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Tuesday, November 14, 2023

Health insurance coverage in the United States

U.S. health insurance coverage estimate for 2019. CBO estimated ACA/Obamacare was responsible for 22 million persons covered via exchanges and Medicaid expansion.

In the United States, health insurance coverage is provided by several public and private sources. During 2019, the U.S. population overall was approximately 330 million, with 59 million people 65 years of age and over covered by the federal Medicare program. The 273 million non-institutionalized persons under age 65 either obtained their coverage from employer-based (159 million) or non-employer based (84 million) sources, or were uninsured (30 million). During the year 2019, 89% of the non-institutionalized population had health insurance coverage. Separately, approximately 12 million military personnel (considered part of the "institutional" population) received coverage through the Veteran's Administration and Military Health System.

Despite being among the top world economic powers, the US remains the sole industrialized nation in the world without universal health care coverage.

Prohibitively high cost is the primary reason Americans give for problems accessing health care. At approximately 30 million in 2019, higher than the entire population of Australia, the number of people without health insurance coverage in the United States is one of the primary concerns raised by advocates of health care reform. Lack of health insurance is associated with increased mortality, in the range 30-90 thousand deaths per year, depending on the study.

Multiple surveys indicate the number of uninsured fell between 2013 and 2016 due to expanded Medicaid eligibility and health insurance exchanges established due to the Patient Protection and Affordable Care Act, also known as the "ACA" or "Obamacare". According to the United States Census Bureau, in 2012 there were 45.6 million people in the US (14.8% of the under-65 population) who were without health insurance. Following the implementation of major ACA provisions in 2013, this figure fell by 18.3 million or 40%, to 27.3 million by 2016 or 8.6% of the under-65 population.

However, the improvement in coverage began to reverse under President Trump. The Census Bureau reported that the number of uninsured persons rose from 27.3 million in 2016 to 29.6 million in 2019, up 2.3 million or 8%. The uninsured rate rose from 8.6% in 2016 to 9.2% in 2019. The 2017 increase was the first increase in the number and rate of uninsured since 2010. Further, the Commonwealth Fund estimated in May 2018 that the number of uninsured increased by 4 million from early 2016 to early 2018. The rate of those uninsured increased from 12.7% in 2016 to 15.5% under their methodology. The impact was greater among lower-income adults, who had a higher uninsured rate than higher-income adults. Regionally, the South and West had higher uninsured rates than the North and East. CBO forecast in May 2019 that 6 million more would be without health insurance in 2021 under Trump's policies (33 million), relative to continuation of Obama policies (27 million).

The causes of this rate of uninsurance remain a matter of political debate. In 2018, states that expanded Medicaid under the ACA had an uninsured rate that averaged 8%, about half the rate of those states that did not (15%). Nearly half those without insurance cite its cost as the primary factor. Rising insurance costs have contributed to a trend in which fewer employers are offering health insurance, and many employers are managing costs by requiring higher employee contributions. Many of the uninsured are the working poor or are unemployed.

Overview

Health insurance coverage is provided by several public and private sources in the United States. Analyzing these statistics is more challenging due to multiple survey methods and persons with multiple sources of insurance, such as those with coverage under both an employer plan and Medicaid.

For the 273 million non-institutional persons under age 65 in 2019:

  • There were 159 million with employer-based coverage, 84 million with other coverage, and 30 million uninsured.
  • Of the 159 million with employer-based coverage, many are in self-funded health plans - about 60% in 2017
  • Of the 84 million with other coverage, 57 million were covered by Medicaid and Children's Health Insurance Program (CHIP), 12 million were covered by the ACA Medicaid expansion, 9 million were covered by the ACA/Obamacare exchanges, 5 million had other coverage such as private insurance purchased outside the ACA exchanges, and 1 million were covered by the ACA Basic Health Program.
  • Of the 9 million on the ACA exchanges, 8 million received subsidies and 1 million did not.
  • Of the 30 million uninsured, 24 million (80%) were lawfully present while 6 million (20%) were not lawfully present (i.e., undocumented immigrants).
  • In 2018, 41% of the uninsured were white, 37% were Hispanic, and 14% were black.
  • Approximately 12 million institutional (military) personnel were covered by the Veteran's Administration in 2018.
  • The uninsured rate fell from a peak of 18.2% in 2010 to 10.5% by 2015, due primarily to ACA/Obamacare along with improvements in the economy.
  • States that expanded Medicaid under Obamacare (37 as of 2019, including Washington D.C.) had lower uninsured rates than states that did not.
  • Inability to afford insurance was the primary reason cited by persons without coverage (46%).
  • Lack of health insurance is associated with increased mortality, in the range 30-90 thousand deaths per year, depending on the study. This figure is calculated based on 1 additional death per 300-800 persons without health insurance, on a base of 27 million uninsured persons.

The U.S. Centers for Disease Control and Prevention (CDC) reports the number and percentage of uninsured during each year. The following table includes those under age 65 who were uninsured at the time of interview.

Year Number Uninsured (Mil) Uninsured Percent
2010 48.2 18.2%
2013 (Pre-ACA) 44.3 16.6%
2016 28.2 10.4%
2017 28.9 10.7%
2018 30.1 11.1%
2019 32.8 12.1%
2020 31.2 11.5%
2021 29.6 11.0%
2022H 27.0 9.9%

The 2010 figure represents the most recent peak, which was driven upward by the Great Recession. Most of the major provisions of the ACA took effect in 2014, so 2013 reflects the pre-ACA level. After reaching a record low in 2016 at the end of the Obama Administration, the number and percent of uninsured has risen during the first two years of the Trump Administration. The New York Times reported in January 2019 that the Trump Administration has taken a variety of steps to weaken the ACA, adversely affecting coverage. The increases in the number of uninsured in the first 3 years of the Trump administration (2017-2019) reversed in 2020-2021, as Coronavirus relief measures expanded eligibility and reduced costs.

Estimates of the number of uninsured

U.S. Uninsured under age 65, number (left axis in millions) and % (right axis) from 2010-2022 first half (H1). Blue shows Democratic party president, red a Republican party president.
U.S. uninsured number (millions) and rate (%), including historical data through 2016 and two CBO forecasts (2016/Obama policy and 2018/Trump policy) through 2026. Two key reasons for more uninsured under President Trump include: 1) Eliminating the individual mandate to have health insurance; and 2) Stopping cost sharing reduction payments.

Several public and private sources report the number and percentage of the uninsured. The Congressional Budget Office (CBO) reported the actual number of uninsured at 28.3 million in 2015, 27.5 million in 2016, 27.8 million in 2017, and 28.9 million in 2018. The CBO May 2019 ten-year forecast reflected the policies of the Trump administration and estimated the number of uninsured would rise from 30 million in 2019, to 34 million by 2026, and to 35 million by 2029. In a previous March 2016 ten-year forecast reflecting the policies of the Obama administration, CBO forecast 27 million uninsured in 2019 and 28 million in 2026. The primary reason for the 6.5 million (24%) increase in uninsured from 2016 to 2029 is the repeal of the ACA individual mandate to have health insurance, enacted as part of the Trump tax cuts, with people not obtaining comprehensive insurance in the absence of a mandate or due to higher insurance costs.

Gallup estimated in July 2014 that the uninsured rate for adults (persons 18 years of age and over) was 13.4% as of Q2 2014, down from 18.0% in Q3 2013 when the health insurance exchanges created under the Patient Protection and Affordable Care Act (PPACA or "Obamacare") first opened. The uninsured rate fell across nearly all demographic groups.

The Commonwealth Fund reported that the uninsured rate among adults 19-64 declined from 20% in Q3 2013 to 15% in Q2 2014, meaning approximately 9.5 million more adults had health insurance.

The United States Census Bureau annually reports statistics on the uninsured. The 2018 Census Bureau Health Insurance highlights summary report states that:

  • "In 2018, 8.5 percent of people, or 27.5 million, did not have health insurance at any point during the year. The uninsured rate and number of uninsured increased from 2017 (7.9 percent or 25.6 million).
  • The percentage of people with health insurance coverage for all or part of 2018 was 91.5 percent, lower than the rate in 2017 (92.1 percent). Between 2017 and 2018, the percentage of people with public coverage decreased 0.4 percentage points, and the percentage of people with private coverage did not statistically change.
  • In 2018, private health insurance coverage continued to be more prevalent than public coverage, covering 67.3 percent of the population and 34.4 percent of the population, respectively. Of the subtypes of health insurance coverage, employer-based insurance remained the most common, covering 55.1 percent of the population for all or part of the calendar year.
  • Between 2017 and 2018, the percentage of people covered by Medicaid decreased by 0.7 percentage points to 17.9 percent. The rate of Medicare coverage increased by 0.4 percentage points. The percentage of people with employment-based coverage, direct-purchase coverage, TRICARE, and VA or CHAMPVA health care did not statistically change between 2017 and 2018.
  • The percentage of uninsured children under the age of 19 increased by 0.6 percentage points between 2017 and 2018, to 5.5 percent.
  • Between 2017 and 2018, the percentage of people without health insurance coverage at the time of interview decreased in three states and increased in eight states."

Underinsured

Those who are insured may be underinsured such that they cannot afford adequate medical care. A 2003 estimated that 16 million U.S. adults were underinsured in 2003, disproportionately affecting those with lower incomes – 73% of the underinsured in the study population had annual incomes below 200% of the federal poverty level.

In 2019 Gallup found that 25% of U.S. adults said they or a family member had delayed treatment for a serious medical condition during the year because of cost, up from 12% in 2003 and 19% in 2015. For any condition, 33% reported delaying treatment, up from 24% in 2003 and 31% in 2015.

Coverage gaps also occur among the insured population. Johns Hopkins University professor Vicente Navarro stated in 2003, "the problem does not end here, with the uninsured. An even larger problem is the underinsured" and "The most credible estimate of the number of people in the United States who have died because of lack of medical care was provided by a study carried out by Harvard Medical School Professors Himmelstein and Woolhandler. They concluded that almost 100,000 people died in the U.S. yearly because of lack of needed care." Another study focusing on the effect of being uninsured found that individuals with private insurance were less likely to be diagnosed with late-stage cancer than either the uninsured or Medicaid beneficiaries. A study examining the effects of health insurance cost-sharing more generally found that chronically ill patients with higher co-payments sought less care for both minor and serious symptoms while no effect on self-reported health status was observed. The authors concluded that the effect of cost sharing should be carefully monitored.

Coverage gaps and affordability also surfaced in a 2007 international comparison by the Commonwealth Fund. Among adults surveyed in the U.S., 37% reported that they had foregone needed medical care in the previous year because of cost; either skipping medications, avoiding seeing a doctor when sick, or avoiding other recommended care. The rate was higher – 42% –, among those with chronic conditions. The study reported that these rates were well above those found in the other six countries surveyed: Australia, Canada, Germany, the Netherlands, New Zealand, and the UK. The study also found that 19% of U.S. adults surveyed reported serious problems paying medical bills, more than double the rate in the next highest country.

Coverage trends under President Trump

Gains in healthcare coverage under President Obama began to reverse under President Trump. The CDC reported that the number of uninsured rose from 28.2 million in 2016 (the last year of the Obama Administration) to 32.8 million in 2019, an increase of 4.6 million or 16%.

The Commonwealth Fund estimated in May 2018 that the number of uninsured increased by 4 million from early 2016 to early 2018. The rate of those uninsured increased from 12.7% in 2016 to 15.5%. This was due to two factors: 1) Not addressing specific weaknesses in the ACA; and 2) Actions by the Trump administration that exacerbated those weaknesses. The impact was greater among lower-income adults, who had a higher uninsured rate than higher-income adults. Regionally, the South and West had higher uninsured rates than the North and East. Further, those 18 states that have not expanded Medicaid had a higher uninsured rate than those that did.

Approximately 5.4 million Americans lost their health insurance from February to May 2020 after losing their jobs during the COVID-19 recession. The Independent reported that Families USA report "found that the spike in uninsured Americans – adding to an estimated 84 million people who are already uninsured or underinsured – is 39 per cent higher than any previous annual increase, including the most recent surge at the height of the recession between 2008 and 2009 when nearly 4 million non-elderly Americans lost insurance."

Uninsured demographic

Number U.S. uninsured by reason in 2016 (non-elderly/under 65 years of age). An estimated 43% of the uninsured were eligible for financial assistance.
Uninsured Americans in 2007, by income status

The Kaiser Family Foundation reported in October 2016 that there were 27.2 million uninsured under age 65, roughly 10% of the 272 million persons in that group. Kaiser reported that:

  • 2.6 million were in the "coverage gap" due to the 19 states that chose not to expand the Medicaid program under the ACA/Obamacare, meaning their income was above the Medicaid eligibility limit but below the threshold for subsidies on the ACA exchanges (~44% to 100% of the federal poverty level or FPL);
  • 5.4 million were undocumented immigrants;
  • 4.5 million had an employer's insurance offer (making them ineligible for ACA/Obamacare coverage) but declined it;
  • 3.0 million were ineligible for financial assistance under ACA/Obamacare due to sufficiently high income;
  • 6.4 million were eligible for Medicaid or other public healthcare program but did not pursue it; and
  • 5.3 million were eligible for ACA/Obamacare tax credits but did not enroll in the program.
  • An estimated 46% cited costs as a barrier to getting insurance coverage.
  • Nearly 12 million (43%) of persons were eligible for financial assistance (Medicaid or ACA subsidies) but did not enroll to obtain it.

As of 2017, Texas had the highest number of uninsured at 17%, followed by Oklahoma, Alaska, and Georgia.

Uninsured children and young adults

In 2009 the Census Bureau states that 10.0 percent or 7.5 million children under the age of 18 were medically uninsured. Children living in poverty are 15.1 percent more likely than other children to be uninsured. The lower the income of a household the more likely it is they are uninsured. In 2009, a household with an annual income of 25,000 or less was only 26.6 percent likely not to have medical insurance and those with an annual income of 75,000 or more were only 9.1 percent unlikely to be insured. According to the Census Bureau, in 2007, there were 8.1 million uninsured children in the US. Nearly 8 million young adults (those aged 18–24), were uninsured, representing 28.1% of their population. Young adults make up the largest age segment of the uninsured, are the most likely to be uninsured, and are one of the fastest growing segments of the uninsured population. They often lose coverage under their parents' health insurance policies or public programs when they reach age 19. Others lose coverage when they graduate from college. Many young adults do not have the kind of stable employment that would provide ongoing access to health insurance. According to the Congressional Budget Office the plan the way it is now would have to cover unmarried dependents under their parents' insurance up to age 26. These changes also affect large employers, including self-insured firms, so that the firm bears the financial responsibility of providing coverage. The only exception to this is policies that were maintained continuously before the enactment of this legislation. Those policies would be grandfathered in.

Non-citizens

Non-citizens are more likely to be uninsured than citizens, with a 43.8% uninsured rate. This is attributable to a higher likelihood of working in a low-wage job that does not offer health benefits, and restrictions on eligibility for public programs. The longer a non-citizen immigrant has been in the country, the less likely they are to be uninsured. In 2006, roughly 27% of immigrants entering the country before 1970 were uninsured, compared to 45% of immigrants entering the country in the 1980s and 49% of those entering between 2000 and 2006.

Most uninsured non-citizens are recent immigrants; almost half entered the country between 2000 and 2006, and 36% entered during the 1990s. Foreign-born non-citizens accounted for over 40% of the increase in the uninsured between 1990 and 1998, and over 90% of the increase between 1998 and 2003. One reason for the acceleration after 1998 may be restrictions imposed by the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996. Almost seven out of ten (68%) of uninsured non-citizens live in California, Texas, Florida, or New York.

Downturn effects

A report by the Kaiser Family Foundation in April 2008 found that US economic downturns place a significant strain on state Medicaid and SCHIP programs. The authors estimated that a 1% increase in the unemployment rate increase Medicaid and SCHIP enrollment by 1 million, and increase the number uninsured by 1.1 million. State spending on Medicaid and SCHIP would increase by $1.4 billion (total spending on these programs would increase by $3.4 billion). This increased spending would occur while state government revenues were declining. During the last downturn, the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) included federal assistance to states, which helped states avoid tightening their Medicaid and SCHIP eligibility rules. The authors conclude that Congress should consider similar relief for the current economic downturn.

History

Prior to the Patient Protection and Affordable Care Act, medical underwriting was common, but after the law came into effect in 2014 it became effectively prohibited.

Medical underwriting made difficult for many consumers to purchase coverage on the individual market. Medical underwriting meant that insurance companies screen applicants for pre-existing conditions and reject those with serious conditions such as arthritis, cancer, and heart disease, but also such common ailments as acne, being 20 pounds over or under weight, and old sports injuries. In 2008, an estimated 5 million of those without health insurance were considered "uninsurable" because of pre-existing conditions.

Proponents of medical underwriting argue that it ensures that individual health insurance premiums are kept as low as possible. Critics of medical underwriting believe that it unfairly prevents people with relatively minor and treatable pre-existing conditions from obtaining health insurance.

One large industry survey found that 13% of applicants for individual health insurance who went through medical underwriting were denied coverage in 2004. Declination rates increased significantly with age, rising from 5% for those under 18 to just under one-third for those aged 60 to 64. Among those who were offered coverage, the study found that 76% received offers at standard premium rates, and 22% were offered higher rates. The frequency of increased premiums also increased with age, so for applicants over 40, roughly half were affected by medical underwriting, either in the form of denial or increased premiums. In contrast, almost 90% of applicants in their 20s were offered coverage, and three-quarters of those were offered standard rates. Seventy percent of applicants age 60–64 were offered coverage, but almost half the time (40%) it was at an increased premium. The study did not address how many applicants who were offered coverage at increased rates chose to decline the policy. A study conducted by the Commonwealth Fund in 2001 found that, among those aged 19 to 64 who sought individual health insurance during the previous three years, the majority found it unaffordable, and less than a third ended up purchasing insurance. This study did not distinguish between consumers who were quoted increased rates due to medical underwriting and those who qualified for standard or preferred premiums. Some states have outlawed medical underwriting as a prerequisite for individually purchased health coverage. These states tend to have the highest premiums for individual health insurance.

Causes

The numbers of uninsured Americans and the uninsured rate from 1987 to 2008
The percent of people in US who reported not seeking medical care due to high cost

Americans who are uninsured may be so because their job does not offer insurance; they are unemployed and cannot pay for insurance; or they may be financially able to buy insurance but consider the cost prohibitive. During 2009 the continued low employment rate has negatively affected those who had previously been enrolled in employment-based insurance policies. Census Bureau states a 55 percent drop. Other uninsured Americans have chosen to join a health care sharing ministry as an alternative to insurance.

Low-income workers are less likely than higher income individuals to be offered coverage by their employer (or by their spouse's employer) and less able to afford buying it on their own. Beginning with wage and price controls during World War II, and cemented by an income tax exemption ruling in 1954, most working Americans have received their health insurance from their employers. However, recent trends have shown an ongoing decline in employer-sponsored health insurance benefits. In 2000, 68% of small companies with 3 to 199 workers offered health benefits. Since that time, that number has continued to drop to 2007, when 59% offered health benefits. For large firms with 200 or more workers, in 2000, 99% of employers offered health benefits; in 2007, that number stayed the same. On average, considering firms of all numbers of employees, in 2000, 69% offered health insurance, and that number has fallen nearly every year since, to 2007, when 60% of employers offered health insurance.

One study published in 2008 found that people of average health are least likely to become uninsured if they have large group health coverage, more likely to become uninsured if they have small group coverage, and most likely to become uninsured if they have individual health insurance. But, "for people in poor or fair health, the chances of losing coverage are much greater for people who had small-group insurance than for those who had individual insurance." The authors attribute these results to the combination in the individual market of high costs and guaranteed renewability of coverage. Individual coverage costs more if it is purchased after a person becomes unhealthy but "provides better protection (compared to group insurance) against high premiums for already individually insured people who become high risk." Healthy individuals are more likely to drop individual coverage than less-expensive, subsidized employment-based coverage, but group coverage leaves them "more vulnerable to dropping or losing any and all coverage than does individual insurance" if they become seriously ill.

Roughly a quarter of the uninsured are eligible for public coverage but are not enrolled. Possible reasons include a lack of awareness of the programs or of how to enroll, reluctance due to a perceived stigma associated with public coverage, poor retention of enrollees, and burdensome administrative procedures. In addition, some state programs have enrollment caps.

A study by the Kaiser Family Foundation published in June 2009 found that 45% of low-income adults under age 65 lack health insurance. Almost a third of non-elderly adults are low income, with family incomes below 200% of the federal poverty level. Low-income adults are generally younger, less well educated, and less likely to live in a household with a full-time worker than are higher income adults; these factors contribute to the likelihood of being uninsured. In addition, the chances of being healthy decline with lower income; 19% of adults with incomes below the federal poverty level describe their health as fair or poor.

Consequences

The map illustrates the frequency of premature deaths (those under age 75) adjusted for the age of persons in the county.

Insurance coverage helps save lives, by encouraging early detection and prevention of dangerous medical conditions. According to a 2014 study, the ACA likely prevented an estimated 50,000 preventable patient deaths from 2010 to 2013. City University public health professors David Himmelstein and Steffie Woolhandler wrote in January 2017 that a rollback of the ACA's Medicaid expansion alone would cause an estimated 43,956 deaths annually.

The Federal Reserve publishes data on premature death rates by county, defined as those dying below age 74. According to the Kaiser Foundation, expanding Medicaid in the remaining 19 states would cover up to 4.5 million persons, thus reducing mortality. Texas, Oklahoma, Mississippi, Alabama, Georgia, Tennessee, Missouri and South Carolina, indicated on the Federal Reserve map (see graph at right) as having many counties with high premature mortality rates, did not expand Medicaid.

A study published in the American Journal of Public Health in 2009 found that lack of health insurance is associated with about 45,000 excess preventable deaths per year. One of the authors characterized the results as "now one dies every 12 minutes." Since then, as the number of uninsured has risen from about 46 million in 2009 to 48.6 million in 2012, the number of preventable deaths due to lack of insurance has grown to about 48,000 per year.

A survey released in 2008 found that being uninsured impacts American consumers' health in the following ways:

  • More of the uninsured chose not to see a doctor when were sick or hurt (53%) vs 46% of the insured.
  • Fewer of the uninsured (28%) report currently undergoing treatment or participating in a program to help them manage a chronic condition; 37% of the insured are receiving such treatment.
  • 21% of the uninsured, vs. 16% of the insured, believe their overall health is below average for people in their age group.

Cost shifting

The costs of treating the uninsured must often be absorbed by providers as charity care, passed on to the insured via cost-shifting and higher health insurance premiums, or paid by taxpayers through higher taxes.

On the other hand, the uninsured often subsidize the insured because the uninsured use fewer services and are often billed at a higher rate. A study found that in 2009, uninsured patients presenting in U.S. emergency departments were less likely to be admitted for inpatient care than those with Medicare, Medicaid, or private insurance. 60 Minutes reported, "Hospitals charge uninsured patients two, three, four or more times what an insurance company would pay for the same treatment." On average, per capita health care spending on behalf of the uninsured is a bit more than half that for the insured.

Hospitals and other providers are reimbursed for the cost of providing uncompensated care via a federal matching fund program. Each state enacts legislation governing the reimbursement of funds to providers. In Missouri, for example, providers assessments totaling $800 million are matched – $2 for each assessed $1 – to create a pool of approximately $2 billion. By federal law these funds are transferred to the Missouri Hospital Association for disbursement to hospitals for the costs incurred providing uncompensated care including Disproportionate Share Payments (to hospitals with high quantities of uninsured patients), Medicaid shortfalls, Medicaid managed care payments to insurance companies and other costs incurred by hospitals. In New Hampshire, by statute, reimbursable uncompensated care costs shall include: charity care costs, any portion of Medicaid patient care costs that are unreimbursed by Medicaid payments, and any portion of bad debt costs that the commissioner determines would meet the criteria under 42 U.S.C. section 1396r-4(g) governing hospital-specific limits on disproportionate share hospital payments under Title XIX of the Social Security Act.

A study published in August 2008 in Health Affairs found that covering all of the uninsured in the US would increase national spending on health care by $122.6 billion, which would represent a 5% increase in health care spending and 0.8% of GDP. "From society’s perspective, covering the uninsured is still a good investment. Failure to act in the near term will only make it more expensive to cover the uninsured in the future, while adding to the amount of lost productivity from not insuring all Americans," said Professor Jack Hadley, the study's lead author. The impact on government spending could be higher, depending on the details of the plan used to increase coverage and the extent to which new public coverage crowded out existing private coverage.

Over 60% of personal bankruptcies is caused by medical bills. Most of these persons had medical insurance.

Effects on health of the uninsured

From 2000 to 2004, the Institute of Medicine's Committee on the Consequences of Uninsurance issued a series of six reports that reviewed and reported on the evidence on the effects of the lack of health insurance coverage.

The reports concluded that the committee recommended that the nation should implement a strategy to achieve universal health insurance coverage. As of 2011, a comprehensive national plan to address what universal health plan supporters terms "America's uninsured crisis", has yet to be enacted. A few states have achieved progress towards the goal of universal health insurance coverage, such as Maine, Massachusetts, and Vermont, but other states including California, have failed attempts of reforms.

The six reports created by the Institute of Medicine (IOM) found that the principal consequences of uninsurance were the following: Children and Adults without health insurance did not receive needed medical care; they typically live in poorer health and die earlier than children or adults who have insurance. The financial stability of a whole family can be put at risk if only one person is uninsured and needs treatment for unexpected health care costs. The overall health status of a community can be adversely affected by a higher percentage of uninsured people within the community. The coverage gap between the insured and the uninsured has not decreased even after the recent federal initiatives to extend health insurance coverage.

The last report was published in 2004 and was named Insuring America's Health: Principles and Recommendations. This report recommended the following: The President and Congress need to develop a strategy to achieve universal insurance coverage and establish a firm schedule to reach this goal by the year 2010. The committee also recommended that the federal and state governments provide sufficient resources for Medicaid and the State Children's Health Insurance Program (SCHIP) to cover all persons currently eligible until the universal coverage takes effect. They also warned that the federal and state governments should prevent the erosion of outreach efforts, eligibility, enrollment, and coverage of these specific programs.

Some people think that not having health insurance will have adverse consequences for the health of the uninsured. On the other hand, some people believe that children and adults without health insurance have access to needed health care services at hospital emergency rooms, community health centers, or other safety net facilities offering charity care. Some observers note that there is a solid body of evidence showing that a substantial proportion of U.S. health care expenditures is directed toward care that is not effective and may sometimes even be harmful. At least for the insured population, spending more and using more health care services does not always yield better health outcomes or increase life expectancy.

Children in America are typically perceived as in good health relative to adults, due to the fact that most serious health problems occur later in one's life. Certain conditions including asthma, diabetes, and obesity have become much more prevalent among children in the past few decades. There is also a growing population of vulnerable children with special health care needs that require ongoing medical attention, which would not be accessible without health insurance. More than 10 million children in the United States meet the federal definition of children with special health care needs "who have or are at increased risk for a chronic physical, development, behavioral, or emotional condition and who also require health and related services of a type or amount beyond that required by children generally". These children require health related services of an amount beyond that required by the average children in America. Typically when children acquire health insurance, they are much less likely to experience previously unmet health care needs, this includes the average child in America and children with special health care needs. The Committee on Health Insurance Status and Its Consequences concluded that the effects of health insurance on children's health outcomes: Children with health insurance receive more timely diagnosis of serious health conditions, experience fewer hospitalizations, and miss fewer days of school.

The same committee analyzed the effects of health insurance on adult's health outcomes: adults who do not have health insurance coverage who acquire Medicare coverage at age 65, experience substantially improved health and functional status, particularly those who have cardiovascular disease or diabetes. Adults who have cardiovascular disease or other cardiac risk factors that are uninsured are less likely to be aware of their condition, which leads to worse health outcomes for those individuals. Without health insurance, adults are more likely to be diagnosed with certain cancers that would have been detectable earlier by screening by a clinician if they had regularly visited a doctor. As a consequence, these adults are more likely to die from their diagnosed cancer or suffer poorer health outcomes.

Many towns and cities in the United States have high concentrations of people under the age of 65 who lack health insurance. There are implications of high rates of uninsurance for communities and for insured people in those communities. Institute of Medicine committee warned of the potential problems of high rates of uninsurance for local health care, including reduced access to clinic-based primary care, specialty services, and hospital-based emergency services.

Excess deaths due to 2017-2019 coverage losses

In October 2020, Health Affairs writers summarized the results of several studies that placed the higher death rates for the uninsured between 1 per 278 to 1 per 830 persons without insurance: "Based on the ACS coverage data, we estimate that between 3,399 and 10,147 excess deaths among non-elderly US adults may have occurred over the 2017-2019 time period due to coverage losses during these years. Using the NHIS figures for coverage losses yields a higher estimate (between 8,434 and 25,180 non-elderly adult deaths attributable to coverage losses), while the CPS figures yield an estimate of 3,528-10,532 excess deaths among non-elderly adults. These figures do not completely capture the population effects of coverage loss, as they exclude the excess deaths that would likely result from coverage losses among children. In 2020 and beyond, we can project even more loss of life if, as expected, millions more lose health coverage due to the economic downturn associated with the pandemic."

Emergency Medical Treatment and Active Labor Act (EMTALA)

EMTALA, enacted by the federal government in 1986, requires that hospital emergency departments treat emergency conditions of all patients regardless of their ability to pay and is considered a critical element in the "safety net" for the uninsured. However, the federal law established no direct payment mechanism for such care. Indirect payments and reimbursements through federal and state government programs have never fully compensated public and private hospitals for the full cost of care mandated by EMTALA. In fact, more than half of all emergency care in the U.S. now goes uncompensated. According to some analyses, EMTALA is an unfunded mandate that has contributed to financial pressures on hospitals in the last 20 years, causing them to consolidate and close facilities, and contributing to emergency room overcrowding. According to the Institute of Medicine, between 1993 and 2003, emergency room visits in the U.S. grew by 26%, while in the same period, the number of emergency departments declined by 425. Hospitals bill uninsured patients directly under the fee-for-service model, often charging much more than insurers would pay, and patients may become bankrupt when hospitals file lawsuits to collect.

Mentally ill patients present a unique challenge for emergency departments and hospitals. In accordance with EMTALA, mentally ill patients who enter emergency rooms are evaluated for emergency medical conditions. Once mentally ill patients are medically stable, regional mental health agencies are contacted to evaluate them. Patients are evaluated as to whether they are a danger to themselves or others. Those meeting this criterion are admitted to a mental health facility to be further evaluated by a psychiatrist. Typically, mentally ill patients can be held for up to 72 hours, after which a court order is required.

Health care finance in the United States

From Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Health_care_finance_in_the_United_States

Health care finance in the United States
discusses how Americans obtain and pay for their healthcare, and why U.S. healthcare costs are the highest in the world based on various measures.

Overview

Chart showing life expectancy at birth and health care spending per capita for OECD countries as of 2015. The U.S. is an outlier, with much higher spending but below average life expectancy.

The American system is a mix of public and private insurance. The government provides insurance coverage for approximately 53 million elderly via Medicare, 62 million lower-income persons via Medicaid, and 15 million military veterans via the Veteran's Administration. About 178 million employed by companies receive subsidized health insurance through their employer, while 52 million other people directly purchase insurance either via the subsidized marketplace exchanges developed as part of the Affordable Care Act or directly from insurers. The private sector delivers healthcare services, with the exception of the Veteran's Administration, where doctors are employed by the government.

The Centers for Medicare and Medicaid (CMS) reported that U.S. health care costs rose 5.8% to reach $3.2 trillion in 2015, or $9,990 per person. As measured by CMS, the share of the U.S. economy devoted to health care spending was 17.8% GDP in 2015, up from 17.4% in 2014. Increases were driven by the coverage expansion that began in 2014 as a result of the Affordable Care Act (i.e., more persons demanding healthcare or more healthcare units consumed) as well as higher healthcare prices per unit.

U.S. healthcare costs are considerably higher than other countries as a share of GDP, among other measures. According to the OECD, U.S. healthcare costs in 2015 were 16.9% GDP, over 5% GDP higher than the next most expensive OECD country. A gap of 5% GDP represents $1 trillion, about $3,000 per person relative to the next most expensive country. In other words, the U.S. would have to cut healthcare costs by roughly one-third to be competitive with the next most expensive country.

Reasons for higher costs than other countries including higher administrative costs, spending more for the same services (i.e., higher prices per unit), receiving more medical care (units) per capita than other countries, cost variation across hospital regions without different results, higher levels of per-capita income, and less active government intervention to reduce costs. Spending is highly concentrated among sicker patients. The Institute of Medicine reported in September 2012 that approximately $750B per year in U.S. health care costs are avoidable or wasted. This included: unnecessary services ($210 billion annually); inefficient delivery of care ($130 billion); excess administrative costs ($190 billion); inflated prices ($105 billion); prevention failures ($55 billion), and fraud ($75 billion).

Despite this spending, the quality of health care overall is low by OECD measures. The Commonwealth Fund ranked the United States last in the quality of health care among similar countries.

The percentage of persons without health insurance (the "uninsured") fell from 13.3% in 2013 to 8.8% in 2016, due primarily to the Affordable Care Act. The number uninsured fell from 41.8 million in 2013 to 28.0 million in 2016, a decline of 13.8 million. The number of persons with insurance (public or private) rose from 271.6 million in 2013 to 292.3 million in 2016, an increase of 20.7 million. In 2016, approximately 68% were covered by private plans, while 37% were covered by government plans; these do not add to 100% because some persons have both.

Among those whose employer pays for health insurance, the employee may be required to contribute part of the cost of this insurance, while the employer usually chooses the insurance company and, for large groups, negotiates with the insurance company. The government subsidizes the employer-based insurance by excluding premiums paid by employers from the employees income. This subsidy tax expenditure reduced federal tax revenue by $248 billion in 2013, or 1.5% GDP.

The non-partisan Congressional Budget Office (CBO) reported in March 2017 that healthcare cost inflation and an aging population are primary drivers of increasing budget deficits over time, as outlays (spending) continue to rise faster than revenues relative to GDP. CBO forecast that spending on major healthcare programs (including Medicare and Medicaid) would rise from 5.5% GDP in 2017 to 9.2% GDP by 2047.

Spending

U.S. healthcare cost information, including rate of change, per-capita, and percent of GDP

As percentage of GDP

The Centers for Medicare and Medicaid (CMS) reported that U.S. health care costs rose to 17.8% GDP in 2015, up from 17.4% in 2014. Increases were driven by the coverage expansion that began in 2014 as a result of the Affordable Care Act (i.e., more persons demanding healthcare or more healthcare units consumed) as well as higher healthcare prices per unit.

U.S. healthcare costs are considerably higher than other countries as a share of GDP, among other measures. According to the OECD, U.S. healthcare costs in 2015 were 16.9% GDP, over 5% GDP higher than the next most expensive OECD country. A gap of 5% GDP represents $1 trillion, about $3,000 per person relative to the next most expensive country. In other words, the U.S. would have to cut healthcare costs by roughly one-third ($1 trillion or $3,000 per person on average) to be competitive with the next most expensive country.[5]

Per capita

The Centers for Medicare and Medicaid (CMS) reported that U.S. health care costs rose 5.8% to reach $3.2 trillion in 2015, or $9,990 per person.

The Office of the Actuary (OACT) of the Centers for Medicare and Medicaid Services publishes data on total health care spending in the United States, including both historical levels and future projections. In 2007, the U.S. spent $2.26 trillion on health care, or $7,439 per person, up from $2.1 trillion, or $7,026 per capita, the previous year. Spending in 2006 represented 16% of GDP, an increase of 6.7% over 2004 spending. Growth in spending is projected to average 6.7% annually over the period 2007 through 2017.

In 2009, the United States federal, state and local governments, corporations and individuals, together spent $2.5 trillion, $8,047 per person, on health care. This amount represented 17.3% of the GDP, up from 16.2% in 2008. Health insurance costs are rising faster than wages or inflation, and medical causes were cited by about half of bankruptcy filers in the United States in 2001.

Rate of increase

The Centers for Medicare and Medicaid Services reported in 2013 that the rate of increase in annual healthcare costs has fallen since 2002. However, costs relative to GDP and per capita continue to rise. Per capita cost increases have averaged 5.4% since 2000.

According to Federal Reserve data, healthcare annual inflation rates have declined in recent decades:

  • 1970-1979: 7.8%
  • 1980-1989: 8.3%
  • 1990-1999: 5.3%
  • 2000-2009: 4.1%
  • 2010-2016: 3.0%

While this inflation rate has declined, it has generally remained above the rate of economic growth, resulting in a steady increase of health expenditures relative to GDP from 6% in 1970 to nearly 18% in 2015.

Health care cost rise in the U.S. relative to other countries, as measured by total expenditure on health as percent of GDP

Relative to other countries

U.S. healthcare costs in 2015 were 16.9% GDP according to the OECD, over 5% GDP higher than the next most expensive OECD country. With U.S. GDP of $19 trillion, healthcare costs were about $3.2 trillion, or about $10,000 per person in a country of 320 million people. A gap of 5% GDP represents $1 trillion, about $3,000 per person relative to the next most expensive country. In other words, the U.S. would have to cut healthcare costs by roughly one-third to be competitive with the next most expensive country.

One analysis of international spending levels in the year 2000 found that while the U.S. spends more on health care than other countries in the Organisation for Economic Co-operation and Development (OECD), the use of health care services in the U.S. is below the OECD median by most measures. The authors of the study concluded that the prices paid for health care services are much higher in the U.S.

According to Financial Times United States spent more than $600 billion on medicines in 2022, nearly half of the world's total.

Concentration

Spending is highly concentrated among a relatively few patients. The Kaiser Family Foundation reported that the concentration of health care spending in the U.S. in 2010 was as follows:

  • The top 1% of persons accounted for 21% of health care spending;
  • The top 5% accounted for 50%;
  • The top 20% accounted for 82%; and
  • The bottom 50% of persons accounted for only 3% of spending.

Other studies have found similar results using AHRQ analysis. Relative to the overall population, those who remained in the top 10% of spenders between 2008 and 2009 were more likely to be in fair or poor health, elderly, female, non-Hispanic whites and those with public-only coverage. Those who remained in the bottom half of spenders were more likely to be in excellent health, children and young adults, men, Hispanics, and the uninsured. These patterns were stable through the 1970s and 1980s, and some data suggest that they may have been typical of the early-to-mid 20th century as well.

An earlier study by AHRQ found that a significant persistence in the level of health care spending from year to year. Of the 1% of the population with the highest health care spending in 2002, 24.3% maintained their ranking in the top 1% in 2003. Of the 5% with the highest spending in 2002, 34% maintained that ranking in 2003. Individuals over age 45 were disproportionately represented among those who were in the top decile of spending for both years.

Seniors spend, on average, far more on health care costs than either working-age adults or children. The pattern of spending by age was stable for most ages from 1987 through 2004, with the exception of spending for seniors age 85 and over. Spending for this group grew less rapidly than that of other groups over this period.

The 2008 edition of the Dartmouth Atlas of Health Care found that providing Medicare beneficiaries with severe chronic illnesses with more intense health care in the last two years of life—increased spending, more tests, more procedures and longer hospital stays—is not associated with better patient outcomes. There are significant geographic variations in the level of care provided to chronically ill patients, only 4% of which are explained by differences in the number of severely ill people in an area. Most of the differences are explained by differences in the amount of "supply-sensitive" care available in an area. Acute hospital care accounts for over half (55%) of the spending for Medicare beneficiaries in the last two years of life, and differences in the volume of services provided is more significant than differences in price. The researchers found no evidence of "substitution" of care, where increased use of hospital care would reduce outpatient spending (or vice versa).

Distribution of spending by service type

Healthcare spending in the U.S. was distributed as follows by type of service in 2014: Hospital care 32%; physician and clinical services 20%; prescription drugs 10%; and all other, including many categories individually making up less than 7% of spending. These first three categories accounted for 62% of spending.

This distribution is relatively stable; in 2008, 31% went to hospital care, 21% to physician/clinical services, 10% to pharmaceuticals, 4% to dental, 6% to nursing homes, 3% to home health care, 3% for other retail products, 3% for government public health activities, 7% to administrative costs, 7% to investment, and 6% to other professional services (physical therapists, optometrists, etc.).

Hospitalization costs

According to a report from the Agency for Healthcare Research and Quality (AHRQ), aggregate U.S. hospital costs in 2011 were $387.3 billion—a 63% increase since 1997 (inflation adjusted). Costs per stay increased 47% since 1997, averaging $10,000 in 2011.

Insurance markets

U.S. health insurance coverage by source in 2016. CBO estimated ACA/Obamacare was responsible for 23 million persons covered via exchanges and Medicaid expansion.

Employee market

An estimated 178 million persons under 65 obtain their insurance through their employer. Firms are often "self-insured", meaning they reimburse the insurance companies that pay the medical claims on behalf of their employees. Employers may use a stop-loss, meaning they pay the insurance company a premium to cover very expensive individual claims (e.g., the firm is self-insured up to a threshold for individual workers). Workers pay a share of their costs to their employers for coverage, basically a premium deducted from their paychecks. Workers also have deductibles and out-of-pocket costs. The structure of the insurance plan may also include a Health savings account or HSA, which enable workers to save money tax-free for health expenses.

The Kaiser Family Foundation reported that employer-based health insurance premiums for a family of four averaged $18,765 in 2017, up 3% from the prior year, although there was considerable variation around this average. For single coverage, the premium costs averaged $6,690, up 4% from the previous year. The typical worker contributed $5,714 on average towards their coverage, with the employer providing the remainder.

Deductibles have been rising much faster than premiums in recent years. For example, deductibles rose 12% in 2016, four times faster than premiums. From 2011 to 2016, deductibles rose 63% for single coverage, versus 19% for single coverage premiums. During that time, worker earnings rose 11%. The average annual deductible is around $1,500. For employers with fewer than 200 employees, 65% of employees are now in "high-deductible plans" which averaged $2,000.

One consequence of employer-based coverage (as opposed to single-payer or government-funded via individual taxes) is that employers facing increasing healthcare costs offset the expense by either paying relatively less or hiring fewer workers. Since health insurance benefits paid by employers are not treated as income to employees, the government foregoes a sizable amount of tax revenue each year. This subsidy or tax expenditure was estimated by CBO at $281 billion in 2017. On March 1, 2010, billionaire investor Warren Buffett said that the high costs paid by U.S. companies for their employees' health care put them at a competitive disadvantage. He compared the roughly 17% of GDP spent by the U.S. on health care with the 9% of GDP spent by much of the rest of the world, noted that the U.S. has fewer doctors and nurses per person, and said, "[t]hat kind of a cost, compared with the rest of the world, is like a tapeworm eating at our economic body."

ACA marketplaces

An estimated 12 million persons obtained their insurance from insurance companies in 2016 via online marketplaces (federal or state) developed as part of the Affordable Care Act, also known as "Obamacare." This insurance is federally subsidized through a premium tax credit, which varies based on the level of income of the individual. The credit is typically applied by the insurance company to lower the monthly premium payment. The post-subsidy premium cost is capped as a percentage of income, meaning as premiums rise the subsidies rise. Approximately 10 million persons on the exchanges are eligible for subsidies. An estimated 80% of persons obtaining coverage under the ACA can get it for less than $75 per month after subsidies, if they choose the lowest-cost "bronze" plan. The average cost for the "second-lowest cost silver plan" (the benchmark plan and one of the most popular) was $208/month after subsidy for a 40-year-old male non-smoker in 2017.

President Trump's decision in November 2017 to end the cost sharing reductions subsidy, a second type of subsidy used to reduce deductibles and co-payments, was expected to increase premiums dramatically, thereby increasing the premium tax credits as well to maintain after-subsidy costs to participants at the same percentage of income. In other words, the after-subsidy cost would not rise for those with premium tax credit subsidies. Those obtaining their insurance via the exchanges without subsidies would pay up to 20 percentage points more for insurance. CBO also estimated a $200 billion increase in the budget deficit over a decade due to Trump's decision.

The CBO estimated that ending or not enforcing the individual mandate (which requires those without health insurance to pay a penalty) would increase the uninsured by 13 million by 2027, reducing the budget deficit by $338 billion over 10 years as subsidies fall. CBO also estimated that ending the mandate would encourage healthier people to drop out of the marketplaces, thus raising premiums by up to 10%.

Medicaid

Medicaid is a joint federal and state program that helps with medical costs for about 74 million people (as of 2017) with limited income and resources. Medicaid also offers benefits not normally covered by Medicare, like nursing home care and personal care services. Medicaid is the largest source of funding for medical and health-related services for people with low income in the United States, providing free health insurance to low-income and disabled people. It is a means-tested program that is jointly funded by the state and federal governments and managed by the states, with each state currently having broad leeway to determine who is eligible for its implementation of the program. States are not required to participate in the program, although all have since 1982. Medicaid recipients must be U.S. citizens or legal permanent residents, and may include low-income adults, their children, and people with certain disabilities. Poverty alone does not necessarily qualify someone for Medicaid. The Federal Medical Assistance Percentage (FMAP), the percent of Medicaid program costs covered by the federal government, ranges from 50% for higher-income states to 75% for states with lower per-capita incomes.

The Affordable Care Act ("Obamacare") significantly expanded both eligibility for and federal funding of Medicaid starting in 2014, with an additional 11 million covered by 2016. Under the law as written, all U.S. citizens and legal residents with income up to 133% of the poverty line, including adults without dependent children, would qualify for coverage in any state that participated in the Medicaid program. However, the United States Supreme Court ruled in National Federation of Independent Business v. Sebelius that states do not have to agree to this expansion to continue to receive previously established levels of Medicaid funding, and 19 Republican-controlled states have chosen to continue with pre-ACA funding levels and eligibility standards. Expanding Medicaid in these 19 states would expand coverage for up to four million people.

The CBO reported in October 2017 that the federal government spent $375 billion on Medicaid in fiscal year 2017, an increase of $7 billion or 2% over 2016. The increase was primarily driven by more persons covered due to the ACA.

Medicare

Medicare covered 57 million people mainly aged 65 and over as of September 2016. Enrollees pay little in premiums but have deductibles for hospital stays. The program is funded partially by the FICA payroll tax and partially by the general fund (other tax revenues). The CBO reported in October 2017 that adjusted for timing differences, Medicare spending rose by $22 billion (4%) in fiscal year 2017 to $595 billion, reflecting growth in both the number of beneficiaries and in the average benefit payment. Medicare average spending per-enrollee was $10,986 in 2014 across the U.S., with states ranging from $8,238 in Montana to $12,614 in New Jersey.

Military Health Care

The Department of Defense and Veterans Health Administration both operate health systems and insurance systems for military personnel, their families, and retirees and their dependents.

Defense Health Agency

The Defense Health Agency is a joint, integrated Combat Support Agency founded in 2013 that enables the U.S. Army, U.S. Navy, and U.S. Air Force medical services to provide a medically ready force and ready medical force to Combatant Commands in both peacetime and wartime. The Department of Defense's unified medical program represents $49.5 billion or 8% of total FY2020 U.S. military spending. 

Tricare

Tricare (styled TRICARE) is a health care program of the Department of Defense Military Health System. Tricare provides civilian health benefits for U.S Armed Forces military personnel, military retirees, and their dependents, including some members of the Reserve Component. Tricare is the civilian care component of the Military Health System, although historically it also included health care delivered in military medical treatment facilities. The Department of Defense operates a health care delivery system served approximately 9.6 million beneficiaries in 2020. With the exception of active duty service members (who are assigned to the TRICARE Prime option and pay no out-of-pocket costs for TRICARE coverage), Military Health System beneficiaries may have a choice of TRICARE plan options depending upon their status (e.g., active duty family member, retiree, reservist, child under age 26 ineligible for family coverage, Medicare-eligible, etc.) and geographic location.

Veterans Health Administration

The Veterans Health Administration is the component of the United States Department of Veterans Affairs that implements the healthcare program of the VA through the administration and operation of numerous VA Medical Centers (VAMC), Outpatient Clinics (OPC), Community Based Outpatient Clinics (CBOC), and VA Community Living Centers (VA Nursing Home) Programs to serve tens of millions of military veterans. It employs over 300,000 personal and has a budget of $65 billion USD (2015)

Reasons for higher costs

The reasons for higher U.S. healthcare costs relative to other countries and over time are debated by experts.

Relative to other countries

Bar chart comparing healthcare costs as percentage of GDP across OECD countries

There are many reasons why U.S. healthcare costs are higher than other OECD countries:

  • Administrative costs. About 25% of U.S. healthcare costs relate to administrative costs (e.g., billing and payment, as opposed to direct provision of services, supplies and medicine) versus 10-15% in other countries. For example, Duke University Hospital had 900 hospital beds but 1,300 billing clerks during 2013. Assuming $3.2 trillion is spent on healthcare per year, a 10% savings would be $320 billion per year and a 15% savings would be nearly $500 billion per year. For scale, cutting administrative costs to peer country levels would represent roughly one-third to half the gap. A 2009 study from Price Waterhouse Coopers estimated $210 billion in savings from unnecessary billing and administrative costs, a figure that would be considerably higher in 2015 dollars.
  • Cost variation across hospital regions. Harvard economist David Cutler reported in 2013 that roughly 33% of healthcare spending, or about $1 trillion per year, is not associated with improved outcomes. Medicare reimbursements per enrollee vary significantly across the country. In 2012, average Medicare reimbursements per enrollee ranged from an adjusted (for health status, income, and ethnicity) $6,724 in the lowest spending region to $13,596 in the highest.
  • The U.S. spends more than other countries for the same things. Drugs are more expensive, doctors are paid more, and suppliers charge more for medical equipment than other countries. Journalist Todd Hixon reported on a study that U.S. spending on physicians per person is about five times higher than peer countries, $1,600 versus $310, as much as 37% of the gap with other countries. This was driven by a greater use of specialist doctors, who charge 3-6 times more in the U.S. than in peer countries. The OECD reported that in 2013 the U.S. spent $1,026 per capita on pharmaceuticals (drugs) versus an OECD average of around $515. The cost of an MRI in Canada is approximately $300, versus $1,000 in the U.S.
  • Higher level of per-capita income, which is correlated with higher healthcare spending in the U.S. and other countries. Hixon reported a study by Princeton Professor Uwe Reinhardt that concluded about $1,200 per person (in 2008 dollars) or about a third of the gap with peer countries in healthcare spending was due to higher levels of per-capita income. Higher income per-capita is correlated with using more units of healthcare.
  • Americans receive more medical care than people in other countries. The U.S. consumes 3 times as many mammograms, 2.5x the number of MRI scans, and 31% more C-sections per-capita than peer countries. This is a blend of higher per-capita income and higher use of specialists, among other factors.
  • The U.S. government intervenes less actively to force down prices in the United States than in other countries. In the U.S., government accounts for 48% of healthcare spending, versus 76% in Europe; this ratio of spending can be viewed as a proxy for bargaining power. Stanford economist Victor Fuchs wrote in 2014: "If we turn the question around and ask why healthcare costs so much less in other high-income countries, the answer nearly always points to a larger, stronger role for government. Governments usually eliminate much of the high administrative costs of insurance, obtain lower prices for inputs, and influence the mix of healthcare outputs by arranging for large supplies of primary-care physicians and hospital beds while keeping tight control on the number of specialist physicians and expensive technology. In the United States, the political system creates many "choke points" for diverse interest groups to block or modify government's role in these areas."

In December 2011, the outgoing Administrator of the Centers for Medicare & Medicaid Services, Dr. Donald Berwick, asserted that 20% to 30% of health care spending is waste. He listed five causes for the waste: (1) overtreatment of patients, (2) the failure to coordinate care, (3) the administrative complexity of the health care system, (4) burdensome rules and (5) fraud.

The Institute of Medicine reported in September 2012 that approximately $750B per year in U.S. health care costs are avoidable or wasted. This included: unnecessary services ($210 billion annually); inefficient delivery of care ($130 billion); excess administrative costs ($190 billion); inflated prices ($105 billion); prevention failures ($55 billion), and fraud ($75 billion).

Relative to prior years

The Congressional Budget Office analyzed the reasons for healthcare cost inflation over time, reporting in 2008 that: "Although many factors contributed to the growth, most analysts have concluded that the bulk of the long-term rise resulted from the health care system's use of new medical services that were made possible by technological advances..." In summarizing several studies, CBO reported the following drove the indicated share of the increase (shown as a range across three studies) from 1940 to 1990:

  • Technology changes: 38-65%. CBO defined this as "any changes in clinical practice that enhance the ability of providers to diagnose, treat, or prevent health problems."
  • Personal income growth: 5-23%. Persons with more income tend to spend a greater share of it on healthcare.
  • Administrative costs: 3-13%.
  • Aging of the population: 2%. As the country ages, more persons require more expensive treatments, as the aged tend to be sicker.

Several studies have attempted to explain the reduction in the rate of annual increase following the Great Recession of 2007-2009. Reasons include, among others:

  • Higher unemployment due to the recession, which has limited the ability of consumers to purchase healthcare;
  • Rising out-of-pocket payments;
  • Deductibles (the amount a person pays before insurance begins to cover claims) have risen sharply. Workers must pay a larger share of their own health costs, and generally forces them to spend less; and
  • The proportion of workers with employer-sponsored health insurance enrolled in a plan that required a deductible climbed to about three-quarters in 2012 from about half in 2006.

In September 2008 The Wall Street Journal reported that consumers were reducing their health care spending in response to the current economic slow-down. Both the number of prescriptions filled and the number of office visits dropped between 2007 and 2008. In one survey, 22% of consumers reported going to the doctor less often, and 11% reported buying fewer prescription drugs.

Cost forecasts

Spending for government healthcare programs is projected to rise significantly relative to GDP in the upcoming decades.

The Health and Human Services Department expects that the health share of GDP will continue its historical upward trend, reaching 19.6% of GDP by 2024.

The non-partisan Congressional Budget Office (CBO) reported in March 2017 that healthcare cost inflation and an aging population are primary drivers of increasing budget deficits over time, as outlays (spending) continue to rise faster than revenues relative to GDP. CBO forecast that spending on major healthcare programs (including Medicare and Medicaid) would rise from 5.5% GDP in 2017 to 9.2% GDP by 2047.

The Medicare Trustees provide an annual report of the program's finances. The forecasts from 2009 and 2015 differ materially, mainly due to changes in the projected rate of healthcare cost increases, which have moderated considerably. Rather than rising to nearly 12% GDP over the forecast period (through 2080) as forecast in 2009, the 2015 forecast has Medicare costs rising to 6% GDP, comparable to the Social Security program.

The increase in healthcare costs is one of the primary drivers of long-term budget deficits. The long-term budget situation has considerably improved in the 2015 forecast versus the 2009 forecast per the Trustees Report.

Payment systems

Doctors and hospitals are generally funded by payments from patients and insurance plans in return for services rendered (fee-for-service or FFS). In the FFS payment model, each service provided is billed as an individual item, which creates an incentive to provide more services (e.g., more tests, more expensive procedures, and more medicines). This is in contrast to bundled payments, in which the amount the insurer will pay to the service providers is bundled per episode (e.g., for a heart attack patient, a total amount will be paid to the network providing the care for say 180 days). Bundling on a per patient basis (rather than per-episode) was referred to in the 1990s as a "capitated payment" but is now described as an accountable care organization. Bundling provides an incentive to lower costs, which requires offsetting measures and incentives for quality of care. Several best-practice healthcare systems, such as the Kaiser and Mayo health systems, use bundled payments.

Among those whose employer pays for health insurance, the employee may be required to contribute part of the cost of this insurance, while the employer usually chooses the insurance company and, for large groups, negotiates with the insurance company. In 2004, private insurance paid for 36% of personal health expenditures, private out-of-pocket 15%, federal government 34%, state and local governments 11%, and other private funds 4%. Due to "a dishonest and inefficient system" that sometimes inflates bills to ten times the actual cost, even insured patients can be billed more than the real cost of their care.

Insurance for dental and vision care (except for visits to ophthalmologists, which are covered by regular health insurance) is usually sold separately. Prescription drugs are often handled differently from medical services, including by the government programs. Major federal laws regulating the insurance industry include COBRA and HIPAA.

Individuals with private or government insurance are limited to medical facilities which accept the particular type of medical insurance they carry. Visits to facilities outside the insurance program's "network" are usually either not covered or the patient must bear more of the cost. Hospitals negotiate with insurance programs to set reimbursement rates; some rates for government insurance programs are set by law. The sum paid to a doctor for a service rendered to an insured patient is generally less than that paid "out of pocket" by an uninsured patient. In return for this discount, the insurance company includes the doctor as part of their "network", which means more patients are eligible for lowest-cost treatment there. The negotiated rate may not cover the cost of the service, but providers (hospitals and doctors) can refuse to accept a given type of insurance, including Medicare and Medicaid. Low reimbursement rates have generated complaints from providers, and some patients with government insurance have difficulty finding nearby providers for certain types of medical services.

Charity care for those who cannot pay is sometimes available, and is usually funded by non-profit foundations, religious orders, government subsidies, or services donated by the employees. Massachusetts and New Jersey have programs where the state will pay for health care when the patient cannot afford to do so. The City and County of San Francisco is also implementing a citywide health care program for all uninsured residents, limited to those whose incomes and net worth are below an eligibility threshold. Some cities and counties operate or provide subsidies to private facilities open to all regardless of the ability to pay. Means testing is applied, and some patients of limited means may be charged for the services they use.

The Emergency Medical Treatment and Active Labor Act requires virtually all hospitals to accept all patients, regardless of the ability to pay, for emergency room care. The act does not provide access to non-emergency room care for patients who cannot afford to pay for health care, nor does it provide the benefit of preventive care and the continuity of a primary care physician. Emergency health care is generally more expensive than an urgent care clinic or a doctor's office visit, especially if a condition has worsened due to putting off needed care. Emergency rooms are typically at, near, or over capacity. Long wait times have become a problem nationally, and in urban areas some ERs are put on "diversion" on a regular basis, meaning that ambulances are directed to bring patients elsewhere.

Private

Most Americans under age 65 (59.3%) receive their health insurance coverage through an employer (which includes both private as well as civilian public-sector employers) under group coverage, although this percentage is declining. Costs for employer-paid health insurance are rising rapidly: since 2001, premiums for family coverage have increased 78%, while wages have risen 19% and inflation has risen 17%, according to a 2007 study by the Kaiser Family Foundation. Workers with employer-sponsored insurance also contribute; in 2007, the average percentage of premium paid by covered workers is 16% for single coverage and 28% for family coverage. In addition to their premium contributions, most covered workers face additional payments when they use health care services, in the form of deductibles and copayments.

Just less than 9% of the population purchases individual health care insurance. Insurance payments are a form of cost-sharing and risk management where each individual or their employer pays predictable monthly premiums. This cost-spreading mechanism often picks up much of the cost of health care, but individuals must often pay up-front a minimum part of the total cost (a deductible), or a small part of the cost of every procedure (a copayment). Private insurance accounts for 35% of total health spending in the United States, by far the largest share among OECD countries. Beside the United States, Canada and France are the two other OECD countries where private insurance represents more than 10% of total health spending.

Provider networks can be used to reduce costs by negotiating favorable fees from providers, selecting cost effective providers, and creating financial incentives for providers to practice more efficiently. A survey issued in 2009 by America's Health Insurance Plans found that patients going to out-of-network providers are sometimes charged extremely high fees.

Defying many analysts' expectations, PPOs have gained market share at the expense of HMOs over the past decade.

Just as the more loosely managed PPOs have edged out HMOs, HMOs themselves have also evolved towards less tightly managed models. The first HMOs in the U.S., such as Kaiser Permanente in Oakland, California, and the Health Insurance Plan (HIP) in New York, were "staff-model" HMOs, which owned their own health care facilities and employed the doctors and other health care professionals who staffed them. The name health maintenance organization stems from the idea that the HMO would make it its job to maintain the enrollee's health, rather than merely to treat illnesses. In accordance with this mission, managed care organizations typically cover preventive health care. Within the tightly integrated staff-model HMO, the HMO can develop and disseminate guidelines on cost-effective care, while the enrollee's primary care doctor can act as patient advocate and care coordinator, helping the patient negotiate the complex health care system. Despite a substantial body of research demonstrating that many staff-model HMOs deliver high-quality and cost-effective care, they have steadily lost market share. They have been replaced by more loosely managed networks of providers with whom health plans have negotiated discounted fees. It is common today for a physician or hospital to have contracts with a dozen or more health plans, each with different referral networks, contracts with different diagnostic facilities, and different practice guidelines.

Public

Government programs directly cover 27.8% of the population (83 million), including the elderly, disabled, children, veterans, and some of the poor, and federal law mandates public access to emergency services regardless of ability to pay. Public spending accounts for between 45% and 56.1% of U.S. health care spending. Per-capita spending on health care by the U.S. government placed it among the top ten highest spenders among United Nations member countries in 2004.

However, all government-funded healthcare programs exist only in the form of statutory law, and accordingly can be amended or revoked like any other statute. There is no constitutional right to healthcare. The U.S. Supreme Court explained in 1977 that "the Constitution imposes no obligation on the States to pay ... any of the medical expenses of indigents."

Government funded programs include:

  • Medicare, generally covering citizens and long-term residents 65 years and older and the disabled.
  • Medicaid, generally covering low income people in certain categories, including children, pregnant women, and the disabled. (Administered by the states.)
  • State Children's Health Insurance Program, which provides health insurance for low-income children who do not qualify for Medicaid. (Administered by the states, with matching state funds.)
  • Various programs for federal employees, including TRICARE for military personnel (for use in civilian facilities)
  • The Veterans Administration, which provides care to veterans, their families, and survivors through medical centers and clinics.
  • Title X which funds reproductive health care
  • State and local health department clinics
  • Indian health service
  • National Institutes of Health treats patients who enroll in research for free.
  • Medical Corps of various branches of the military.
  • Certain county and state hospitals
  • Government run community clinics

The exemption of employer-sponsored health benefits from federal income and payroll taxes distorts the health care market. The U.S. government, unlike some other countries, does not treat employer funded health care benefits as a taxable benefit in kind to the employee. The value of the lost tax revenue from a benefits in kind tax is an estimated $150 billion a year. Some regard this as being disadvantageous to people who have to buy insurance in the individual market which must be paid from income received after tax.

Health insurance benefits are an attractive way for employers to increase the salary of employees as they are nontaxable. As a result, 65% of the non-elderly population and over 90% of the privately insured non-elderly population receives health insurance at the workplace. Additionally, most economists agree that this tax shelter increases individual demand for health insurance, leading some to claim that it is largely responsible for the rise in health care spending.

In addition the government allows full tax shelter at the highest marginal rate to investors in health savings accounts (HSAs). Some have argued that this tax incentive adds little value to national health care as a whole because the most wealthy in society tend also to be the most healthy. Also it has been argued, HSAs segregate the insurance pools into those for the wealthy and those for the less wealthy which thereby makes equivalent insurance cheaper for the rich and more expensive for the poor. However, one advantage of health insurance accounts is that funds can only be used towards certain HSA qualified expenses, including medicine, doctor's fees, and Medicare Parts A and B. Funds cannot be used towards expenses such as cosmetic surgery.

There are also various state and local programs for the poor. In 2007, Medicaid provided health care coverage for 39.6 million low-income Americans (although Medicaid covers approximately 40% of America's poor), and Medicare provided health care coverage for 41.4 million elderly and disabled Americans. Enrollment in Medicare is expected to reach 77 million by 2031, when the baby boom generation is fully enrolled.

It has been reported that the number of physicians accepting Medicaid has decreased in recent years due to relatively high administrative costs and low reimbursements. In 1997, the federal government also created the State Children's Health Insurance Program (SCHIP), a joint federal-state program to insure children in families that earn too much to qualify for Medicaid but cannot afford health insurance. SCHIP covered 6.6 million children in 2006, but the program is already facing funding shortfalls in many states. The government has also mandated access to emergency care regardless of insurance status and ability to pay through the Emergency Medical Treatment and Labor Act (EMTALA), passed in 1986, but EMTALA is an unfunded mandate.

The uninsured

Number of uninsured

Number U.S. uninsured by reason in 2016 (non-elderly/under 65 years of age). An estimated 43% of the uninsured were eligible for financial assistance.

The percentage of persons without health insurance (the "uninsured") fell from 13.3% in 2013 to 8.8% in 2016, due primarily to the Affordable Care Act. The number of uninsured fell from 41.8 million in 2013 to 28.0 million in 2016, a decline of 13.8 million. The number of persons with insurance (public or private) rose from 271.6 million in 2013 to 292.3 million in 2016, an increase of 20.7 million. In 2016, approximately 68% were covered by private plans, while 37% were covered by government plans; these do not add to 100% because some people have both.

Impact on costs

Some Americans do not qualify for government-provided health insurance, are not provided health insurance by an employer, and are unable to afford, cannot qualify for, or choose not to purchase, private health insurance. When charity or "uncompensated" care is not available, they sometimes simply go without needed medical treatment. This problem has become a source of considerable political controversy on a national level. The uninsured still receive emergency care and thus if they are unable to afford it, they impose costs on others who pay higher premiums and deductibles to cover these expenses indirectly. Estimates for 2008 reported that the uninsured would spend $30 billion for healthcare and receive $56 billion in uncompensated care, and that if everyone were covered by insurance then overall costs would increase by $123 billion. A 2003 Institute of Medicine (IOM) report estimated total cost of health care provided to the uninsured at $98.9 billion in 2001, including $26.4 billion in out-of-pocket spending by the uninsured, with $34.5 billion in "free" "uncompensated" care covered by government subsidies of $30.6 billion to hospitals and clinics and $5.1 billion in donated services by physicians.

A 2003 study in Health Affairs estimated that uninsured people in the U.S. received approximately $35 billion in uncompensated care in 2001. The study noted that this amount per capita was half what the average insured person received. The study found that various levels of government finance most uncompensated care, spending about $30.6 billion on payments and programs to serve the uninsured and covering as much as 80–85% of uncompensated care costs through grants and other direct payments, tax appropriations, and Medicare and Medicaid payment add-ons. Most of this money comes from the federal government, followed by state and local tax appropriations for hospitals. Another study by the same authors in the same year estimated the additional annual cost of covering the uninsured (in 2001 dollars) at $34 billion (for public coverage) and $69 billion (for private coverage). These estimates represent an increase in total health care spending of 3–6% and would raise health care's share of GDP by less than one percentage point, the study concluded. Another study published in the same journal in 2004 estimated that the value of health forgone each year because of uninsurance was $65–$130 billion and concluded that this figure constituted "a lower-bound estimate of economic losses resulting from the present level of uninsurance nationally."

Role of government in health care market

Numerous publicly funded health care programs help to provide for the elderly, disabled, military service families and veterans, children, and the poor, and federal law ensures public access to emergency services regardless of ability to pay; however, a system of universal health care has not been implemented nationwide. However, as the OECD has pointed out, the total U.S. public expenditure for this limited population would, in most other OECD countries, be enough for the government to provide primary health insurance for the entire population. Although the federal Medicare program and the federal-state Medicaid programs possess some monopsonistic purchasing power, the highly fragmented buy side of the U.S. health system is relatively weak by international standards, and in some areas, some suppliers such as large hospital groups have a virtual monopoly on the supply side. In most OECD countries, there is a high degree of public ownership and public finance. The resulting economy of scale in providing health care services appears to enable a much tighter grip on costs. The U.S., as a matter of oft-stated public policy, largely does not regulate prices of services from private providers, assuming the private sector to do it better.

Massachusetts has adopted a universal health care system through the Massachusetts 2006 Health Reform Statute. It mandates that all residents who can afford to do so purchase health insurance, provides subsidized insurance plans so that nearly everyone can afford health insurance, and provides a "Health Safety Net Fund" to pay for necessary treatment for those who cannot find affordable health insurance or are not eligible.

In July 2009, Connecticut passed into law a plan called SustiNet, with the goal of achieving health care coverage of 98% of its residents by 2014.

Proposed solutions

Primary cost reduction opportunities correspond to the causes described above. These include:

  • Eliminating administrative overhead through a single-payer, "Medicare for All" approach, to reduce overhead from the current 25% of expenditures to the 10-15% level of best practice countries.
  • Granting the government additional power to reduce the compensation of doctors and hospitals, as it does with Medicare and Medicaid. This would likely occur with a single-payer solution.
  • Shifting from expensive intervention at the end-of-life to more low-cost palliative care, to address healthcare cost concentration among those in the last years of life.
  • Allowing the government to negotiate more forcefully to reduce the costs of prescription drugs, which are roughly twice the cost per-capita in other countries.
  • Using more bundled payment strategies, to limit costs while maintaining quality.
  • Reducing Medicare and Medicaid fraud, with stronger controls (auditors and processes) and legal penalties.
  • Improved use of healthcare technology, to improve efficiency and eliminate errors.

Increased spending on disease prevention is often suggested as a way of reducing health care spending. Whether prevention saves or costs money depends on the intervention. Childhood vaccinations, or contraceptives save much more than they cost. Research suggests that in many cases prevention does not produce significant long-term cost savings. Some interventions may be cost-effective by providing health benefits, while others are not cost-effective. Preventive care is typically provided to many people who would never become ill, and for those who would have become ill is partially offset by the health care costs during additional years of life. On the other hand, research conducted by Novartis argues that the countries that have excelled in getting the highest value for healthcare spending are the ones who have invested more in prevention, early diagnosis and treatment. The trick is to avoid getting patients to hospital, which is where highest healthcare dollars are being consumed. Not all preventive measures have good ROI (for example, a global vaccination campaign for a rare infectious disease). However, preventive measures such as improved diet, exercise and reduction of tobacco intake would have broad impact on many diseases and will offer good return of investment.

Introduction to entropy

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