantial deter-

rents to healthcare access, and even mo re than financial barriersm ay

account for much of the persistent and distressing racial disparities in

health care. Some key ones are:

Language Incompatibil it y: Many health facilities are not equipped to

handle language differences. W hile language com patibility has been

Wh at Are Co-Pays and Deductibles?C oinsurance ob ligates the b eneficiary topay a fixed percent of medical bills, fre-quently 20%.

C o-paym ents are flat, per- visit fees paidby the patient.

D edu ctibles obligate the beneficiary topay the first part of any medical bill upto a certain level: i.e., paying the first$200 of a $2,000 hospital bill.


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demo nstrated to positively affect health ou tcomes, many health pro-

viders and programs address this problem on an ad ho c basis, relying on

family m emb ers to translate.

P rovider/ St aff A tt it udes: Differences in the socioeconomic and cultural

backgrounds of providers and patients contributes to commu nication dif-

ficulties. H ur ried and impersonal caregiving, fostered by healthcare orga-

nizations that pu sh provider s to see large volum es of patients, leads to

suboptimal care and poor outcomes.

C ultural Preferences: Little has been don e to sensitize providers to patients

cultural beliefs and the n eed to accom mo date them wh en p ossible. Fear

of provider disapproval can result in lack of necessary communication

that is vital to effective diagnosis and treatment.Im m igrant S tatus: Undocumented residents are frequently unwilling to

seek service from traditional providers because of depor tation fears, and

legal residents may fear harming their chances for citizenship by being

labeled as public charges if they apply for M edicaid. T hese fears can

result in unnecessary morbidity and mortality as well as increases in

healthcare costs.

3. O rganizational barriers to access result from the structure of the health-

care delivery system ; they are also increasingly recognized as contr ibu-

tors to good or poor outcomes.These barriers include:

Inadequate C apacity: C apacity issues involve sho rtages of health p rofes-

sionals, usually in rural and inner-city regions. Even wh en personn el

are available, poo rly fun ded and o rganized delivery systems can pose

barriers because of long waiting times for appo intm ents, inadequate

num bers of appointment slots, inconvenient clinic hou rs, and an inade-

quate number of clinics.

Transportation B arriers: Lack of adequate transportation is closely tied to

incom e level and poverty status and can po se a substantial barr ier to ob-

taining appropriate healthcare services. Individuals with limited incom eswho are required to travel long distances to obtain needed services may

find public transportation systems inadequate or unavailable, wh ile oth-

ers are unable to afford the cost. M any individuals do n ot obtain neces-

sary care because of transportation barr iers.

C hild C are B arriers: T he un availability of affordable and convenient child

care can be a major obstacle to obtaining adequate healthcare services.

M others may be forced to br ing their children to medical appointm ents,

which leads some to forego obtaining services.


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L ack of S ervice C oordination : Disadvantaged families and individuals often

need an array of additional services related to hou sing, transportation,

nutrition, and oth er social and suppor tive services that make the difference

between obtaining and no t obtaining care. Patients and systems of care canbe overwhelmed by the num ber of competing demands and needs, all of

which can result in failure to obtain needed services.

M anaged C are: Some managed care plans have rigid rules requiring mem-

bers to get all of their specialty care through referrals from a primary care

gatekeeper. Although coordination of care by a single physician is an

ideal of managed care, in practice this can som etimes work as a barrier to

seeking care.

2. Cost

If no thing else, the Amer ican healthcare system is very expen sive, topping

on e trillion dollars in cost for the first time in 1996, up from $26.9 b illion

in 1960 wh en co sts were first m easured systematically. C hart 1 show s the

growth in national healthcare expenditures since 1960.

(Source: Levit, K. et al. N ational Health Spending Trends in 1996; H ealth

Affairs, Jan-Feb, 1998, p. 38.)

Between 1960 and 1990, health spending rose at an annual rate between

10.6 and 12.9%. Since 1994, spending growth h as slowed to b etween 4.4

and 5.6%, thou gh few expect costs to co ntinue to rise at this lower rate

indefinitely. Ano ther im por tant feature of national health spending is that

its rate of growth h as been far greater than that of the rest of the U .S. econ -

$699.5

$247.3

$73.2$26.9

$1,035.1

$0.0

$200.0

$400.0

$600.0

$800.0

$1,000.0

$1,200.0

1960 1970 1980 1990 1996

Natio nal Health Expenditu res $ Bil l ions, 1960 19 96


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omy. C hart 2 shows the growth in health expenditures as a percent of the

U.S. Gross Do mestic Product (G DP )the accepted measure of the size of

the U .S. economy. In the late 1980s and early 1990s, the annual increases in

healthcare spending were so huge that some predicted expenditures as highas 20% of GD P by the year 2000. T hat clearly will not occur, thou gh no

one knows how long the recent moderation in health expenditure growth

relative to the rest of the economy will last.



Another way to understand U.S. healthcare spending is by looking at com-

parisons with other industrialized nations.The trend that has existed for more

than 30 years continues in the late 1990s: the U nited States leads the world in

its rate of expenditures for healthcare services but shows a mediocre perfor-

mance on key health status measures such as infant mortality and life

expectancy. In addition, unlike the U nited States, the oth er countr ies provide

coverage to virtually all of their citizens.Table 1 shows the performance of a

number of industrialized nations on these different measures:


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Infant mortality and life expectancy are affect-

ed by much mo re than the amoun t of resources

spent on med ical care.T herefore, it may no t be

fair to blame the medical care system for our

poo r perfor mance on th ese measures. But these

data reinforce the disconnection between in-

vestments in medicine and improvements in

the health of the population.

From Where D oes All This M oney Come?

Many who oppose efforts to establish a national health insurance program

have talked about the importance of maintaining Americas private health

insurance system . T hey are usually sur prised to discover the h uge po rtion

of the system already directly financed by the governm ent. Federal, state,

and local sou rces accoun ted for $483. 1 billion of the $1.035 tr illion system

in 1996, nearly one- half of the total cost. T he following chart shows the

major sources of health system funding.

What is the r igh t GDP ra te?

Th ere is no right rate. We do know,however, that the U.S. rate of healthspending far outstrips that of otherindustrialized nations with better healthout comes. We also kn ow t hat a nationsspending on health increases as a nation sGDP rises.

Table 1: U nited States vs. O ther Industrializ ed N ations

1996 1996 1995 1995 1995Per Capita Percent of Infant Life Life

Spending GDP Spent M ort alit y Expect ancy Expect ancy(U.S. Dollars) on Health per 1,000 at Birth at Birth

Live Births (Males) (Females)

United States $3708 14.2% 8.0 72.5 79.2

Canada $2002 9.0% 6.0 75.3 81.3

France $1978 9.6% 5.0 73.9 81.9

Germany $2222 10.5% 5.3 73.0 79.5

Italy $1520 7.6% 6.2 74.4 80.8

Japan $1581 7.2% 4.3 76.4 82.8

United

Kingdom $1304 6.9% 6.0 74.3 79.7


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Affairs, Jan-Feb, 1998, p43.)

Private spending on healthcare services accounts for

slightly more than half of system financing, with the bu lk

of itmore than $337 billioncoming from health

insurance premiums paid by private employers and their

employees, and by individuals who purchase coverage for

them selves and their families. T he cost of co- payments,

dedu ctibles, and direct consumer payments for health ser-

vices is substantialabout one-half the amount spent onpremiums.

Public sources of spending fall into several basic categories.The largest pub-

lic expenditure is for the federal M edicare program, wh ich accounts for

about one of every five dollars spent nationally on healthcare services.

Medicare provides services to elderly persons over age 65 along with certain

disabled po pulations. Part A pays mo stly for ho spital services and is financed

by payroll taxes, while Part B pays for physician and other n on -ho spital costs

What is DSH (pronounced dish )?

Disproportionate Share Hospital spend-ing is federal funding to assist healthproviders who care for very large num-bers of Medicare or M edicaid beneficia-ries. M edicaid DSH is funn eled throughstate governments, thou gh no t equally,

and has been a substantial source offunding, som etimes abused.

,


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and is financed by en rollee prem iums and gen -

eral tax revenu es.W hen public discussion refers

to Med icare going broke, reference is being

made only to the Part A Trust Fund.

Medicaid is the other major public health ser-

vices program, accounting for about one-seventh

of health system spending, divided between the

federal and state governments. Medicaid funds

health services for various low-income groups,

including welfare recipients, the disabled, and

seniors in need of nursing home services who

have exhausted th eir assets. In recent years, som e

states have expanded the Medicaid programs to

cover larger portions of health care for other low-

income adults and children. Low-incom e parents

and their children account for three-quarters of

enrollees but only one-third of program costs.This

is because it is much more expensive to provide

services to disabled persons and elderly persons in need of nursing home care.

O ther federal spending includes health services for the military (CH AMPU S),

federal employees (FEHBP), N ative Americans, public health programs, and

other services. O ther state and local spending includes public health spending

accoun ts, payments to safety net providers, insurance programs for public

employees, and other services.

Where Does All the M oney Go?

More than $1 trillion was spent on healthcare services in the United States

in 1996 in a wide variety of ways. H ospital and physician services con -

sum ed more than one- half of the entire amoun t; drugs, nursing hom e ser-

vices, and prog ram adm inistration co sts followed in size:

M edicare? M edicaid?

If you are confused, you are not a-

lone.These sound-alike programs wereboth created in 1965 as amen dmen ts tothe Social Secur ity Act. In a nut shell:M edicare is the federal health programfor seniors and some disabled persons.Virtually all sen iors (over age 65) are eli-gible for M edicare benefits, regardless oftheir income.M edicaid is the federal/ state programthat finances health services for low-income families, disabled, and elderly per-sons. States run the program underfederal guidelines (every states program

is different), and the two levels of gov-ernm ent share the costs. M edicaid is theprincipal payer for nursing home andother long-term care services in theUnited States.


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The cost of drugs has been increasing so rapid-ly in recent years that some predict it will out-

strip the cost of physician services early in the

21st centu ry. T he $60.9 billion spent on pro-

gram administration and net cost of private

health insurance is a category that has been

publicized by groups advocating the establish-

men t o f a C anadian-style single payer health

insurance program, wh ereby most services are

financed through taxes without the administrative costs associated with pri-

vate health insurance. O ther s no te the relatively small share of mon ey spenton governmen t pu blic health activities for h ealth promo tion and disease

prevention.

How Do We Control Hea lth Syste m Costs?

Because healthcare costs have risen so dramatically over the past 30 years,

much public policy is focused on attempting to slow the rate of growth.

What Is GME?

GME stands for Graduate Medical Edu-cation. T he federal governm ent (andsome states) finance large portions of theU.S. medical education system th roughpayments to teaching hospitals for directand indirect services.


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The first necessary step to controlling the growth of health system costs is

to under stand what drives the increases. Four factors accoun t for m ost of

the growth in health costs: (1) general econom y-w ide inflation; (2) addi-

tional inflation in medical prices; (3) increases in t he quantity o f health ser-vices provided to patients, including bo th volum e and inten sity of services;

and (4) population grow th and demo graphic changes. T he last is a small

contributo r to cost increases. T he o ther th ree categories loom large but

vary considerably in their share from one year to the next.

Generally, Amer icans rely on th e free market and the power of consumers

to control the rise in costs in any sector of the economywhen a price for

a good grows relative to its believed value, peop le change their buying

practices, using less of that comm odity or service. T he seller of the goo d

may respond either by lowering prices or by improving the value of the

produ ct. But m arket forces have not successfully con trolled health pr ices.

Econ om ists believe several factor s have accoun ted for m arket failure in

health care. Key amo ng these are (1) the un ique nature of medical care that

makes it difficult for consumers to judge its value (more on th is in the

section o n qu ality); and (2) the prevalence o f insurance that insulates con-

sum ers from paying, or even know ing, the full price for services.

Health insurance first emerged during the 1930s with the creation of Blue

Cross plans to help individuals pay for the costs of hospitals and physician

services. H ospitals began th e earliest plans so th at patients would be better

able to use their services. T hese plans were com mun ity rated, meaning

that all participants paid the same premium regardless of their age or health

status. D uring World War II, private em ployers began to buy h ealth insur-

ance for their workers as a way to increase compensation without violating

the federal governments wage and price freezeand thus began the

important American pattern of employer-sponsored coverage.

Americans have been complaining about the

high cost of medical care for most of this centu-

ry. But r ising costs became m ore of a public pol-

icy concern after World War II because of thespread of health insurance, wh ich tended to

mask cost increases. W ith the growing demand

for health insurance, com mercial for-p rofit

insurers began selling their own policies during

the po st-war years. O ther reasons for the cost

acceleration in the post-war period were federal

decisions to invest in the expansion of hospitals

What Is Meant By Ad verse Selectio n and " M oral Hazard" ?

These are key related terms in the worldof insurance. A dverse selection occurswhen people who know they are at highrisk buy more insurance than those atlower risk.M oral haz ard is the altering ofones behavior because one is insured.

Much of the behavior of insurancecompanies is related to their desire toavoid adverse selection by consumers.


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through the H ill-Burton program, to finance

medical education in order to increase the

nations supply of physicians, and to establish a

major health research agenda.All of these activi-ties have had important and valuable results. But

they also fueled the cost engine in a dramatic

fashion.

Prior to the 1970s, hospitals, physicians, and

other healthcare providers largely were paid by

insurers and consumers for whatever they did.

T he more they did, the more they got paid

under the fee-for-service cost-based reimbur sement structure. Beginning

with th e creation of the M edicare and Medicaid programs in 1965, public pol-icymakers in Washington, D.C., and in state capitals, became more concern ed

about increases in health costs and the effect of those increases on the rest of

the economy. Employers who paid the bu lk of private costs also expressed

concerns.

During mo st of the 1970s and 1980s, govern-

ment responded to the health cost crisis

through public sector regulation. T he theory

behind this response was that the government

had to step in to correct what the market could

not. T he regulatory responses included (1) certifi-

cate of need (CO N ) laws that required hospitals to

go throu gh a state-based, public process before

building new facilities or adding expensive new

services; (2) health systems planning boards that

included health providers, consumers, business

leaders, and governm ent officials to review

C O N propo sals and to plan local health service

delivery systems; (3) state hospital rate setting pro-

grams that required hospitals to submit to state

cost con trol regulations; and (4) financing and suppo rt for the developm ent

of health maintenance organiz ations (HMO s).T hese four efforts were coopera-

tive arrangements involving the federal governm ent, state governm ents,

employers, consumers, insurers, and providers. O n the federal level, the regu-

latory response included the Prospective Payment System (PPS), created in 1983

to pay hospitals a set amount for services provided to each Medicare patient

in a particular diagnosis related group, or D R G, rather than for each service

individually based on the hospitals cost.

What Is M anaged Care?

Managed care refers to any of several

organizations in which measures are takento provide care for a group of patientswithin a budget. Key examples are healthmaintenance organizations (HM O s), pre-ferred provider organizations (PPO s), andpoint-of-service plans (POS). O ver time,the distinctions among each of theseforms have blurred.

What is Capitat ion?

Capitation is a method of reimburse-ment especially prominent in H M O swhere by a provider is paid a certainamount per patient for a predetermined

set of services. O ppon ents of this for m o fpayment argue that, unlike fee-for-ser-vice, wh ich has incentives to increase theamou nt of care provided, capitation con -tains incentives to provide less care.

C apitation can also p rovide incentivesto address health problems early and tofocus on p revention to avoid larger costsdownstream.

Both dynamics have been observed inplans that use capitation.


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Hospital rate setting and PPS both worked for a while to hold down costs,

but they ran out of steam.The most aggressive hospital rate setting programs

helped hold down hospital costs in the late 1970s and early 1980s but were

abandoned by nearly all states in the late 1980s and early 1990s as hospitalsfigured out how to benefit more under new, market-based arrangemen ts.T he

federal PPS/ DR G m odel also wo rked to ho ld down M edicares rate of

growth du ring the 1980s and early 1990s. In recent years, however,

Medicares high rate of growth relative to private plans has led policymakers

to seek other means to control that programs spending increases.The other

regulatory responsesC O N laws, health planning, and federal suppo rt of

H M O swere all judged to be well-intentioned failures. H MO s only took

off after the federal program was abandoned and the private sector and Wall

Street began to invest in them in the mid-1980s.

The Growt h of M anaged Care

O ne com mo n cr iticism of health care prior to the 1990s was that those

who paid the bills (insurers) had different incentives from the suppliers

(providers) who gave the care. If only we cou ld unite the in surance and

provider sides of the equ ation, we would have the capacity to control sys-

tem costs, went the thinking. T he health maintenance organization, or

H M O, is a term Paul Ellwood invented in 1970 to promo te this organiza-

tional form . Prior to the 1970s, pre-paid group practices, such as the

Kaiser H ealth Plans in C alifor nia, enjoyed m odest success as organizations

that collected health insurance premiums and provided services in their

own networks of hospitals and clinics. President R ichard N ixon adopted

the prom otion of HM O s in 1970 as his key strategy to restructure the

health system to hold down costs. In 1973, C ongress agreed to pass the

H M O Act requiring employers who p rovided health insurance to include

at least on e H M O option for their workers, and providing federal funding

for new H M O s that met federal standards.

Throughout the 1970s, observers predicted that H MO s would skyrocket in

enrollment and popularity. But while many new H MO s were form ed, realenrollment growth was miniscule. In 1981, the new R eagan administration

ended all federal subsidies for HM O s. During th is same period , as the nation

went through a serious recession, employers began turning to H MO s in

increasing numbers to ho ld down their employee health expenses. W ithout

federal suppo rt, many HMO s converted from no n- profit to for-profit status

and obtained vitally needed capitalfor compu ter systems, mem ber services,

marketing, and the likefrom Wall Street investors.T hese currents led to the

first explosion in H MO enrollmen t and popularity.T he major growth dur ing


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this period did not involve the original staff-

model H MO s where all physicians were salaried

employees of the plan, but instead used looser

indepen dent practice associations, or IPAs, thatcontracted with independent groups of physi-

cians and other providers for services. H MO s,

IPAs, and other network arrangemen ts such as

Preferred Provider O rganizations (PPO s) all fall

under the general label of managed care.

From fewer than 20 million members in 1985,

H M O s grew rapidly in mem bership to more

than 50 million by 1995, with growth continu-

ing into the Medicaid and Medicare popula-tions. M anaged care enrollment accelerated in

the recession of the late 1980s and early 1990s

and continued in the wake of the failure of

President Clintons proposal for national health

insurance coverage in 1993 and 1994. In the

early days of managed care in the 1970s,

employers had to be compelled by federal law to

offer their employees the o pportu nity to join an

H M O. Generally, enrollees in these early days were workers with fewer health

problems, attracted by H M O s lower premium s. T he result of this trend was

higher premiums for those remaining in traditional fee-for-service plans and

thus even more enrollmen t in HMO s. Increasingly, employers began drop-

ping any fee-for-service option for their workers, giving either a choice o f

managed care plans or only one option for all workers.

In th e m id-1990s, mo re and m ore m anaged care enrollees foun d th emselves

in these plans not by their own choice, but by their em ployers, causing a

wave o f enrollee dissatisfaction with the constraints of managed care. State

and federal elected officials then tried to legislate p rotections for consum ers

in the se plans. (Mo re on t his in th e section o n reform opt ions for activists.)

Like it or not, managed care has becom e the operating paradigm for the

Amer ican h ealthcare system in the 1990s. M any areas of the system that had

been bastion s of fee- for-service such as substance abuse, mental health ser-

vices, dental care, and many more have become new arenas for managed

care growth and developm ent. Few imagine that a move back to an un reg-

ulated fee-for- service system is practical. But m anaged care and the H M O

are not static concepts.They are evolving forms that react to larger forces in

the healthcare, econo mic, political, and social environmen ts.

What Is Public Health ?

W hile medical care focuses on th e indi-

vidual patient, public health focuses on thehealth of populations. Its interests includeassessing and monitoring health problems,developing and enforcing health protec-tion laws and regulations, implementingand evaluating population-based strategiesto promote health and to prevent disease,and ensuring the provision of essentialhealth services.

Public health professionals includenurses, sanitarians, physicians, epidemiolo-gists, statisticians, health educators, envi-ronmental specialists, industrial hygienists,

food and dr ug inspectors, toxicologists, labtechnicians, veterinarians, economists,social scientists, attorneys, nutritionists,dentists, social workers, administrators, andmanagers.

They work in government but also inclinics, academic institutions, health cen-ters, and commun ity-based institutions.


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3. Qualit y

In addition to broad statemen ts, such as th e U nited States has the finest

quality health system in the world, another co mm only recited refrainabout h ealth care is that n o one kn ows what quality is. In fact, substantial

progress has been m ade in de fining and un derstanding quality over the past

30 years. As this section will make clear, we still have a long w ay to go.

W hile activists appropr iately devote g reat attention to financing and access

issues, it is impo rtant to un derstand t his key aspect o f the healthcare and

medical systems.

T he Institute of Med icine, in a widely praised study on M edicare pub lished

in 1990, suggested that quality is the degree to which health services for indi-

viduals and populations increase the likelihood of desired health outcomes and areconsistent with current professional knowledge. Several aspect s of this definitio n

are wor th n oting. First, the definition en compasses care for both individuals

and populations, clearly and appropr iately linking pu blic health to the over-

all health system function ing. Second, the definition focuses on outcomes as

the key measure of the systems effectiveness as opposed to process measure-

ments; we w ill learn m ore abou t out com es versus process and oth er evalu-

ative too ls sho rtly. T hird, the definition recognizes that our understanding

of quality health services is constantly evolving and changing by including

the word currentwith professional knowledge. In th e 1950s, for example, the

best professional know ledge suggested that m ost children shou ld have their

ton sils surgically removed; today, we view that practice as unnecessary and,

in most cases, an example of poo r-q uality medical care.

A sho rter de finition of quality is less precise, tho ugh a little bit mo re mem -

orable. Q uality is doing the right thing, and doing it right. T his definition can

apply to th e quality of almo st anything, including health care. It incorpo -

rates the two key elements of good servicechoosing the most appropri-

ate and effective intervention and applying that intervention in the best

way. N ot exp licitly stated in this definition is a recognition th at our unde r-

standing of the r ight thing evolves over time.

Understanding t he Nature of Quality

W riting in th e 1960s, Avedis Don abedian of the U niversity of Michigan

identified three key attributes that laid the foundation for how researchers

still analyze and understand healthcare quality today. Structure is the physi-

cal environment in which care is delivered as well as other setting charac-

teristics (provider credentialing, staffing pattern s, own ership arrangem ents,


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etc.). Process attributes are the components of the encounter between the

patient and the provider, including wh at treatments were used, how well

they were administered, and how well or poo rly the provider comm uni-

cated with the patient. O utcome is the result of the encounter and thepatients subsequent health status.

Think of these attributes in evaluating the quality of your favorite restaurant.

T he structural aspects include the physical environm ent, location, availability

of parking, candles, air quality, and mo re. The process aspects include the

politeness of the staff, waiting time for food, drinks, and the bill to be deliv-

ered,etc.The outcome aspect involves the quality of the food and whether you

left satisfied. In fact, the D onabedian framework can be used to evaluate a

wide array of services according to essential quality criteria.

W hile the D onabedian framework is a useful starting poin t to exp lain and

understand quality issues, it also illum inates the difficulties in evaluating

quality. T he easiest part o f a framework to judge is the structural aspect

because elemen ts such as appropr iately marked emergency exits, or the

ho lding of n ecessary creden tials, are easily recognizable and deter min able.

Process aspects can be mo re difficult but are obtainable: patients can fill out

surveys that determine how well physicians and other providers followed

appropr iate processes; studies on waiting and treatment tim es can be con-

ducted.The problem is that neither aspect necessarily determines whether

the patient received quality care. O ne can visit a sparkling, mo der n medical

facility and receive excellent service, yet still obtain poor- quality techn ical

care and h ave an adverse o utcom e. In fact, survey data show that patients

who receive poor-quality technical care from a provider with good inter-

personal skills will rate that care more highly than excellent technical care

from a physician with poor personal skills.

Frustrations with the recognized inadequacies of structure and process

measures lead many to favor outcome-based measures: lets just evaluate

wh ether the encou nter led to a better health result. T he problem here is

that one can receive excellent technical care from someone with great per-

son al skills and yet still have a poo r ou tcome, as well as the conver se. Simplyput, we do not know how well most medical practices actually heal or pre-

vent illness.Though much effort is now being applied to investigating and

understanding wh at works, we still have a lon g way to go and w ill con tin-

ue to rely on a mix of all three elements to evaluate healthcare quality.


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How Good Is the Quality of U.S. Medical Care?

T hink o f the U .S. airline industry and how rarely an airplane crashes.W hile

we o ften think that a 99% success rate is good, for airlines that rate wo uldmean 1 o f every 100 flights ends in a disaster. H ealth researchers who have

critically examined the extent of error in medical care have concluded that

if the airline industry had th e same quality perfor mance as the m edical sec-

tor, we wo uld see two jumbo jet crashes in th e U nited States every three

days.

It is unden iable that th e U nited States has a techno logically advanced m ed-

ical system th at can create won drou s cures and that saves lives every day. But

it is also tr ue t hat ou r system is rampant with examples of poor quality. In

1998, President C linton s Advisory C om mission o n C onsumer P rotection

and Q uality in the H ealthcare Indu stry (which included many health sec-

tor leaders) concluded that . . . too m any patients receive substandard care.

. . . T hese shor tcomings endanger the health and lives of all patients, add

costs to the healthcare system , and reduce productivity. T he m ajor qu ality

problems they identified include:

1. Avoidable errors in the practice of medicine. A 1990 study of N ew York

ho spital discharges found that adverse events occur red in 3.7% of ho spital-

izations, and that 27.6% of them were due to negligence and resulted in

mo re than 3,000 unn ecessary patient deaths annu ally. Error s in the admin -

istration of medications led to more than 7,000 unnecessary deaths in 1993

alone.

2. Overuse of unn ecessary services. O ne study of hysterectomies foun d that

16% of the 510,000 performed in 1994 were unnecessary. Several stud ies

have documented that many thousands of radical mastectomies are per-

formed each year on breast cancer victims when far less severe lumpectomies

lead to the same outcomes. A study on the appropriateness of carotid

endarterectomies (a procedure to remove harmful material from heart arter-

ies) found that 18% were inappropriate, 49% were of uncer tain clinical value,

and 33% were appropriate.

3. Underuse of n eeded services. 1995 data show

that only 76% of children had received the

appropr iate set of immun izations by 18 m onth s

of age. Among adults over age 65, only 52%

received an annual influenza vaccine and only

28% received a pneumococcal vaccine, despite

What is Defensive M edicine ?

T he p ractice of ordering additionalandunnecessaryprocedures or tests toavoid potential lawsuits. T here is dis-agreement on how much goes on andwhether it is good or bad.


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com pelling evidence of the ability of these vaccines to save lives. Ano ther

study found that between 20 to 30% of patients with depression were pre-

scribed antidepressant medications and among tho se prescribed, 30%

received a subtherapeutic dose.

4. Inexpl icable var iat ion in the pract ice of m edicine. In 1994, hospital

admission rates were 49% higher in the N ortheast than in the West, and

lengths of stay were 40% higher. C easarean section rates varied from 19.1%

to 42.3% in a study of affluent women cared for by different obstetricians

at the same com mun ity hospital. C hildren w ith asthm a in Boston have a

3.8% chance o f being h ospitalized, wh ile children in N ew H aven have a

2.3% chance.

In th e airline indu stry, pilots are encouraged to report near misses and ot her

safety problems.The first assumption is always that problems are tied to sys-

tems rather than to individuals. W hen something goes wrong, the question

is:W hat is the p roblem w ith th is system that needs to be fixed?

In the healthcare indu stry, the assum ption has been that when something

goes wron g, it is som e individuals fault, and the challenge is to iden tify and

pun ish that person a practice sometimes called the bad apples approach

to h ealthcare quality. Prio r to the 1990s, hospitals typically had a departmen t

in charge of qu ality assurance. T he assum ption behind the ter m is that

quality already exists, and th at a separate administrative team is needed to

assure that quality levels are maintained. T he R eport o f the Presidents

Advisory C omm ission on C onsumer Protection and Q uality in th e H ealth-

care Industry makes clear the inadequacy of this approach.

O ver the course of this decade, a new approach has taken ho ld within the

healthcare industry that is mo re helpful and hopeful. T his approach recog-

nizes that healthcare quality is no t wh ere it could be. It recognizes that prob-

lems are foun d in systems more than in ind ividuals, that the p ractice of

medicine is complex, and that practitioners need to be encou raged to repor t

quality problems in a suppor tive environm ent. T his approach has several

names, including total quality managemen t (TQ M ) and con tinuous qualityimprovemen t (C Q I). Its assum ption is that however good or bad any organi-

zation may be, there is always room for improvementand the challenge is to

create an environment in which professionals and consumers encourage and

suppo rt each other in finding and fixing these opportu nities. T he health

industry has moved away from th e no tion o f quality assurance and toward

quality improvement.


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Whos Minding the Store?

A large number of organizationsboth governmental and non-governmental

have responsibilities for monitoring the quality of healthcare servicesdelivered in the United States.

1. GOVERNM ENTAL: At the federal level, the largest health- related en tity is

the U.S.Department of Health and Human Services (HHS).This department

contains numerous agencies responsible for measuring and monitoring the

quality of health care, in addition to financing, regulating, and directly pro-

viding it. All of these agencies can be helpful to healthcare and commu nity

activists, depending on the need. Key agencies within H H S include the

H ealthcare Financing Administration (HC FA), wh ich en forces quality stan-

dards in the M edicare and M edicaid programs it administers; the Agency for

H ealthcare Policy and R esearch (AHC PR ), which funds and conducts

research on how to m easure quality; the H ealth R esources and Services

Administration, wh ich focuses on expanding the capacity of health profes-

sionals and facilities providing care to underserved and vulnerable popula-

tions; and the Cen ters for D isease C ontrol and Prevention (CD C ), which

conducts research and provides services that promote public health and the

prevention of disease, injury, and disability. A longer list of H H S agencies

involved in various aspects of the healthcare system is in Appendix 3.

H H S also has ten regional offices with o fficials from many of its constituen t

agencies. T hese offices can be useful in addressing a variety o f health sys-

tem issues and p roblems, including qu ality of care concer ns.

Every state also has a set of agencies with some role in quality of care,

tho ugh every state o rganizes these responsibilities amo ng their agencies dif-

ferently. U sually, the following responsibilities will be addressed within each

state bureaucracy, each with a quality mon itoring fun ction:

P ubli c H ealt h: Every state has some agency in charge of public health

functions that m ay include health facility licensure for h ospitals, nur sing

ho mes, and oth er health institution s. R evoking a facilitys license is on e ofthe most serious steps taken to address quality of care deficiencies.

P hysician and O ther P rofessional Licensure: Every state has som e admin-

istrative structure to license physicians, nur ses, and o ther health profession-

als. Licensure is a key govern men tal power. All licensure boards were

created in response to pressure by the affected group of professionals seek-

ing licensure to con trol entr y into their pro fession this process helps keep

poor-quality providers out and also enhances the earning power of licensed

professionals. Licensure b oards are invariably dom inated by the affected


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professionals. D isciplining of licensed practitioner s varies eno rm ously from

board to board and state to state.

M edicaid and O ther H ealt h R eim bursem ents: Every state has some enti-

ty that manages the federal/ state Medicaid program. Because Medicaid isso im portant to many providers, it makes an enor mo us impact by requir-

ing its providers to meet certain q uality standards. For many oth er

providers, however, M edicaid is no t an attractive program, is a small part of

the providers income base, and can b e easily igno red.

State Insurance D epartments: Because the business of insurance has

been left to the states, each has its own insurance departm ent th at can have

significant impact monitoring the activities of insurance companies and

managed care entities such as H M O s. Traditionally, these departments have

focused m ost of their attention on insurer solvency issues, making sure that

the com panies can pay claims. In recent years, many of these departmen tshave aggressively asserted themselves into quality of care concerns.

Insurance commissioners are either appointed or electedeither structure

can be a plus or m inus for co nsumer activists depending on the individuals

orientation.

A ttorneys G eneral: Every state has an attorney general who enforces its

consum er protection statutes. Additionally, attorn eys general usually over-

see a states no t- for-profit, charitable corpo rations. T hese officials can be

important allies in holding accountable healthcare providers and insurers,

both for- profit and no t-for-profit.

2. NON-GOVERNM ENTAL: A panoply of private organizations also hold

responsibility for monitoring the quality of care in various sets of health-

care organizations.Two of the more important ones include:

T he Joint C omm ission on A ccreditation of H ealthcare O rganiz ations:

JC AH O accredits hospitals across the nation and is jointly sponsored by the

American Hospital Association and the American Medical Association.

Many states and the federal Medicare program require that hospitals have

JC AH O accreditation.

T he National Comm ittee on Q uality A ssurance: NCQA accredits man-

aged care plans and developed the most widely used report cardan

instrum ent called H ED IS (Health Plan Em ployer Data and Inform ation

Set)to com pare and evaluate H M O s and other managed care organiza-

tions. N C Q A was established by the m anaged care industry but has sepa-

rated itself in order to act more independently.


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Part II

Healthcare Reform American-Sty le

T hrougho ut the tw entieth century, Amer icans have joined together from

diverse backgrounds and perspectives to reform the healthcare system.Thefirst of many unsuccessful attempts to establish national health insurance

too k place du ring the World War I/ Progressive era in Amer ican politics.

Another m ajor push took place during the Great Depression/ N ew D eal

era of the 1930s, thou gh President Franklin R oosevelt u ltimately decided

to pu sh for enactment of Social Security withou t health benefits, hoping

the latter could be added in the future. President H arry Trum an made a

strong, failing effort t o establish national health insurance in 1948. In each

of these efforts, refor mer s faced strong op position from th e American

M edical Association and oth er powerful interests. It was during th is per iod

that other industrialized nations such as Great Britain and Canada set uptheir national health frameworks. Enactment of a national system during

the post-World War II era in the United States would have been less dis-

rup tive o f existing arrangem ents than establishing such a structure today.

In th e 1960s, Amer ican reform ers achieved their greatest success with the

creation of Medicare for senior citizens and Medicaid for some portions of

the poor.The architects of these programs explicitly hoped that expansion

of coverage for all Amer icans would follow shor tly. It did no t happen .

President N ixon p roposed in 1974 th e establishm ent o f a national em ploy-

er mandate to require all employers to cover their workers, but he w as

oppo sed by refor mer s seeking a n ationalized,C anadian- style health system

witho ut emp loyer coverage.T here were furth er efforts to legislate a nation-

al health plan in th e late 1970s, but w ithou t presidential suppo rt.

T he next m ajor reform push came in 1993 and

1994 with the election of Bill Clinton as

President. H is proposed H ealth Security Plan

would have imposed a national employer man-

date and reorganized all health insurance into

regional pools based on community rating,

mandatory enrollmen t, and strict governm ent

regulation and standards. Fierce opposition

from the small business community and the

health insurance industry, comb ined w ith lack

of consensus among the Democratic majorities

in the H ou se of R epresentatives and the

Senate, kept any propo sed legislation from reaching the floo r. T he subse-

quent election of R epublican majorities in the H ouse and Senate in the

What Is Comm unity Rating?

Community rating is a system of insurancepricing where everyone in a certain area ischarged the same rate, regardless of healthhistory or personal characteristics. It is in

contrast to experience rating where aperson or group is charged a different ratedepending on health history or demo-graphic characteristics.Modified commu-nity rating permits some differentiation,usually based on age or geography.


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1994 mid-term congressional elections removed comprehensive reform as

a viable policy option for a still-unknown number of years.

But all action on healthcare reform is not necessarily comprehensive and notnecessarily federal. Most major health reform sw hether federal, state, or

localhave been incremen tal or step-by-step.Som etimes incremental reforms

are used to slow down or thwart efforts to win more comprehensive change.

At other times, incremental reform s help to win comprehensive change in

pieces over a longer per iod. Its impo rtant for activists to th ink abou t wh ether

a particular reform opens up avenues for future changeor helps to thwart

them.

Part I of this volume described the problem of lack of health insurance in the

U nited States and the characteristics of the uninsured. Many of them are

emp loyed; som e are not. T hey do n ot have insurance because it is no t avail-

able through an employer or oth er means, or because they cannot afford it.

T his lack of coverage is docum ented to lead to a lack o f access to timely, qual-

ity health care, wh ich in turn means poo rer health. Federal and state govern-

ments consider this connection an important enough issue of public concern

to have instituted policies, in a variety of categories, to address the problem.

This section outlines some of the major reforms that have been imple-

men ted, and the reform oppo rtunities that are available for healthcare

activists to invest their com mitm ent, energy, and resou rces. It is divided into

four sections: 1. Access initiatives, 2. M anaged care consum er protection s, 3.

Senior citizen healthcare needs, and 4. O ther healthcare reform oppor tuni-

ties.T hese reform s look bo th to the pr ivate sector, to expand o r improve

coverage through market mechanisms, and to th e public sector, to cover or

provide care to mo re of the uninsured. Suggestions for futu re activists are

included at the end of each section.

1. Initiat ives Prom ot ing Access t o Cove rage

Expanding Coverage in the Private Sector

O ne focus of recent pu blic policy has been pr ivate health insurance m arkets.

The federal and some state governments have attempted many reforms and

implemen ted some o f them . Senior citizens are a particular group that cou ld

benefit from further reform.


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Health Insurance Market Reforms In the late

1980s and early 1990s, wh en m any were seek-

ing comprehensive health system reform , others

argued that simp le market corrections to healthinsurance would solve the most pressing prob-

lems.Two parts of the health insurance market

required reform : first, the small group market

for employers with fewer than 50 employees;

and second, the individual or non- group

market for persons not eligible for employer

coverage. As the co st of health insurance rose,

insurance companies increasingly avoided the

riskiest con sum ers. To insurers, the small group

and individual markets were the most risky,unlike the large employer market where large

numbers of enrollees minimized the cost impact of a major illness to any

one worker.

D uring th e 1990s, many states implemented insurance market reform s to

address problems faced by small businesses and individuals in obtaining and

keeping private health insurance. Gen erally, states sought to provide: (1)

guaranteed issue, ensuring that ind ividuals or bu sinesses that met appropr iate

criter ia cou ld obtain coverage from in surers; (2) guaranteed renewal, ensur-

ing that individuals or businesses that met appropriate criteria could not be

denied renewal; (3) modified community rating, ensuring that all policy hold-

ers with in certain defined grou ps wou ld be charged the same rate; (4) lim-

itations on pre-ex isting condition exclusions that insurers used to deny coverage

to persons who may cost the plan large sums of money; and mo re.

In 1996, C ongress and the President approved the Health Insurance

Portability and Accountability Act of 1996 (HIPAA) to increase the access,

por tability, and renewability of pr ivate health insurance by setting minimum

standards for individual, small group, and large group m arkets. In essence,

C ongress applied the refor ms enacted in som e states to all 50, impo sing a

degree o f un ifor mity and consistency.Additionally, employers wh o self-insure

are exempt from all state-imposed health insurance regulations because of a

law passed in 1974 kn own as ER ISA (see box). U nder H IPAA, these employ-

ers must adhere to the same standards that apply to traditionally state-

regulated markets.

W hen H IPAA and m any state insurance reform laws were passed, suppo rters

claimed that the new law wou ld solve critical problems facing con sum ers and

wou ld drastically reduce the nu mber s of uninsured. In fact, insurance refor m

What Are Self-Insurance an d ERISA ?

Employers who self-insure assume therisk of insuring their employees and useinsurer-intermediaries for administra-tive purposes only.

T he Employee R etirement IncomeSecurity Act of 1974 (ER ISA) proh ibitsstates from regulating employers whoself-in sure. It has also been inter pretedto prevent states from mandating thatemployers provide specific benefits orcoverage to their employees.

Because it limits the reach of stateinsurance laws, ER ISA has been a majorimpediment to comprehensive state

health reform .


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by itself has led to no drops in any state in the

numbers of uninsured. M ost of the uninsured

lack coverage because of affordability, no t avail-

ability. H IPAA did not impose any affordabilityrequirements on insurers, and m any sidestepped

the new mandates by pricing their products at

unreasonable levels. T hose who tho ught they

could buy health reform on th e cheap were kid-

ding their constituentsor themselves.

At the same time, these insurance reformssmall

and non-grouphave enabled many individuals

to obtain coverage who otherwise would have been unable to, and have

allowed many ill individuals to retain coverage. T he reforms have also led topremium increases for young and healthy individuals whom insurers desire

because they cost so little. For these reasons, many comm ercial insurers contin-

ue to fight these laws and seek ways to subvert these reforms.

ADVICE FOR ACTIVISTS

E valuate your states health in surance m arket consu m er protec-

tions and look for opportunities to expand availability and afford-

ability, especially to those most vulnerable to the market those

in poor health or with small group or individual coverage.

Emp loyer M andat es and Single Payer Proposals In the late 1980s and early

1990s, Americas health system faced dual crises the likes of wh ich it had

never seenrapidly expanding costs and rapidly expanding numbers of

un insured. Employers had been trying a variety of means to hold down

exploding employee health costs; government budget wr iters were unable to

stem a tidal wave of red ink; across the n ation, the sense grew th at n oth ing

seemed to work. In this context, a window of opportunity appeared to

consider and promote more far-reaching health reform proposals.

O ne set of propo sals mandated th at all employers provide health insuranceto th eir workers and associated families. All oth er indu strialized nation s, in

one way or another, required em ployers to pay part of their nations health

bill. Even President N ixon, no radical reform er, embraced the concept of a

national employer mandate in 1974 albeit to avoid propo sals for m ore far-

reaching reform.

In 1974, wrongly anticipating the passage of a national employer mandate,

Hawaii became the first state to pass a law requiring all employers to cover

What Is Cost Shift ing ?

Cost shifting is the process of shifting thecosts of taking care of som e patients on toanother group m ore able to pay. Forexample, when M edicare or Medicaidreduces its payments to hospitals, hospi-tals simply charge more to privatelyinsured patients to make up their losses.

U nder m anaged care, providers havebeen less able to shift costs.Their flexi-bility varies substantially from market tomarket.


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their workers. T he law required individualnot familycoverage and

exempted those working fewer than 20 hou rs per week. Du ring the 1980s,

the law was aggressively enforced as the state sought to expand coverage to

as many islanders as possible. In th e early 1990s, the state entered a longeconom ic recession and relaxed enforcemen t. C urrently, the H awaii man-

date is not enforced, and many em ployers hire workers for o nly 19 hou rs

to evade the requirement.

In 1988, Massachusetts passed the second employer mandate in the form of a

pay or play statute. All emp loyers were assessed a new $1,680 per- worker

tax, though em ployers wh o bought insurance coverage for their workers were

exempted.The revenues from the tax would be used to finance coverage for

uninsured workers and their families. In subsequent years, O regon,

Washington, and M innesota all passed their own forms of employer mandates.

N one of these four was ever implemented , and all have been subsequently

repealed. Small business opposition was critical in altering the political con-

sensus within each state.

In 1993, President C linton included a national employer mandate as a key

com pon ent o f his ill-fated H ealth Secur ity Plan. T he campaign for pas-

sage began with support from several national business organizations,

including the U.S. C hamber of C om merce. O ver the course of the politi-

cal debate over his plan, mo st o f these business group s reversed th eir posi-

tion to opposition.

N o state has considered adopting an employer m andate since 1993. T he

examples from the states that did pass mandates suggest that it is not likely

to be a successful path in the near future.The change in the composition

and structure of the nations workforcewith more workers placed in

con sultant and part-time positionsm akes potential enforcemen t of

such a requirem ent less feasible. In addition , employers who self-in sure (a

significant percentage of employers providing health insurance in most

states) are exempt, under the federal ER ISA law, from any state-im posed

mandates. T he likelihood of a state obtaining an ER ISA exemption from

Congress is extremely remote.

T he progress of Canadian-style, single-payer proposals has been even less

encouraging. In the late 1980s and early 1990s, a handful of states saw single-

payer plans pass one legislative chamber or the o ther, mo st prom inently in the

Dem ocratic-controlled N ew York State Assembly in 1990. In 1992, the State

of Vermont created a new health com mission and directed it to produce two

alternatives for the legislature by 1994, either a C anadian- style single payer, or

a Germ an-style multipayerboth with u niversal coverage. T he com mission


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met its mandate, and the legislature ultimately adopted neither. In N ovember

1994, California voters had the opportu nity to select a single-payer system

through a statewide ballot referendum.Voters rejected the ballot question by

a margin of 73% to 27%. N o state has passed, much less attempted to imp le-ment, a single-pay

Healthcare Policy - The Basics

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