Part 1: 2010 Lecture on US Health Reform

Each year, OHE sponsors an Annual Lecture that examines an important issue in health care. In late June, Dr Alan Garber spoke on US health care reform. This is the first of two posts that summarises his remarks. It reviews the background for and the intent of the new legislation signed into law in March 2010.

OHE annually sponsors a lecture that examines an important issue in health care. This year’s speaker was Dr Alan Garber, Director both of Stanford University’s Center for Health Policy and its Center for Primary Care and Outcomes Research at the School of Medicine.  His presentation, ‘US Healthcare Reform: Monumental Health System Transformation or Fatally Flawed Compromise?’, is summarised in two blog posts.  The first of these follows.

Attempts at health care reform in the US have a long and varied history.  Before the current legislation, the most important health reform was legislation signed in 1965 that created Medicare, which provided insurance for those 65 years of age and older, and Medicaid, which insured the indigent.  Attempts in the early 1990s to implement universal health insurance failed, with significant political repercussions.  That experience, coming shortly after the repeal of a less ambitious piece of legislation, the Medicare  Catastrophic Coverage Act, discouraged politicians from taking up health reform for many years.

Dr Garber noted that three factors encouraged the Obama Administration and Congress to once again attempt major reform: (1) barriers to access to care for the large uninsured population (46 million in 2008)[1], (2) a perceived ‘value deficit’ as expenditures for care were rising rapidly without evidence of commensurate health improvements and (3) concerns about the impact on the federal budget of rising costs for certain programmes, particularly Medicare.

Support for health reform, however, was soft and attempts to pass legislation were politically risky, Dr Garber noted.  Despite concerns about costs and access, the general public did not place health care reform as high on its list of concerns as it did other matters – specifically, the economy and jobs, the solvency of Medicare and Social Security (the retirement fund), and reducing the budget deficit.  Although most Democrats favoured health reform, opposition from some quarters was very strong; the road to passage of the legislation was rocky, with many surprises appearing along the way.

What the Patient Protection and Affordable Care Act is intended to accomplish

According to the nonpartisan Congressional Budget Office, 32 million of the 36 million non-elderly, legal residents who now are uninsured should become insured over the next ten years[2].  This means that 94% of that population will be insured.

Under the legislation, the federal government will spend $930 billion over ten years.  This includes $358 billion to (1) subsidize the purchase of insurance by Americans at the lower end of the income spectrum, but above the levels required to receive Medicaid and (2) support and oversee ‘insurance exchanges’ to ensure that affordable insurance is available to individuals and small businesses.  $106 billion will be spent on ‘re-insurance’ payments (a form of risk adjustment) to more evenly spread the risk of high-cost plan members across insurers.  SCHIP, a government insurance programme for children, and Medicaid will receive $434 billion. The remaining spending is allocated to a variety of other programmes.

Since Congress strives for budget neutrality in its legislation, it also had to identify areas of savings that could counterbalance these expenditures.  This included a $455 billion reduction in expenditures in government health programmes, $107 billion additional income from fees from manufacturers and insurers, and $210 billion from an increase in the tax on personal income that supports Medicare hospital expenditures.  All in all, the legislation was expected to reduce the federal government’s budget deficit by $124 billion over ten years.

According to Dr Garber, what the expenditures and changes in programmes are meant to achieve is: (1) protection for buyers in health insurance markets, thus increasing access to insurance, (2) changing incentives for the provision of care in both private and government programmes by adjusting payment metrics, (3) emphasizing prevention and primary care and (4) encouraging health care providers — particularly physicians and hospitals – to work more closely together, reducing costs by better integrating care.  The overall objective is more effective, efficient care.

The second post will appear shortly; the full text of Dr Garber’s lecture now is available as part of the OHE Annual Lecture series.

[1] Lack of insurance does not mean that no care is received, as people outside the US often assume.  For example, federal laws and some state laws mandate some care for the uninsured; providers also often provide charity care; nonprofits and state or local governments provide free clinics, and other means of access of are available.  However, access for the uninsured often is not timely or consistent and is restricted. [2] See the CBO Director’s Blog: http://cboblog.cbo.gov/?p=546