Bitter Pill: Why Medical Bills Are Killing Us
The US health care system urgently needs fixing. It is much too expensive and inefficient, and leaves too many people with no care or inadequate care. In March 2010, the recently elected Obama administration barely managed to pass the Affordable Care Act (ACA), a huge and complicated collection of legislative initiatives designed to correct the system’s problems.1 The statute is 2,700 pages long, and so far there are about 20,000 pages of regulations.
Most Democrats generally approve of the ACA as an important achievement in health care legislation, which moves the US closer to the kind of system it will ultimately need. Its central provision is a mandate for nearly all either to have insurance or else pay a fine. Despite its deficiencies and complexities, and however much it disappoints those hoping for more fundamental reform, the ACA’s supporters call it a good start that can be amended later as necessary.
However, more than a few liberals think the ACA was fatally compromised by deals the president made with the private insurance, hospital, and pharmaceutical industries to get their support, particularly the sacrifice of a “public option”—insurance the government would sell if private companies refused or their plans were seen as excessively expensive. They believe it will ultimately fail because it does not basically change our dysfunctional system. It expands and improves private insurance coverage, but provides no effective controls of rising costs and no significant change in the way medical care is delivered. Many of the critics think we need major reform that replaces private insurance and employment-based coverage with a publicly funded single-payer system.
Before the ACA was enacted, the president’s health care proposals were bitterly opposed by Republicans who said they violated two conservative principles: first, the familiar Reagan view that government involvement usually is the problem, not the solution; and second, an implied but rarely spoken belief that medical care is basically a special kind of business, and should conform to business practices. Republicans believe that the ACA flouts these principles by depending heavily on government regulation and interfering with free-market forces.
Republican opposition hardened even more after the legislation became law, culminating in a constitutional challenge before the Supreme Court. On June 28, 2012, the Court sustained by a 5–4 vote the contested major provision in the ACA that mandated insurance coverage. But by a 7–2 vote, the Court struck down the provision in the law that gave Congress the power to withhold federal Medicaid support from states refusing to expand their Medicaid program, which provides medical care for poor people. This decision made it financially feasible for states to opt out of the ACA’s provision requiring that the coverage of low-income patients be expanded. As of this writing, seven of them have done so. The Urban Institute estimates that this will deny insurance to nearly six million very poor people.
Democratic victories in the elections of 2012 retained the narrow Democratic majority in the Senate and virtually ensured the legal survival of the ACA, at least until the next presidential election. Nevertheless, the Republican minority in the Senate and the Republican-controlled House continue their unyielding opposition through legislative tactics designed to delay or prevent the ACA from being implemented, funded, or even revised. The House has voted many times to defund parts of the law, such as the provisions to expand community clinics and educate the public about the ACA, and in mid-May voted to repeal the entire act for the third time. But like the two other votes for repeal, this latest Republican initiative will be dead on arrival in the Senate.
Regardless of the Republican opposition, the long-term survival of the ACA will remain uncertain if it fails to control costs. National expenditures for health care grew by 3.9 percent each year from 2009 to 2011 and are estimated to have grown by 4.3 percent in 2012. In earlier years, increases were more than twice as high. The president’s economic advisers attribute most of this slowdown in costs to changes in the health care market produced by the ACA, with less owing to the recession. But a recent study by the Kaiser Family Foundation gave just the opposite explanation: the major cause of the slower increase in costs was the recession, while the ACA had a much smaller effect.
The Congressional Budget Office estimates that when the expansion of insurance begins under the ACA in 2014, about 15 million more people will obtain it, with further additions in subsequent years. Per capita expenditures in both the private and public sectors will again grow substantially, and more costs will be shifted from government and employers to individuals.
Much of the increased expenditures will result from the overuse of high-cost tests and procedures. These technologies are available in all advanced countries, but are used far more often in the US (without generally better outcomes), partly because they are profitable for providers. The rise in expenditures does not augur well for the future of the ACA. Furthermore, it is uncertain whether there will be enough primary care physicians to care for all the newly insured. Even now, the preference of physicians for specialty practice makes it difficult to find primary care practitioners in many areas.
The law could unravel and ultimately collapse of its own weight if it becomes too difficult to administer and too expensive. Already there have been many delays and missed deadlines for issuing regulations and implementing various provisions of the law.
On July 2, the administration, in response to complaints from big business, announced a one-year postponement in the law’s mandate that large employers offer health insurance by 2014 or pay a fine. It is hard to imagine that this will not have ripple effects, and perhaps make it less likely that uninsured individuals will comply with the mandate to buy health insurance by 2014 or pay a fine—already a hard sell. In fact, many states are choosing not to establish their own insurance “exchanges.” These are the online marketplaces at which, under the ACA, uninsured people and small businesses can shop for private insurance at group rates. As of this writing, it appears that the federal government will have to create, and be ready to operate, exchanges in more than thirty states.
In apparent response to insurance industry lobbying, the government has weakened its power to regulate the exchanges by allowing any plan meeting minimum standards to qualify for the exchanges it will operate. The government will not require competitive bidding or standardization of benefits that would help consumers choose a plan. Estimates of federal costs to set up the exchanges have risen, and despite assurances by the president and other officials, it is uncertain that they will be available by October, as required by the law. Nor is it evident that the needed federal funds will be appropriated, in view of the opposition of the Republican-controlled House.
Up to three quarters of uninsured people do not know about health insurance opportunities under the ACA, and Health and Human Services Secretary Kathleen Sebelius has been soliciting private funding to help spread the word. However, if many uninsured healthy young people do not choose to buy insurance, and instead choose to pay a fine, private insurers might be forced to raise the premiums in the exchanges to unacceptable levels, because those remaining in the insured pools would on average be sicker and more expensive to care for.
By the end of Obama’s presidency the law will have existed for over six years, and may be much better understood and more accepted than now. Nevertheless, the current sequestration of funds by Congress and pressures to reduce health expenditures may require the administration’s health policies to change. The president’s budget message to Congress on April 10 proposed to cut federal spending on health care by $401 billion over ten years. This is only 3.5 percent of the projected increase of $14 trillion in total federal health costs over that time, but it suggests that he may ultimately agree to even larger reductions in his health care program to meet demands for fiscal austerity. Of course, much will depend on future political events.
Among the many recent publications on health care and how to fix it, two are notable for the power of their criticisms of the current health care system. The first is a book by David Goldhill, a successful business executive. The other is a cover story in Time magazine by reporter Steven Brill, to which Time devoted an unprecedented twenty-seven pages and nearly 25,000 words.
As his title—Catastrophic Care: How American Health Care Killed My Father—and How We Can Fix It—suggests, Goldhill believes that his father, an eighty-three-year-old practicing psychiatrist, was “killed” by errors in hospital care. Consumed by grief, and impressed by the strong published evidence that preventable errors cause far too many hospital deaths, he decided to take a hard look at what he calls the “complex mess” that is the current US health care system, and at the ACA, which he believes contributes to the “mess.”
Few of his criticisms are new; most of them are found in earlier writings by experts. But rarely has the irrationality of the system been so convincingly demonstrated, including the opaque and highly inflated prices of medical care. Prices for different medical treatments and procedures vary widely and unaccountably, as Goldhill observes. Without rational pricing, Goldhill says, consumers can’t evaluate their health care options, and ordinary market forces don’t work. Consequently, health care economics is almost totally dominated by the providers of care, mainly hospitals and physicians. This creates uncontrollable costs, and health providers have little incentive to focus on quality.
The most telling part of Goldhill’s critique is his explanation of how insurance distorts the system. In his words:
Health insurance isn’t real insurance…it’s the payment mechanism for health care…. Basically [it consists of] shifting money around from consumers and taxpayers to providers…at an almost inconceivable level of complexity and expense.
Insurance relieves patients of most of the responsibility for payment of major charges, such as for operations, making them less concerned about costs. This lessens their incentive to weigh the price and quality of what they buy, as consumers do in other markets. Together with a payment system that reimburses doctors for the fees they charge for each item of service, and pays hospitals largely in the same way, insurance is a major cause of rising health costs.
Goldhill’s criticism applies generally to all medical insurance, including Medicare, but private insurance is the worst offender (a point this corporate CEO overlooks). As I have explained elsewhere,2 the business overhead and administrative costs (including disgracefully high salaries for senior executives) for private insurance are much higher than those for public insurance, thus increasing the price of private premiums. Government actuaries estimate that private insurance increased health care costs in 2011 by about $150 billion. Adding to this, doctors and hospitals incur considerable expenses (probably more than $20 billion) in billing and collecting from the wide diversity of private insurance plans.
1 A detailed summary of the law’s many provisions and an excellent discussion of their significance can be found in Landmark: The Inside Story of America’s New Health Care Law and What It Means for Us All (PublicAffairs, 2010), written by the staff of The Washington Post. ↩
2 See my article “In Dire Health,” The American Prospect, January–February 2012. ↩
A detailed summary of the law’s many provisions and an excellent discussion of their significance can be found in Landmark: The Inside Story of America’s New Health Care Law and What It Means for Us All (PublicAffairs, 2010), written by the staff of The Washington Post. ↩
See my article “In Dire Health,” The American Prospect, January–February 2012. ↩