Band-aid Therapy
Problems with Medicare payments to physicians, rising health-care costs, and the increasing number of Americans without insurance show the need for reforms.
By Jeff Atkinson Published July/August 2006
The United States seems to be adept at alleviating the pain caused by the health-care system—taking just enough action to forestall a system-wide crisis, but not enough to provide long-term solutions. Two recent examples of this are the changes to the Medicare payment structure for physicians and proposed solutions for the growing number of Americans without health insurance.
Congress halts Medicare cuts
At the beginning of the year, Medicare reduced payments to physicians by 4.4 percent, part of a cost-cutting plan that the Medicare trustees said would reduce payments to physicians by approximately 26 percent over six years. The American Medical Association (AMA) and others protested, citing an AMA survey that indicated payment cuts for 2006 would cause 38 percent of physicians to accept fewer new Medicare patients.
In February, Congress passed the Deficit Reduction Act (S. 1932), which delayed implementation of payment reductions and froze payments at the 2005 level, subject to adjustments announced earlier. Medicare carriers were instructed to repay physicians for the fees that were lost in the first month of the year.
AMA President J. Edward Hill, MD, said, “The current payment formula is tied to the ups and downs of the U.S. economy—not the growing health-care needs of America’s seniors. We must build on the momentum and awareness in 2005 to make 2006 the year Congress permanently repeals the broken Medicare physician payment formula.”
Without further action by Congress, Medicare payments to physicians for 2007 will be cut by 4.6 percent.
Uninsureds increase to 45.8 million
The bad news is that the number of people without health insurance in the United States has increased to 45.8 million—15.7 percent of the population and about 800,000 more people than the previous year. The good news is that the number of people with health insurance has increased as well to 245.3 million (84.3 percent of the population). These figures are from 2004, the most recent year for which the U.S. Census Bureau has reported data. The report is available on line at www.census.gov/prod/2005pubs/p60-229.pdf
For many people without health insurance, lack of health insurance is a crisis, but those who do have health insurance may not perceive such a need for major changes in the system. The government has worked on the issue of lack of health insurance through incremental changes, such as making health insurance more easily available for children through the State Children’s Health Insurance Program (SCHIP), which has insured more than 5 million children nationwide.
In addition, the Bush administration backs expansion of Health Savings Accounts (HSAs) by which Americans buy high-deductible insurance polices and place tax-free dollars in accounts to pay for health-care expenses. The deductible for an individual is at least $1,000 per year, and the deductible for a family is at least $2,000 per year. So far, about 3 million people have enrolled in HSAs. People with high incomes are most likely to benefit from and enroll in HSAs.
Although the incremental changes help certain segments of the population, the broader issues of a large number Americans without health insurance and the need for a stable, predictable reimbursement system remain.
Health spending up 7.9 percent
Meanwhile, health-care spending continues to grow faster than the general rate of inflation, although the growth of health-care spending is slower than in earlier years. According to figures released by the Centers for Medicare and Medicaid Services (CMS), national health expenditures rose 7.9 in 2004, which is lower than the 8.2 percent growth in 2003 and the 9.1 percent growth in 2002. (The 2004 figures were released in 2006.)
The 7.9 percent increase in 2004 is more than twice the general rate of inflation (3.3 percent) for the year. When health-care spending outstrips the general rate of inflation, the proportion of gross domestic product (GDP) devoted to health care rises. In 2004, health-care spending reached 16 percent of GDP. By comparison, the average industrialized country devotes about 8.6 percent of its GDP to health care. The CMS expects the proportion of GDP in the U.S. devoted to health care to grow to 20 percent by 2015.
Physicians’ piece of the pie
The total national health spending for 2004 was $1.878 trillion, which is $6,280 per person. Physicians received a slightly larger portion of the health-care spending pie in 2004 with total payment for physician services increasing by 9 percent. Spending for hospitals and for prescription drugs rose by slightly less amounts (8.6 percent and 8.2 percent, respectively).
The rate of increased spending for prescription drugs is down from double-digit increases of a few years ago. Reasons for the slower rate of increases in drug spending include more use of lower price generics, increased availability of over-the-counter (OTC) drugs, including anti-ulcerants and antihistamines, and more mail-order dispensing of drugs. For a comparison of health-care spending between 2000 and 2004, see the chart on page 11.
Conditions for reform
In a book review in Health Affairs, Professor Mark Peterson of UCLA comments, “None of the current policy alternatives seems to offer much hope of success, unless the health care system unravels so dramatically that it clears the political slate.” (Vol. 24, No. 6, Nov./Dec. 2005, p. 1682).
What could dramatically unravel the health-care system? A flu pandemic that wipes out a significant portion of the population and cripples the economy is one possibility. Another could be that enemies of the United States set off a few nuclear devices on U.S. soil. In such circumstances, with many of the country’s institutions crippled, the federal government would need to step in to maintain order and provide essential services, including health care.
Less dramatic, but also possible, would be steady erosion of the U.S. economy in which businesses, in larger numbers than is occurring already, conclude that they can no longer afford to provide health insurance to their workers. If that happens, political pressure from the business community and consumers could result in establishment of universal health care.
Another path to universal coverage (with or without a crisis) could be new leadership in the United States that would effectively convey a message of “We are in this together” and “There are certain essentials that all Americans should have, including health insurance.” Such leadership would move America away from an attitude of “Each person for himself” and more toward a Canadian view that universal health care is, in the words of Roy Romanow, former premier of Saskatchewan, an “expression of social cohesion.”
Models for universal health care
The simplest model for universal coverage would be to expand the Medicare system, dropping the age limit for eligibility, either all at once or gradually. Instead of covering the 42 million of the population over age 65, Medicare would cover all Americans. Increased funding would be required, obviously, either from a higher Medicare tax or from other taxes. However, this would in large part be merely a transfer of private-sector expenditures into the public system.
Another option is to mandate that all employers (or individuals) acquire health insurance and to provide subsidies to poor persons for insurance coverage. Most aspects of the current health-care system, including its administrative inefficiencies, would be maintained.
Alternatively, a system of vouchers for purchasing insurance could be adopted. The private insurance delivery system would still be in place, although there likely would be fewer insurance companies. Payment of the vouchers would come from the government and would be funded from general revenue or perhaps a value-added tax. The value of the vouchers would be risk-adjusted, and patients would have freedom to choose among health plans. For further discussion of different models of health-care reform, see the Nov./Dec. 2005 issue of Health Affairs (Vol. 24, No. 6), on line at www.healthaffairs.org/
Need for long-term solution
In the 1990s, Congress adopted a complex formula to set payments to physicians. The formula applies multiple variables, including the amount of utilization of services and the condition of the economy, as well as the Resource-Based Relative Value Scale. The goal of the formula is to ensure adequate payment to physicians and to promote high quality, efficient health care. For the last several years, the formula has not worked out well, and Congress has stepped in to provide a fix for the coming year, but without altering the underlying formula.
Similarly, some government leaders have lamented the growing number of Americans without health insurance. A solution—or a solution that is better than the current system—will require sustained, focused effort. Less harm will come to the country if solutions can be developed without waiting for a crisis.
Jeff Atkinson teaches courses in health-care law and policy at DePaul University College of Law in Chicago, where he graduated summa cum laude. He writes on legal, medical, and ethical issues.