Why Reform Health Care

Why We Need Health Care Reform

Health care reform was needed to allow millions to afford preventative care. Photo: Joe Raedle / Getty Images

We needed to reform health care because the cost is so high. It was the #1 cost of bankruptcies. It threatened to consume the entire federal budget. It made the cost of preventive care unaffordable. That sent many low-income people to the emergency room, raising costs even higher. High costs made the U.S. health care system cost twice as much per person as any other developed country. As a result, health care contributed $3.2 trillion, or 17.8 percent, to gross domestic product.

That's the highest percentage in the developed world.  

There are three reasons why costs are so high. First, most of the cost comes from treating people in the first ten days and last ten days of life. A lot of progress has been made on medical procedures that can save premature babies and extend the life of seriously ill elders. But those innovative procedures are very expensive. Many other countries limit who can receive that level of care. If there is not much chance it will work, then it is not given. In the United States, care is given even if the prognosis is poor.

The second reason for high health care costs is the rise of malpractice lawsuits. As a result, doctors are more likely to overtest, ordering $1,000 MRIs and $1,500 colonoscopies. They do this even if they don't think they're needed. It protects them from getting sued because they didn't order the test.

A third reason is that there is less price competition than in other industries, such as consumer electronics.

That's because most people don't pay cash for health care. The costs are hidden, because they only pay a set fee (co-pay) and the insurance company pays the rest. As a result, patients don't price-shop for doctors, lab tests, or procedures as they would for computers.

A Quick Review of Health Insurance

Since health care is so expensive, most people get insurance coverage.

That's why most discussions about health care reform center around making insurance more available. Insurance operates by demanding a monthly fee. In return, it guarantees the insurer will pay out if a catastrophe occurs.

Group health insurance companies are profitable when more money is received in premiums than is paid out in claims. Most people in the U.S. receive group health insurance from their employer, who also pays part of the premium. That's because companies can offer health insurance as an untaxed benefit. In a way, Federal tax policies subsidize the employer-provided group insurance system. Those who don't have an employer-sponsored plan must buy individual health insurance. That's expensive. In the past, companies could deny you coverage if you had a pre-existing disease or condition. You could affiliate yourself with a group, such as AARP or COSTCO. They offer lower rates because they have a pool of healthy people.

The Federal government subsidizes health care for those over 65 with Medicare. Part of Medicare, the Part A Hospital Insurance program, pays for itself from payroll taxesMedicare Part B (the Supplementary Medical Insurance program) and Part D (Prescription Drug program) are not 100 percent covered by premium payments.

In total, Medicare payroll taxes and premiums cover only 57% of current benefits. The remaining 43 percent is financed from general revenues. It subsidizes health care for families below a certain income level with Medicaid. It is funded by Federal and State general revenues, so it adds to both Federal and State costs. For more see How Does Health Insurance Work?

Why Reform Health Care?

Health care reform is needed for four reasons. First, health care costs have been skyrocketing. In 2011, the average cost for family of four increased 7.3 percent, to $19,393. That's nearly double the cost just nine years ago. By 2030, payroll taxes will only cover 38 percent of Medicare costs. The rest will contribute to the Federal budget deficit.

Second, health care reform will improve the quality of care.

Most Americans are surprised to find it is the worst in the developed world. Chronic diseases cause 70 percent of all U.S. deaths, and affect 45 percent of all Americans. As the the population ages, the incidence of these diseases will grow rapidly. By 2023, cancer and diabetes will increase 50 percent, while heart disease will rise 40 percent. At the same time, hypertension and lung disease will be up by 30 percent and strokes will occur 25 percent more often. Each year, the cost of treatment totals $1.7 trillion, representing 75 percent of all health care dollars spent. This cost can be lowered through disease prevention and wellness programs.(Source: Partnership to Fight Chronic Disease)

Third, health care reform was needed because 25 percent of Americans had little or no health insurance to cover their costs. Over 101,000 Americans died each year simply because they didn't have insurance. For example, the average emergency room visit was $1,265. If you got cancer, the average cost of chemotherapy was $7,000, but could run as high as $30,000. These costs could wipe out your savings or cause you to lose your home. Even worse, many people would have to forgo treatment because they simply couldn't afford it. Not only is this bad for them, it's also bad for the economy. For example, half of all bankruptcies result from medical costs.

Fourth, health care reform is needed to stem the economic costs of health care fraud. Between 3-10 percent ($60-$200 billion) is lost to fraud each year. If those same percentages are applied to the $436 billion Medicare program, the cost of Medicare fraud is $14 billion to $30 billion.

Recent Health Care Reform in America

In 2010, the Patient Protection and Affordable Care Act became law, and starting phasing in new health care benefits and costs that year. It began extending coverage to those with pre-existing conditions, children, and those who were laid off. It gave subsidies to small businesses, seniors with high prescription drug costs, and funding to ease the shortage of doctors and nurses. The costs are offset by higher payroll taxes and fees to prescription drug companies, and lower payments to hospitals. For more detail, see How Health Care Reform Affects the Budget.

Even before becoming President, Barack Obama campaigned to reform health care. He wanted to make insurance more available to those who couldn't get employer-sponsored insurance.  His "public option" sought to expand a Medicare-like program to anyone who needed it. This would lower the government's cost by including younger, healthier people who paid a modest premium..But concerns about "socialized medicine" led to a state-run health insurance exchange. The ACA prohibits illegal immigrants from receiving government funds to pay for insurance. But it doesn't require people to prove citizenship and it doesn't provide for enforcement.

In 1993, President Bill Clinton launched the Health Security Act under the leadership of First Lady Hillary Clinton. It offered universal health coverage with managed competition between health insurance companies. The government would control the costs of doctor bills and insurance premiums. Health insurance companies would compete to provide the best and lowest cost packages to companies and individuals. This is different from Medicare in which the government contracts directly with doctors, hospitals, and other health providers. Medicare is known as a single-payer system.

Most people would receive insurance from their employers. People without jobs could purchase health insurance on their own from the regional health alliances. The Federal government would subsidize the costs for low-income people. It also had a National Health Board. This new federal agency would set a cap on total health care spending for the nation. That meant it regulated health insurance premiums. For individuals, it set limits on maximum annual out-of-pocket costs. The bill failed for a variety of reasons by 1994.

Impact of Health Care Reform on the Economy

As early as 2011, it appeared the Affordable Care Act was working. As of May, more than 600,000 new young people became insured. That due to the Act's provision that children up to age 26 could be covered by their parents' insurance. That increased profits for the insurance companies. That should translate to lower premiums, since the new insurees pay into the system but require fewer health services.  In fact, health insurance companies reported record profits for the first quarter of 2011.

Second, 46% more small businesses than in 2010 offered health care benefits, according to a Kaiser survey. More insured small business employees fewer bankruptcies, better credit scores and higher consumer demand. This allows them to spend more, boosting economic growth. In fact, there were fewer bankruptcies in August 2011 than the prior year.