Reforming health care, America has a patchwork health care system and we are stuck with it

July 14, 2017

 

An American doctor making his rounds.

 

The problem is our history and our politics. We have this health care system because of our history, and we can't change it drastically because of our politics. The main part of our health care system is that most of us who have a health care coverage get it through group policies provided as a fringe benefit from our employer. This is an historical accident. In 2015, 49 percent of us who had coverage got it through our employment.

 

In the 1920s, a hospital in Dallas, Texas  started marketing a group health insurance policy to teachers to cover visits to its hospital. It cost the teacher's 50 cents per month. When the Great Depression hit in the 1930s, many hospitals were losing business. Who could afford to go to the hospital when they were selling apples on the street to survive? So hospitals copied the Dallas plan to keep patients coming to the hospital. They called the plan Blue Cross.

 

But it was WWII when the idea became mainstream. During the war wage controls and accompanying price controls were imposed to avoid inflation when the war effort was taking much of what was being produced, leaving consumer goods relatively scarce. Not able to offer wage increases to attract needed workers, employers began offering the Blue Cross model of health insurance as a benefit and the idea took off, especially when the Internal Revenue Service ruled that the benefit was not taxable, thereby making the health care benefit more valuable.

 

So health care coverage as a fringe benefit from employers became the first leg of our health care patchwork.

 

The second leg of the patchwork is Medicare, signed into law by President Lyndon Johnson on July 30, 1965. Medicare provides health care coverage for Americans 65 or older.

 

Medicaid for low income persons is the third leg of our patchwork.

 

Medicaid is a federal- state program. The federal government guarantees matching funds to states for qualifying Medicaid expenditures. States are guaranteed at least $1 in federal funds for every $1 in state spending on the program. With specific eligibility criteria defined by State Medicaid law many low income people were not covered and were essentially left without health care coverage. When they got sick, many of these people went to hospital emergency rooms to get care. Since they couldn't pay their bills, hospitals would pass on the costs in higher charges to paying customers, including those covered by employer provided plans, by Medicare and by Medicaid.

 

The fourth leg of the patchwork is the non-group health insurance market.

 

On the non-group health insurance market, plans were too expensive for most people and often provided minimal coverage.

 

With these four legs of the health care system covered 85 percent of Americans before the Affordable Care Act became law under President Barack Obama. But 15 percent is a lot of people. In 2007 that was 46 million Americans.

 

The Affordable Care Act, commonly known as Obamacare  made major changes to both the third leg, Medicaid,  and to the fourth leg, the non-group health insurance market, and in the process increased the health care coverage rate among Americans substantially. By 2015 the percentage of Americans with health care coverage had risen to 91 percent.

 

Obamacare made several major changes and additions to the 3rd and 4th legs of the patchwork. One was the expansion of Medicaid to cover more low income people. the other was the provision of subsidies based on incomes for the purchase of health care plans offered electronically via health insurance exchanges.

 

Obamacare, required states to expand their Medicaid eligibility to all who had incomes below 133 percent of the official poverty level. For the first few years the federal government was to reimburse states at 100 percent of the  cost of this expansion, gradually reducing its reimbursement to 90 percent. The U.S. Supreme Court struck down the requirement that states must expand Medicaid eligibility, which made it voluntary on the part of each state. As of April 2017, 31 states and the District of Columbia have voluntarily expanded Medicaid and accepted the reimbursement from the federal government.

 

Obamacare made major changes to the non-group health insurance market. It imposed restrictions on health insurance providers as to how they were to offer health insurance and what the policies had to cover. The major restrictions on health insurers are that policies had to be available to people with preexisting conditions at no higher costs than others who were similar but had no preexisting conditions.  And health insurance providers were limited in how much more they could charge older persons for policies relative to younger persons who purchased policies. Health insurance providers could not offer policies that did not meet minimum standards of coverage. Then there was the individual mandate. Everyone was to see to it that they had health care coverage that met minimum standards, or they would  pay a penalty.

 

Finally, to make it all work, there were federal government subsidies based on income for those buying non-group health care policies on the health care exchanges.

 

This whole scheme is very similar to the one Mit Romney got enacted in Massachusetts when he was governor of that state.

 

But here is the thing. Given that we weren't going to dismantle the current U.S. patchwork health care system and start over from scratch, politically impossible to do even if we had wanted to, there weren't many options.

 

And the plans being offered by Congressional Republicans both in the House version and in the Senate version are basically sticking with the patchwork. They just want to cut back on the Medicaid leg of the patchwork to make it cover even less of the poor than it was covering before the Obamacare expansion of the program and to repeal much of what Obamacare did to the the 4th leg, the non-group health insurance market, including weakening the penalty for not having health insurance coverage, and reducing the subsidies for the purchasing policies on the non-group market. The Republican plans t won't change the basic patchwork, it will just recreate bigger holes in that patchwork. Depending on which Republican plan were to be enacted, these could be really big holes, even bigger than before Obamacare.

 

Some critics call the Republican plans Obamacare lite. If they get enacted they will probably become known as Trump Care.

 

Referemces:

 

On the history of American health care

http://www.npr.org/templates/story/story.php?storyId=114045132

 

On health care coverage rates prior to Obamacare

https://www.census.gov/prod/2008pubs/p60-235.pdf

 

On health care coverage rate after Obamacare

http://www.kff.org/other/state-indicator/total-population/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

 

 

 

 

 

 

 

 

 

 

 

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