The High Cost of Health in America
America paid over $6,100 per person for health care in 2004 (Davis et al., 2007) through a combination of public tax money, individual and corporate contributions to insurance plans, and other sources. Not only do we pay almost twice the per capita expenditure of Canada and Germany and almost three times that of New Zealand and the United Kingdom, but we have had “one of the highest growth rates in per capita health care spending since 1980 among higher income countries”(Davis et al., 2007; Kaiser Family Foun- dation, 2007c, ¶2).
Many Americans believe that we have the best health care system in the world. But what actually constitutes a good health care system? Are we truly getting our money’s worth? The WHO’s groundbreaking report of member coun- tries outlined a good health system as one that provides good health for the whole population over the entire life cycle, responds to client’s expectations for respectful treatment and a client-oriented system of health care providers, and ensures that costs are distributed according to ability to pay and provides financial protection for all (2000). A “good and fair” health care system exhibits (p. 2):
◆ Overall good health (e.g., low infant mortality)
◆ Fair distribution of good health (e.g., long life expectancy distributed evenly across population groups)
◆ High level and fair distribution (across population groups) of overall responsiveness
◆ Fair distribution of health care financing (e.g., based on ability to pay, distributed fairly, so that everyone has equal protection from financial risks incurred by illness)
What researchers found was that the U.S. health care system was the “most expensive . . . in the world” largely because of high administrative costs (estimated then to range between 19.3% and 24.1%), the system of complex multiple payers, and the rising costs of prescription medications and advanced medical technology (p. 2). They also noted the shift from nonprofit to for-profit hospitals and the aging pop- ulation as causative factors, along with the high proportion of uninsured people (and the attendant high cost of untreated illness). Access was a significant problem, as the United States was found to be “the only country in the developed world, except for South Africa, that does not provide health care for all of its citizens” (p. 3). In the United States, the patchwork quilt of private and public insurance—mostly tied to either employment or low-income status—makes it difficult for many people to get the care they need. The researchers noted that those without health insurance are
“sicker and die younger than people with health insurance”
(p. 4).
Americans believe that we have a quality health care system, and that this can make up for other deficits. The United States did rank first among all WHO countries on responsiveness—a construct relating to how respectfully clients are treated. However, as noted in Chapter 25, for many racial and ethnic minorities, this is not the case.
Disability-adjusted life expectancy (DALE, or the aver- age number of healthy years expected in a population) was very low, and the United States was ranked 24th, with an unequal distribution, especially among males. The United States was ranked lowest among 14 industrialized nations and placed 54th among WHO countries on the measure of fairness in financing (Anderson & Hussey, 2001; WHO, 2000). This inequality disproportionately affects the poor, underinsured, and the uninsured, as many public health nurses (PHNs) can corroborate.
Compared to the other 190 countries studied by the WHO, the United States ranked 15th for attainment of the criteria listed above, and 37th for performance (a compari- son of how well it could perform based on available resource levels). Also, only 40% of those in the United States reported that they were satisfied with the health care system.
Many factors contribute to this, and shrinking patient choices, increased influence of managed care, and nursing shortages, along with quality of care, were noted as important (Univer- sity of Maine, 2001; WHO, 2000).
The Commonwealth Fund created a National Score- card on U.S. Health System Performance, and defined several dimensions of a “high performance health system” (Schoen, Davis, How, & Schoenbaum, 2006, p. 457) as:
◆ Long, healthy, and productive lives
◆ Quality
◆ Access
◆ Efficiency
◆ Equity
On a total possible score of 100, the United States scored 66 overall, and only 51 on the dimension of effi- ciency. The researchers also found that less than half of U.S.
adults receive preventive care and all recommended screening tests (using national standards), and that 30-day hospital readmission rates varied greatly. They were over 50%
greater in regions with the highest rates when compared with those with the lowest rates—highlighting a wide dispar- ity in quality care across the country.
Increasing influenza and pneumonia vaccinations would cost between $200 and $400 million annually, but could save between 20,000 and 40,000 deaths. Other inefficiencies could be corrected by the widespread implementation of health information technology (HIT)—including computer- ized physician order entry and electronic medical records (Hillestad et al., 2005). Over $77 billion per year could be saved if hospitals and outpatient clinics adopted widespread use of these technologies. Over 200,000 adverse drug events could be avoided annually, with a savings exceeding $1 billion and many lives spared. Earlier research found a “fragmented system fraught with waste and inefficiency”—indicating what could be termed an “un-system” of health care. It was also noted that the United States spends more than two times the per capita average for health care among industrialized nations (Gauthier & Serber, 2005, ¶1).
Why does health care cost so much? Explanations include the following:
◆ Medical malpractice costs and the need to practice defensive medicine by ordering excessive tests and x-rays (Sage & Kersch, 2006; RAND Institute for Civil Justice, 2004)
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◆ An aging population (Cutler, 2004)
◆ Advances in and the spread of medical technology;
for instance, in the last decade 12 of 19 Nobel prizes in medicine have been awarded to U.S. scientists—
and this comes at a price (Cowan, 2006; Morris, 2005)
◆ Rapidly rising prescription drug and hospital costs (Goldman & McGlynn, 2005; Rice & Rhodes, 2006)
◆ The failure of market forces, in that health care doesn’t respond to supply and demand as in other areas of the economy (Nyman, 2003; Rice &
Rhodes, 2006; Sharma, 2006)
◆ High costs of insurance administration—in some cases, three times that of the cost in other nations (Commonwealth Fund Commission on a High Performance Health System, 2006; Nyman, 2003)
◆ Ineffective, inappropriate, and inadequate health care leading to increased morbidity and mortality and costs (Institute of Medicine, 2001)
◆ High proportion of uninsured—it has been estimated that the U.S. economy would benefit by
$130 billion a year if all citizens were provided health insurance (Commonwealth Fund Commission on a High Performance Health System, 2006)
◆ Americans’ demand for high-tech health care and preference for freedom of choice among providers and services (Jones, 2005)
◆ The higher U.S. cost of living and level of income—things just cost more in the USA. Some argue that the high proportion of GDP spent on health care actually benefits the U.S. economy (Gaynor & Gudipati, 2006)
A study by Anderson, Hussey, Frogner, and Waters (2005) examined two commonly held views regarding U.S.
health care and rejected these arguments:
◆ Restriction of the supply of health care in many countries leads to decreased spending but also long waiting lists.
◆ U.S. malpractice litigation results in higher malpractice insurance costs and defensive medicine practices to protect physicians from lawsuits.
They noted that, despite high per capita expenditures, the United States was in the bottom 25% of countries in the Organization for Economic and Co-operative Development (OECD) for per capita hospital beds, and the average mal- practice payment was 36% below the United Kingdom and 14% below Canada. While generally more malpractice claims are filed in the United States than in other countries, payments for claims were lower on average and the total costs of malpractice only encompassed less than .5% of the total expenditures for health care.
A striking example of cost differences found in different countries involves prescription drugs. For example, the cancer drug Campath (alemtuzumab) costs $2,400 in the United States, but only $760 in France, $660 in Sweden, $570 in the United Kingdom, and only $500 in Italy (McKenzie, 2007).
Canada has enacted price controls that limit costs of new classes of medications to the median price paid by other
countries, making the price for Campath in Canada $600.
The United States is the only industrialized country without some form of price control on patented drugs. Drug compa- nies say that limiting prices on new medications will reduce innovation and research for new drugs; however, for instance, in Canada only a handful of U.S. medications are not readily available (McKenzie, 2007).
Controlling Costs
As noted earlier, cost-control measures utilizing both sup- ply-side and demand-side strategies have been attempted.
Utilization review techniques have further enhanced utiliza- tion and cost control (Sultz & Young, 2006). Yet, despite var- ious public and private cost-control strategies, health care costs continue to rise (Cutler, 2004). Although expenditures in the 1990s decelerated slightly from the escalation experi- enced during the 1970s and 1980s, in the early 2000s costs rose and continue to rise. Many factors influenced this increase. Between 1965 and 2001, the price per day of hos- pitalization rose tenfold from under $200 to over $1,300 (Kaiser Family Foundation, 2007c). As medical care became more complex, insurance costs rose dramatically, as did costs of public health care financing through Medicare and Medicaid (Cutler, 2004). More than half of the health care dollar goes to hospital and physician costs (31% and 22%, respectively) (Goldman & McGlynn, 2005). The explosion of medical technology has been characterized as a “medical arms race” by some (Dranove, 2000, p. 46), and a youth- oriented culture and unwillingness to accept illness and death has helped fuel this and the growth of elective proce- dures, such as plastic surgery.
A focus on primary prevention demands a paradigm shift in thinking about the practice and delivery of health care (see Chapter 1). It is one that fits more closely with the mission of public health. It expects that citizens are involved in their health care, are knowledgeable about their health status, can manage self-care practices, and can modify lifestyle behaviors to promote wellness. This creates a rich environment for community health nurses to collaborate with primary care practitioners and other health care profes- sionals to control health care costs while providing quality care focusing on primary prevention.
Access to Health Services: The Uninsured and Underinsured
A growing segment of the U.S. populace (estimated at between 16% and 33%) is uninsured, resulting in limited or no access to health care (Aday, 2005; Forbes, 2007). More than 45 million Americans are currently without any form of health insurance coverage (Collins et al., 2006). There is wide variation between states—from 11% in Minnesota to over 30% in Texas—contributing to great inconsistencies in health care quality and access (Collins, 2007). By 2015, the number of uninsured is expected to reach 54 million (Broder, 2005).
As noted earlier, about 25% of Americans who have health insurance are underinsured (Forbes, 2007), and they often must chose between paying insurance and health- related expenses or foregoing needed care. The underin- sured are more likely to “go without care because of costs”
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of underinsured were contacted by debt collectors, while 35% reported changing their usual way of life to pay med- ical expenses (Himmelstein, Warren, Thorne, & Woolhan- dler, 2005, p. 6). As an example of this, one large-scale study found that those with private health insurance paid close to $13,500 in out-of-pocket expenses for medical costs in 2001—while those who were uninsured paid close to $11,000 (Himmelstein et al., 2005). In addition, many underinsured have no dental or vision coverage, and have higher deductibles.
A particularly ominous study indicates that adults in the 50- to 64-year age range—baby boomers—have unstable health insurance coverage (Collins et al., 2006). More than half of these working older adults with annual incomes below
$25,000 report that they have times without insurance cover- age, and one-third of those with incomes between $25,000 and
$39,999 also experience insurance instability. People in this age group have higher rates of chronic illness (62% had at least one chronic condition, such as diabetes or hypertension) and higher medical expenses. One-third of those in the study reported that they had problems paying medical bills or that they were paying off medical debt. Two-thirds were concerned that they would be unable to afford medical care in the future.
Medical Bankruptcies
Bankruptcy filings have been rising over the last decade—as much as 360%. In a 2001 study conducted by Harvard and Ohio University researchers, almost half of participants cited illness—sometimes with loss of work—and medical expenses as the chief cause for their bankruptcy (Himmel- stein, Warren, Thorne & Woolhandler, 2005). The average study participant who filed for bankruptcy was a “42-year- old woman with children and at least some college educa- tion” (¶ 22). Most owned a home, and more than 75% of them had insurance coverage at the start of the illness that led to their bankruptcy. The reasons that those without insur- ance lacked coverage included unaffordable premiums, pre- existing conditions, lack of employer insurance coverage, gaps in coverage, and loss of employment. Of those filing medical bankruptcies, over 20% had gone without food, over 40% had their phone service disconnected, and around 30%
lost electricity or water in the 2 years before filing. About 60% reported going without a needed doctor or dentist visit during that same time (Himmelstein, Warren, Thorne, &
Woolhandler, 2005).
The consequences of not getting needed medical care are not trivial and can result in unnecessary hospitalization and serious health problems—along with increased costs.
Death rates for the uninsured are 25% higher each year than for those with health insurance (Gladwell, 2005). It is esti- mated that not having health insurance leads to 18,000 deaths annually, making it the sixth leading cause of death for adults between age 25 and 64 (Davis, 2003). One of the largest groups among the uninsured are young adults between ages 19 and 29 (Collins et al., 2007), as well as workers and their families with low incomes. Most of these families have one member working full time; some have two or more full-time workers.
Access to health care is a prime concern for the unin- sured. Many have no medical home—defined as seeing the
same health care provider for regular care. Because there is a lack of care coordination, duplicative and wasteful serv- ices are often the case (Collins, 2007). And without a reli- able care provider, the uninsured tend to use ERs for non- emergency care. Recent research noted that 33% of ER visits could have been handled in a primary physician’s office (Davis, 2003). Other consumers utilize public clinics and other charity care services. Cost estimates for uncom- pensated care in 2001 reached $34.5 billion.
Government costs to reimburse “safety net” hospitals and other entities involved in care of the uninsured exceed
$30 billion yearly—exemplifying just some of the costs to taxpayers. Because of the instability of the system, about half of the uninsured lose their health insurance coverage in a year—racking up higher administrative costs as they move between private and public insurers and change their usual sources of medical care. Interruptions in care, duplication in medical records, and verification of eligibility all lead to higher costs for everyone (Davis, 2003).
In the private sector, numerous firms do not offer health insurance to their employees; almost 80% of the uninsured are employees of these firms or are their dependents (Hellander, 2002). Self-employed individuals also find it difficult to pay the higher costs of insurance premiums without the benefit of group rates. Consequently, many of the self-employed can access health services only by purchasing expensive indi- vidual insurance policies with high-deductibles and coinsur- ance or by making expensive out-of-pocket payments.
Managed Care
The term managed care became popular in the late 1980s. It refers to systems that coordinate medical care for specific groups to promote provider efficiency and control costs.
Although the term managed care is relatively new, the concept has been practiced for many years through various models of alternative health care delivery. Managed care is a cost-control strategy used in both public and private sectors of health care.
Care is managed by regulating the use of services and levels of provider payment. This approach includes using HMOs and PPOs. In contrast to FFS models, managed care plans operate on a prospective payment basis and control costs by managing utilization and provider payments. The managed care model encourages the provision of services within fixed budgets, thus avoiding cost escalation. Because costs are tight, preventive services are generally encouraged, so that more expensive ter- tiary care costs can be avoided, if possible.
Health Maintenance Organizations
The HMOs and various companies’ self-insured plans also are included in this category. Usually, they sell only health insur- ance; in some cases, they also may provide actual health serv- ices. They focus on a localized population. As a group, they generate a large amount of premium revenues; HMOs repre- sent 20% of employer-sponsored group insurance (Kaiser Family Foundation, 2006a). Consumers have often resisted the strenuous cost-containment policies of many HMOs, and prefer to have their physicians make decisions about their care—not insurance company employees. However, employers are often drawn to alternatives as a cost-saving method. HMO premiums are usually lower than other types of insurance CHAPTER 6 Structure and Economics of Community Health Services
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premiums, and out-of-pocket costs to consumers are generally lower (Gabel, Pickreign, & Whitmore, 2006).
A health maintenance organization (HMO) is a sys- tem in which participants prepay a fixed monthly premium to receive comprehensive health services delivered by a defined network of providers. The HMOs are the oldest model of coordinated or managed care. Several HMOs have existed for decades, but many have developed more recently.
HMO enrollees benefit from a lower premium, reduced cost sharing, and fewer administrative costs.
From 1930 to 1965, the HMO movement, supported initially by the private sector, gradually gained federal back- ing. Group plans were included as a part of Medicare and Medicaid legislation. The HMO Act of 1973 demonstrated stronger federal support and assistance for growth of this industry (Chang, Price, & Pfoutz, 2001). Amendments to this act in 1976 lifted restrictions and further encouraged HMO growth. The skyrocketing employer health insurance costs of the 1980s and 1990s encouraged many companies to move from traditional insurance and FFS to HMOs. Cur- rently, there are numerous HMOs with a variety of configu- rations. The unique set of properties of HMOs include:
◆ A contract between the HMO and the beneficiaries (or their representative), the enrolled population
◆ Absorption of prospective risk by the HMO
◆ A regular (usually monthly) premium to cover specified (typically comprehensive) benefits paid by each enrollee of the HMO; few additional charges are levied, because the payment mechanism is not FFS
◆ An integrated delivery system with provider incen- tives for efficiency; the HMO contracts with professional providers to deliver the services due the enrollees, and the basis for reimbursing those providers varies among HMOs (Harrington &
Estes, 2004)
Official encouragement, government subsidies, and the pres- sures for cost control spurred the growth of HMOs. Some HMOs follow the traditional model, employing health pro- fessionals (e.g., physicians, nurses), building their own hos- pital and clinic facilities, and serving only their own enrollees. Other HMOs provide some services while contract- ing for the rest. Variations of the HMO model include solo practice physicians (some also continuing FFS medicine) who affiliate with hospitals (Chang, Price, & Pfoutz, 2001;
Cutler, 2004). Enrollment in HMOs through employer-based programs numbered more than 77.7 million in 2006 (Man- aged Care Online [MCOL], 2007).
HMOs have been viewed as a positive alternative deliv- ery system because of their potential for conserving costs, which results from their emphasis on prevention, health pro- motion, and ambulatory care, with a concomitant reduction in hospital and medical care utilization. However, there are questions as to whether the cost savings result partly from favorable selection of enrollees. Quality concerns also have been raised about the dangers of underserving enrollees in order to stay within payment limits (Baker et al., 2004; Sultz
& Young, 2006). Scanlon, Swaminathan, Chernew, and Lee (2006) examined longitudinal data, and found that HMO competition was related to consumer satisfaction surveys, but not necessarily to better quality of care for chronic
conditions. Greater penetration of HMOs in some regions of the United States was associated with better outcomes for six common medical conditions (e.g., hip fracture, heart attack), but in other areas, the outcomes were worse—indi- cating no solid evidence of either higher or lower quality of care (Escarce, Jain, & Rogowski, 2006).
These concerns about HMOs and managed care in gen- eral have not gone unattended. The Health Insurance Porta- bility and Accountability Act (HIPAA) and the Newborns’
and Mothers’ Health Protection Act are both significant pieces of legislation, addressing health care concerns among the nation’s citizens and official organizations, such as the APHA. HIPAA reassured people that they would not lose health care coverage if they changed jobs. In addition, for a while in the United States, insurance for labor and delivery hospitalization covered only 24 or fewer hours after birth.
Infants and mothers were being sent home in unstable post- delivery conditions. Newborns would go home when younger than 1 day of age, in some cases so soon after birth that body temperature was not stabilized and the ability to suck and take breast milk or formula was not established. The New- borns’ and Mothers’ Health Protection Act eliminated these
“drive through deliveries,” ensuring that mothers and new- borns would have the right to remain in the acute care setting for at least 48 hours, covered by their insurance plan (see Landmark Health Care Legislation).
In response to concerns from managed care clients, recommendations from the Advisory Commission on Con- sumer Protection and Quality (1998) stipulated that health plans should subscribe to The Patient’s Bill of Rights:
◆ Information disclosure: This is the right to accurate and easily understood information about the health plan, health care professionals, and facilities. This includes information in the patient’s primary language.
◆ Choice of providers and plans: This is the right to a sufficient choice of providers to ensure access to appropriate, quality health care.
◆ Access to emergency services: This is the right to receive timely screening and stabilization emergency services whenever and wherever needed, without prior authorization or financial penalty, under certain circumstances (e.g., severe pain, injury).
◆ Participation in treatment decisions: Patient’s have the right to know treatment options and to participate in care decisions.
◆ Respect and nondiscrimination: This is the right to considerate, respectful, and nondiscriminatory care from providers and others associated with the health care plan.
◆ Confidentiality of health information: Patient’s have a right to talk confidentially with their health care provider and to have health information protected. This also includes the right to review and copy the patient’s own medical records and the ability to request changes when indicated.
◆ Complaints and appeals: This is the right to a fast, fair, and objective review of any complaints against the health plan, providers, or other personnel, including waiting times, hours of operation, 154
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