Let's Put The Power Back In Patient's Hands

Health Care Crisis

The American healthcare system has been mired in political controversy. The passing of the Affordable Care Act in 2010 had laid the foundation of the present healthcare system. The present system is very much complex with many irregularities. 

The US stands out as an outlier among developed nations when it comes to the quality of healthcare. The country has no universal healthcare systems that offer equal access to affordable medical care.  The major problems with this system include high costs and lack of even access to affordable healthcare services. 

While the country spends far more on health than most developed countries, the outcome is less than satisfactory. There is a need to improve the American healthcare system to ensure that everyone has access to affordable healthcare. 

In this white paper, we will explain the present healthcare system in the US. You will also learn about some of the irregularities with the existing system. The paper will also bring to light the efforts of the current administration in improving the healthcare system. 

The healthcare system in the US differs from systems in other developed countries such as the UK where a government body regulates the industry. The American healthcare system is run by dozens of individual public and private organizations. 


Healthcare expenses in the country are covered through private and public health insurance. There is no universal healthcare coverage as is provided in most of the developed countries.1 
The Patient Protection and Affordable Care Act passed in 2010 laid the structure for the present healthcare system in the U.S. The majority of people in the US under the age of 65 are covered through private health insurance. 2 This is because employers are able to get insurance at a lower rate since a large number of people are covered by the policy. 


Medicare and Medicaid are the two important components of the American healthcare system. They are federal sponsored programs that have been designed to reduce the healthcare cost burden for American citizens. 
 

 

Medicare

Medicare is a government program designed for senior people over the age of 65 and for younger individuals with certain disabilities. Income level is irrelevant for eligibility of the program. 


To become eligible, individuals must have been enrolled in a Medicare program for at least 10 years. 

The federal Medicare program provides coverage for hospitalization and medical treatment costs. Supplemental Medicare coverage – known as Medicare Advantage - is also provided by private insurance companies. 

There are four different parts of the Medicare system.  

-Part A will cover hospital stays, skilled nursing facility stays, home health visits, and hospice care.  This does require a coinsurance for extended stays in hospitals.

 

-Part B covers doctor visits, outpatient services, preventative services, and some home health visits.  There is usually coinsurance of 20 percent, but there is no charge for annual doctors’ visits.

 

-Part C is the Medicare Advantage program.  Beneficiaries can enroll in private services and still have access to all covered Part A and Part B benefits.  Currently, 34% of all Medicare beneficiaries are enrolled in Medicare Advantage.

 

-Part D covers prescription drugs and is completely voluntary.  Part D helps pay for drug costs and can provide additional financial assistance if you are low income. Enrollment in Part D is also through private health insurance services.

Medicaid

Medicaid is another federal healthcare plan that is targeted to low-income families. The plan provides coverage for medical and custodial care costs. As per the provisions of the Affordable Care Act, individuals with income levels at or below 133% of the federal poverty level (FPL) are covered by the program. However, some states use a different percentage limit for the program. About 26 states have specified income limits at or below 138% of the FPL for eligibility of the program.


In most states, individuals should have only a couple of hundred thousand dollars in liquid assets to become eligible for the healthcare program. 


An important point to note is that senior individuals can be eligible for both Medicare and Medicaid plans. They will receive low-income benefits of Medicaid as well as Medicare benefits for senior individuals. 
Medicaid benefits differ in each state. But the federal government has made the following benefits mandatory in the plan. 


⦁    Laboratory services
⦁    X-ray costs
⦁    Hospitalization expenses
⦁    Doctor services
⦁    Nursing services
⦁    Family planning
⦁    Home healthcare for senior individuals
⦁    Clinic treatment
⦁    Midwife services
⦁    Pediatric services

Each state also offers additional benefits to Medicaid patients. Some of the additional benefits include optometrist services, drug coverage, medical transportation, eyeglasses, prosthetic devices, dental services, and prosthetic devices. 


The government-sponsored healthcare programs account for about 25 percent of the total federal budget. The programs are funded through payroll taxes including Social Security and Medicare taxes. In some states, hospitals are taxed to fund health assistance programs.

 
Medicaid is a medical assistance program with no premium or fees. On the other hand, the Medicare healthcare plan operates similar to an insurance plan. Individuals have to pay monthly premiums or fees to become eligible for the programs. 

 

 

Prescription Drugs

One of the pressing issues with the American HealthCare System is high cost and access to prescription drugs. 


Out-of-pocket expenses for prescription drugs in the US have increased by 9 percent annually.3

Americans spend nearly double on prescription costs as compared to other high-income nations.4 The cost of drugs comprises about 17 percent of overall spending on health care services in the US. 
Costs of prescription drugs have increased in the US since there are no federal or state bodies to regulate the prices. Drug manufacturers can increase prices whenever they want. The price increase doesn’t necessarily reflect a change or improvement in the drug. The increase in drug prices affects the insured as well as uninsured Americans. 


Certain drug manufacturers have ‘monopoly’ right over prescription drugs. The patent system gives US drug manufacturers exclusive right to manufacture the drug for up to 20 years. Government-sponsored protection prevents competition in the market resulting in exorbitant drug prices for the consumers. 
Federal Drug Authority (FDA) is also to be blamed for high prescription costs borne by the consumers. The approval process can take about 3 to 4 four years. This can increase total R&D costs associated with the drug resulting in high prices. 


In the US, there is no concept of negotiating drug prices with drug manufacturers. In many other developed countries, the government meets with drug manufacturing companies to negotiate prices of new drugs. The government agencies decide whether the new drugs introduced in the market represent a significant improvement over the existing ones. This system prevents manufacturers from charging exorbitant prices for new medications.  


Increasing drug costs is a concern for patients, policymakers, payers, and prescribers. Consumers are not able to afford lifesaving medications. The high cost of prescription medications also results in higher insurance premiums. Health care policymakers find it difficult to achieve the goal of affordable health care with high prescription costs. 
 

The Rise in Prescription Costs – An Overview

Prescription drug prices have increased significantly in the US. A research study published in the JAMA medical journal found that the per capita spending on drugs was nearly $858 as compared to the average of $400 in developed industrialized countries.5


Drug prices in the US are increasing every year resulting in an unsustainable increase in health care costs. The price of brand prescription drugs nearly doubled between the years 2008 and 2016. While the generic prescription drug prices have been on a decline, the price of branded drugs has increased steeply from the base of $100 in 2008 to over $300 in 2016. 
 

Over the past 10 years, new prices of brand drugs have increased significantly. Retail prices of many drugs have increased by over 15 percent or 130 times the inflation rate.6 Oral anti-cancer drug prices were six times more expensive when adjusted to inflation as compared to drug prices in 2010. 


Prescription drug expenditure in the US has increased steadily over the years. The drug spending in 2005 was 205.3 billion. The spending had increased to $253.1 billion in 2010 and $333.4 billion in 2017. In 2019, the total spending on prescription drugs in the US is estimated to be around $360.6 billion. This shows that drug spending in the country has increased by nearly 50 percent over the past 15 years. 


Medicare, enacted along with Medicaid in 1965, is 50 years old. The program, which provides health care services to seniors and some disabled, has successfully provided its enrollees core hospital and physicians’ coverage and a strong measure of financial security. However, fiscal and demographic problems that are inherent in its outdated structure threaten seniors’ future access to quality care and impose massive burdens on taxpayers.


Nothing is inevitable, but Congress will need to tackle these issues head-on if Medicare is to endure for another 50 years. Congress should look to the successful competitive models in Medicare to move toward a future that will ensure security for seniors while also protecting taxpayers.


Total Medicare spending will jump from $613 billion in 2014 to more than $1.2 trillion by 2024.  As a share of the general economy, Medicare spending will increase from 3.5 percent of GDP in 2015 to 6.3 percent by 2040.  Today, seniors’ premiums account for just 13 percent of total Medicare funding. By 2040, seniors’ premiums will increase to 17 percent of total funding, with taxpayers funding 22 percent of the cost out of their payroll taxes and almost 61 percent out of general revenues.

Based on their most recent 75-year projection, the staff at the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) estimates that Medicare’s stunning unfunded liability—the dollar value of promised benefits that are not paid for—is at $48.79 trillion according to Truth in Accounting. 


Since 1966, Congress has tried to slow Medicare costs by cutting payments to doctors and hospitals. In the 1980s, Congress created complex administrative payment formulas combined with payment caps and price controls. The results were predictable: cost shifting, underpayment and overpayment for medical services, and levels of complexity that undercut the program’s efficiency. In his 2003 Senate testimony, former Medicare Administrator Thomas Scully summarized his agency’s work: “[M]y agency fundamentally spends most of its time trying to figure out what the right price is to fix for family physicians in Anchorage or hospitals in Portland.” Scully also agreed that Medicare pricing was inflexible, unable to foster innovation or reward performance, and characterized by huge geographical disparities in payments for the same services.


With the Affordable Care Act (ACA), Congress enacted massive payment cuts and authorized new “value-based” payment systems to secure quality of care. Policymakers expect their cuts to continue Medicare’s recently slower spending growth and hope that their “delivery reforms” will have better results than previous experiments in achieving programmatic savings. 


Medicare annually pays more than 1 billion claims.  In 2014, the Government Accountability Office (GAO) reported that Medicare’s “improper” payments—incorrect or erroneous payments—amounted to $60 billion. Former U.S. Attorney General Eric Holder indicated in 2012 that Medicare fraud alone ranged between $60 billion and $90 billion annually. 


Federal authorities have been auditing, investigating, and prosecuting Medicare fraud for years while also trying mightily to stop wasteful Medicare spending. The problem is seemingly intractable, partly because of Medicare’s sheer size and complexity, as GAO officials have stated repeatedly. 

 


Demographic Problems

Flooding Baby Boomer retirement. The 77 million Baby Boomers—those born between 1946 and 1964 after the conclusion of World War II—are nearing retirement age. This will result in a significant jump in Medicare enrollment. The Congressional Budget Office (CBO) projects that the number of Americans aged 65 and older will increase by 76 percent by 2040. 


In 1965, when Medicare was created, the average American life span was a little over 70 years of age, but in 2030, it is projected to reach almost 81 years.  In 1965, there were four workers for every retiree.  Today, there are roughly three workers for each Medicare beneficiary, and by 2030, that will decline to 2.3 workers for each beneficiary.  Americans are living longer and longer in retirement but are supported by fewer and fewer working taxpayers.

Structural Problems

Metastasizing bureaucracy. Over the past 50 years, the Medicare bureaucracy has generated tens of thousands of pages of rules, regulations, and guidelines governing virtually every aspect of health care financing and delivery. Medical professionals have had to comply with increasing regulatory requirements and paperwork, thereby incurring higher administrative costs. By the 1990s, the Medicare bureaucracy incurred intense hostility among medical professionals, so the Bush Administration changed the name of the Health Care Financing Administration (HCFA) to the Centers for Medicare and Medicaid Services (CMS), a more consumer-friendly name. But the agency retained its wide-ranging regulatory power. Enactment of the ACA further expanded CMS’s regulatory reach, particularly with new physician and hospital reporting and compliance requirements.


Gaps in coverage.

After 50 years, traditional Medicare still does not provide protection from the financial devastation of catastrophic illness. Historically, Medicare’s adoption of medical treatments and new technologies has been sluggish; prescription drugs, for example, were not covered until 2003.  Medicare claims rejections have also been generally higher than rejections by private insurance. Not surprisingly, 86 percent of beneficiaries enroll in supplemental insurance, which also routinely provides “first dollar” coverage of medical services.  This “double coverage” arrangement, however, stimulates excessive utilization and sharply increases Medicare costs for seniors and taxpayers alike.

 

Uncertain access. 

The ACA imposes new layers of heavy regulation. Today, 83.7 percent of “office-based” physicians accept new Medicare patients.  For Medicare Part B, doctors’ responses to Medicare payment, and the ACA regulatory regime will affect seniors’ access to care. For Part A, the health law’s huge payment reductions will compromise that access. According to the 2015 Medicare Trustees report, “By 2040, simulations suggest that approximately half of the hospitals, 70 percent of skilled nursing facilities, and 90 percent of home health agencies would have negative total facility margins, raising the possibility of access and quality of care issues for Medicare beneficiaries.

Restricting personal freedom. 

Medicare’s original language forbids federal officials from supervising or controlling a medical practice in any way.  In 1997, however, Congress restricted the ability of doctors and patients to contract privately outside of Medicare for Medicare-covered services, even though no Medicare claims would be submitted for reimbursement. The law says that a Medicare patient can contract privately with a physician only if the doctor signs an affidavit to that effect, submits that affidavit to the Secretary of Health and Human Services, and refrains from billing Medicare for the treatment of any other Medicare patient for two full years.  As Mark Pauly, professor of economics at the University of Pennsylvania, observes, “In contrast to people with private insurance, people on Medicare cannot pay with their own money for something that is more medically valuable to them than it is to the Medicare bureaucracy.”


 

Looking Ahead

While traditional Medicare Parts A and B are the fountainheads of Medicare’s recurrent problems, Medicare Parts C and D, which are based on competition, hold the solutions. With modernized funding of health plans and drugs, “Competitive Medicare” shows the potential of defined contribution financing to secure a comprehensive array of services at competitive pricing with high rates of patient satisfaction. What is important about Medicare Parts C and D is that they are private management of a government program. The popularity of Parts C and D have grown over that past few years. 


Congress can build on the best features of these programs and create a modern defined contribution (“premium support”) system for the entire program. Not only can Congress uses these tools to produce a better Medicare and Medicaid program, but transfer the management concept to any future health care insurance program that survives the replacement of ACA.  Such reforms need to reduce bureaucracy, eliminate centralized administrative payment, control costs through intense competition on a level playing field, ensure catastrophic protection and broader benefit options, and stimulate innovation and clinical advances in care delivery. Real reform would thus secure genuine value for Medicare dollars. 

Americans have a world-class health care system with access to the latest medical innovation. But the system is also plagued by exorbitant prices. The high prescription costs make it difficult for people to afford life-saving drugs. 

 

Solving the cost-related issues of the American health system requires some radical changes in health care policies. It is recommended that policymakers should find out the value of a drug-using cost-benefit analysis and other measures to assess whether the high prices justify the benefits. Moreover, there is a need for data analysis to keep an eye on the action of drug manufacturers. The recommended changes mentioned in the white paper can help ensure that patients and health care agencies aren’t charged exorbitant prices for life-changing medications.

 

Solutions

President Donald Trump says he wants health reform that will be better than Obamacare, better than what we had before Obamacare, and better than the Democrats’ Medicare for All. And he’s not alone. Numerous surveys show that health reform remains a top priority for Americans, who are concerned about high costs, access, and choice.

To address these problems, health reforms should focus on making it as easy as possible for people to access innovations such as:


⦁    Personal and Portable Health Insurance

In an ideal world, most people would own their own health insurance and take it with them as they traveled from job to job and in and out of the labor market. Some employers may have better insurance than is available on the open market. But others might prefer to make a cash contribution to help employees pay their own premiums rather than provide insurance directly.

 

Congressional action should codify what the administration has already done and expanded the reform in several ways. States need broad authority to authorize insurance products that meet their residents’ needs, rather than meeting Obamacare’s expensive mandates. Congress also needs to give states the freedom to make reforms that would lower costs and expand access to care.

⦁    Round-the-Clock Medical Care

Concierge doctors used to be available only to the rich. Today, “direct primary care” is far more affordable. Atlas MD in Wichita, for example, provides all primary care along with 24/7 phone and email access and generic drugs for less than what Medicaid pays. They help patients gain access to specialist care and diagnostic tests, with minimal waiting. The cost: $50 a month for a middle-aged adult and $10 a month for a child.

There are 790 direct-primary-care practices like Atlas in the United States. Typically, they provide round-the-clock access to a physician via phone, email, and Skype. These practices have a number of attractive features — and an excellent track record: They expand access to care, improve the quality of care, reduce overall health-care spending, and report high levels of patient satisfaction.

⦁    Access to Telemedicine

The ability to deliver medical care remotely is growing by leaps and bounds. It promises to lower medical costs, increase quality, and reduce the time and travel cost of patient care. 

 

The problem? Medicare doesn’t pay for any of this. And since private insurers and employers tend to pay the way Medicare pays, the entire country is missing out on incredible advances in telemedical technology.

 

The CMS is acting aggressively to change this.  Doctors in Medicare Advantage plans and accountable-care organizations can now bill Medicare if they use the phone, email, Skype, and other technologies to consult with patients remotely to determine if they need an in-office visit. Patients can be anywhere, including their own homes. Doctors can also bill Medicare to review and analyze medical images patients send them. And they can bill for telemedical consultations with other doctors.

 

But these are still baby steps. Congress needs to liberate telemedicine once and for all.

⦁    Access to Centers of Excellence

On the Obamacare exchanges, there has been a race to the bottom as health plans try to attract the healthy and avoid the sick. Increasingly, enrollees have been denied access to the best doctors and the best facilities. In Dallas, Texas, for example, no individual insurance plan includes Southwestern Medical Center, which may be the best medical research center in the world. In Texas generally, cancer patients with Obamacare insurance don’t have access to MD Anderson Cancer Center in Houston. This pattern is repeated all over the country.

The most successful Obamacare insurers are Medicaid contractors. The plans that have survived in the exchanges look like Medicaid managed care with a high deductible. The networks include only those doctors who will accept Medicaid fees coupled with all the hassle of managed-care bureaucracy.

Obamacare threw out this model in favor of a D.C.-designed solution. The result? Access to care for people with preexisting chronic conditions has seriously deteriorated. That needs to change.

Entities such as Cancer Treatment Centers of America need to be able to enter the individual market, restrict enrollment to patients who have cancer, and receive a premium that covers their expected costs.
 

⦁    Transparency in Drug Price Fixing

Greater transparency in fixing of prices is important to prevent drug makers from charging exorbitant prices. The drug manufacturer companies should notify the drug purchasers months before the planned increase in prices. Moreover, they should inform about the reason for the increase in drug prices.  

 

Increased transparency will make the drug companies accountable for their actions. Consumer watchdog can investigate whether the increase in drug prices is reasonable. This will prevent drug companies from exploiting the system and charging high prices for drugs.

⦁    Track Data on Spending Trends

Policymakers should also keep an eye on drug spending trends. They should gather data about the most prescribed medications. Moreover, they should collect data on the most expensive drugs and drugs and drugs with the highest annual increase in prices. 

 

Statistics on spending trends will help public and private policymakers know about the abusive actions of drug makers. This information will help in creating legislation to prevent high prescription drug costs.

 

⦁    Patient Power

How can we control health-care costs and at the same time improve quality and create greater access to care? Here is one answer: Give patients control over more of their health-care dollars.

 

Roughly 25 million people now manage some of their own health-care dollars through health savings accounts (HSAs), which they own and control. The evidence shows that these patients are conservative shoppers in the medical marketplace — saving money without any deterioration in the quality or access to care. However, the potential for these accounts is much greater.

 

Right now, patients use HSAs primarily to pay small medical bills below their deductibles. But these accounts could and should be used in just about every aspect of medicine, including expensive surgery, chronic illness, custodial care, and emergency-room visits.

⦁    Making Medicines Affordable for Seniors: Reforms to Medicare Payment Practices

The federal government, through Medicare, helps seniors and people with disabilities to access prescription drugs via two programs: Medicare Part D and Medicare Part B. Both programs need reform in order to address policies that provide flawed financial incentives to drug makers and insurance companies that are driving up prescription drug costs.

⦁    Part D Restructuring

There is a broad consensus on the need to reform Medicare prescription drug coverage. Members of both parties agree that the Medicare Part D benefit, which was created in 2003, requires restructuring.

 

Under Medicare Part D, drug prices are set through negotiations between private pharmacy benefit managers and drug manufacturers without government involvement. Competing prescription drug plans sponsor insurance policies that cover drugs and set their premiums. The government subsidizes these premiums at fixed rates. Prescription drug plans compete for seniors’ business based on quality and price. Seniors can choose the plan that provides them the best value, covering the medicines they take at the most affordable prices.

 

There is broad congressional support for restructuring the Part D benefit. Several proposals have emerged. While they differ in detail, they share two important features: They cap the amount that seniors spend annually on prescription drugs, and they shift financing in the catastrophic tier from taxpayers to Part D plans and drug manufacturers.9

For a detailed analysis of these various options, see Tara O’Neill Hayes, “Competing Proposals to Medicare Part D,” American Action Forum, September 23, 2019, https://www.americanactionforum.org/insight/competing-proposals-to-reform-medicare-part-d/ (accessed December 9, 2019). 

This table compares the proposals with current law.

Paid for by Friends of George Flinn 2020

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