PfisterSHCA NORTHCENTRAL UNIVERSITY ASSIGNMENT COVER SHEET

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1 PfisterSHCA NORTHCENTRAL UNIVERSITY ASSIGNMENT COVER SHEET Learner: Steven Pfister Course ID number: HCA5014 Course Title: Health Care Policy Analysis and Development Faculty Mentor: Dr. Earl Greenia Assignment Number: 3 Faculty Use Only <Faculty comments here> <Faculty Name> <Grade Earned> <Writing Score> <Date Graded>

2 PfisterSHCA United States health costs are significantly higher on a per capita basis than other member nations of the Organization for Economic Co-Operation and Development (OECD). A few reasons for the cost disparity between the USA and OECD nations will be discussed. They are: 1. USA has a substantial uninsured population in which health care costs of the uninsured are passed onto the insured. 2. USA has an aging population which causes healthcare costs to increases overall and implies a need for managed healthcare, not less. 3. USA lacks antitrust laws to regulate health care insurance. OECD Government Versus Private per Capita Expenditures Figure 1 demonstrates that public expenditures per capita are slightly higher than the norm. However, private expenditures per capita clearly exceed that of other OECD countries. One reason for the high private expenditures in the United States is a large percentage of the population is uninsured. As of 2012, the US Census bureau identifies nearly 48 million Americans as uninsured ("People without health," 2013). Many of those 48 million will utilize emergency room health care when in need of emergency health services. The costs of emergency hospital visits for the uninsured get passed on to the insured in premiums and deductible costs. Kingsbury (2009) states that a Center for American Progress (CAP) report discovered hospitals charged patients with no insurance full price for medical services the insurance companies were able to negotiate. The report discovered providers often pass along the cost of treating the uninsured to their insured patients (Kingsbury, 2009). That would usually be in a direct fee for services or an attempt to pass onto third party payers.

3 PfisterSHCA Figure 1 ("Oecd.statextracts," n.d.) Another source of hospital losses come from Medicare and Medicaid, which are public payers. In the past, providers would cover losses from Medicare and Medicaid and from uninsured populations by demanding higher payment rates from commercial insurance plans often winning increases of 8% to 10% per year (Porter & Lee, 2013, p. 58). When the uninsured go to the emergency for healthcare, those costs have to be absorbed somewhere. Kelly (2013, p. 16) states: When an uninsured person cannot pay his health care bills, that burden falls on the insured population, hospitals, doctors, and the government, leaving billions of dollars outstanding for uncompensated care. It follows that these uncompensated care costs must be absorbed somewhere and, in the end, the unpaid costs often result in higher insurance premiums.

4 PfisterSHCA The government defines uninsured individuals as persons not covered by the following: private insurance, Medicaid, the Children s Health Insurance Program (CHIP), state sponsored or other governmentsponsored health plans, Medicare, or military plans. Maturing Population Figure 2 is an age population distribution chart for years 2000 and The 2000 population distribution moving average shows a peak in the population age group 40 to 44. Ten years later, the 2010 population distribution moving average shows a peak in the population age group 50 to 54. If the trend continues, the peak population age group will be 60 to 64 in the year Figure 2 ("Age and sex," 2011, p. 4) Since health costs go up with age, see Table 1, the cost of private insurance will continue to increase. The cost of Medicare will increase as a large segment of society moves into the 65 plus age group. Kelly (2013, p. 16) states According to the US Census Bureau, the population

5 PfisterSHCA aged 65 and over is projected to grow 17 percent between 2015 and 2020, far outpacing the overall population growth rate of 3.9 percent. Average Spending Per Person (2009) Age (in years) <5 $2, , , , , or Older 9,744 Table 1 ("Health care costs:" 2012, p. 9) Aging of the population in Europe continues as well. See Figure 3. This trend indicates that per capita expenses in the public sector will need to be brought under control. Rather than rationing health care resources through the HMO approach to cost containment, Hofmarcher, Oxley, and Rusticelli (2007, p. 15) propose health care cost savings can be achieved through a coordinated health care delivery system versus the inefficient silo method currently used in the health care delivery system. Hofmarcher, Oxley, and Rusticelli ( p. 12) state: Health-care delivery has evolved on the basis of a series of separate care settings - -sometimes referred to as silos. These can be institutionally independent and most often operate under different budgetary regimes, particularly where they are under the responsibility of different levels of government. Second, at a clinical level, there has been growing specialization of medical knowledge. Both of these factors

6 PfisterSHCA may make it more difficult for the chronically ill to find their way through the system. Figure 3 ("Population pyramids, eu27, 2008, 2060," 2008) Health Insurance and Antitrust Law A monopoly is defined as: A situation in which a single company or group owns all or nearly all of the market for a given type of product or service. By definition, monopoly is characterized by an absence of competition, which often results in high prices and inferior products ("Monopoly," n.d.). The McCarran-Ferguson Act of 1945 exempts insurance companies from antitrust laws. Kelly (2013, pp ) states: For the Act s exemption to apply, a defendant must prove three elements: (1) the challenged conduct constitutes the business of insurance ; (2) the

7 PfisterSHCA state regulates the business of insurance; and (3) the challenged conduct does not constitute boycott, coercion, or intimidation. By creating insurance mergers, or gaining market share, health care insurance companies are better able to negotiate their price. Less third party payer competition results in less profitability for the providers. Public insurance, such as Medicare and Medicaid, compound profitability losses to health care providers as public insurance also control a large third party payer market share. Figure 4 illustrates the growth of insurance consolidation in the health care market. Why would insurance companies be exempt from anti trust laws? One reason has to do with the nature of risk in the insurance industry. Kelly (2013, p. 22) states: A completely free market characterized by open competition would cause some insurance companies to issues policies at rates that do not cover the actual risk. The consequences might well be the insurance companies failure and inability to pay legitimate claims. Sound public policy, therefore, requires that the government be concerned for the financial integrity of insurance carriers. The nature of health care insurance is one of high-risk as everyone eventually uses it, and an aging population amplifies the costs. Private health insurance may be the biggest differences between the USA and other OECD countries. United States Representative John Conyers, Jr. has introduced H.R. 99: Health Insurance Industry Antitrust Enforcement Act of 2013 to enact antitrust legislation in the healthcare industry (Conyers, 2013). H.R. 99 reads as follows (Conyers, 2013): Health Insurance Industry Antitrust Enforcement Act of 2013 Prohibits the McCarran-Ferguson Act from being construed to permit health

8 PfisterSHCA insurance issuers or issuers of medical malpractice insurance to engage in any form of price fixing, bid rigging, or market allocations in connection with the conduct of the business of providing health insurance coverage or coverage of medical malpractice claims or actions. Amends such Act to provide that nothing in it shall modify, impair, or supersede the operation of any of the antitrust laws with respect to the business of health insurance. Applies prohibitions against using unfair methods of competition to the business of health insurance without regard to whether such business is carried on for profit. Interestingly, H.R. 99 is stated to have a 1 percent chance of passing into law (Conyers, 2013). Conclusion Figure 4 (Kelly, 2013, p. 18)

9 PfisterSHCA Health care costs in the United States are 17.9 percent of the gross domestic product as of 2011 ("Health expenditure, total," 2014). We have seen that health care costs are significantly above OECD countries. There is not a sole source creation for the high costs of private healthcare. The high costs appear to be a multi layered. One could start with the existence of a third part payer system, add multiple heath care fee schedules, no antitrust law enforcement to force free market competition, an aging population, and a large uninsured population to the mix. Would a single payer system reduce costs by eliminating third party payers colluding for profits at the expense of the insured, or would a free market approach to healthcare with antitrust law enforcement be a better approach? This question is political and can be argued either way. The piece meal approach to health care delivery the United States currently should be reformed, but not by political expediency.

10 PfisterSHCA References: Age and sex composition: 2010 census briefs. (2011, May). Retrieved from Conyers. (2013, January 3). H.r. 99: Health insurance industry antitrust enforcement act of Retrieved from Health care costs: A primer. (2012, May). Retrieved from Health expenditure, total (% of gdp). (2014). Retrieved from Hofmarcher, M., Oxley, H., & Rusticelli, E. (2007, December 12). Oecd healthcare working paper no. 30: Improved health system performance through better care coordination. Retrieved from Kelly, A. (2013). The Cost Conundrum: Financing the Business of Health Care Insurance. Journal Of Health Care Finance, 39(4), Retrieved from e97-12e8-4eb4-8dab-5db7cd9f0b97%40sessionmgr112&hid=101 Kingsbury, K. (2009, March 25). Do your premiums help cover the uninsured?. Retrieved from Monopoly. (n.d.). Retrieved from Oecd.statextracts. (n.d.). Retrieved from People without health insurance coverage by selected characteristics: 2011 and (2013). Retrieved from

11 PfisterSHCA Population pyramids, eu27, 2008, (2008). Retrieved from mids,_eu27,_2008,_2060.png&filetimestamp= Porter, M. E., Lee, T. H. (2013). The strategy that will fix health care. Harvard Business Review, 91(10), Retrieved from e97-12e8-4eb4-8dab-5db7cd9f0b97%40sessionmgr112&hid=101 Blog is at: