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Overview of the U.S. Health Care System
USINFO | 2013-10-23 09:24
The U.S. health care system is the subject of much polarizing debate. At one extreme are those who argue that Americans have the “best health care system in the world”, pointing to the freely available medical technology and state-of-the-art facilities that have becomeso highly symbolic of the system. At the other extreme are those who berate the American system as being fragmented and inefficient, pointing to the fact that America spends more on health care than any other country in the world yet still suffers frommassive uninsurance, uneven quality, and administrative waste.
1. ORGANIZATION OF U.S. HEALTH CARE SYSTEM
As with all other countries, there are both private and public insurers in the U.S. health care system. What is unique about the U.S. system in the world is the dominance of the private element over the public element.
In 2003, 62% of non-elderly Americans received private employer-sponsored insurance, and 5% purchased insurance on the private non group (individual) market. 15% were enrolled in public insurance programs like Medicaid, and 18% were uninsured. Elderly individuals aged 65 or over are almost uniformly enrolled in Medicare.
Public Health Insurance
• Medicare
Basics: Medicare is a federal program that covers individuals aged 65 and over, as well as some disabled individuals.
Administration: Medicare is a single-payer program administered by the government; single-payer refers to the idea that there is only one entity (the government) performing the insurance function of reimbursement.
Financing: Medicare is financed by federal income taxes, a payroll tax shared by employers and employees, and individual enrollee premiums (for parts B and D).
Benefits: Medicare Part A covers hospital services, Medicare Part B covers physician services, and Medicare Part D offers a prescription drug benefit. Medicare Part C refers to Medicare Advantage – HMO’s that administer Medicare benefits.
There are many gaps in Medicare coverage, including incomplete coverage for skilled nursing facilities, incomplete preventive care coverage, and no coverage for dental, hearing, or vision care. Because of this, the vast majority of enrollees obtain supplemental insurance.
Overall, seniors pay about 22% of their income for health care costs despite their Medicare coverage.
• Medicaid
Basics: Medicaid is a program designed for the low-income and disabled. By federal law, states must cover very poor pregnant women, children, elderly, disabled, and parents. Childless adults are not covered, and many poor individuals make too much to qualify for Medicaid.
States have the option of expanding eligibility if they so choose. For example, states can choose to increase income eligibility levels.
Administration: The states and the District of Columbia are responsible for administering the Medicaid program; as such, there are effectively fifty-one different Medicaid programs in the country.
Financing: Medicaid is financed jointly by the states and federal government through taxes. Every dollar that a state spends on Medicaid is matched by the federal government at least 100%. In poorer states, the federal government matches each dollar more than 100%. Overall, the federal government pays for 57% of Medicaid costs.
Benefits: Medicaid offers a fairly comprehensive set of benefits, including prescription drugs. Despite this, many enrollees have difficulty finding providers that accept Medicaid due to its low reimbursement rate.
• Other public systems
S-CHIP: The State Children’s Health Insurance Program (S-CHIP) was designed in 1997 to cover children whose families make too much money to qualify for Medicaid but make too little to purchase private health insurance.
S-CHIP and Medicaid often share similar administrative and financing structures.
VA: The Veteran’s Administration is a federally administered program for veterans of the military. Health care is delivered in government-owned VAhospitals and clinics. The VA is funded by taxpayer dollars and generally offers extremely affordable (if not free) care to veterans.
Private Health Insurance
• Employer-sponsored insurance
Basics: Employer-sponsored insurance represents the main way in which Americans receive health insurance. Employers provide health insurance as part of the benefits package for employees.
Administration: Insurance plans are administered by private companies, both for-profit (e.g. Aetna, Cigna) and non-for-profit (e.g. Blue Cross/Blue Shield).
A special case is represented by companies that are “self-insured” – that is, they pay for all health care costs incurred by employees directly. In this case, the company contracts with a third party to administer the health insurance plan. Self-insured companies tend to be larger companies such as General Motors.
Financing: Employer-sponsored insurance is financed both through employers (who usually pay the majority of the premium) and employees (who pay the remainder of the premium). In 2005, the annual private employer-sponsored insurance premiums averaged $4,024 for single overage and $10,880 for a family of four.
Benefits: Benefits vary widely with the specific health insurance plan. Some plans cover prescription drugs, while others do not. The degree of costsharing (co-pays and deductibles) varies considerably.
• Private non-group (individual market)
Basics: The individual market covers part of the population that is selfemployed or retired. In addition, it covers some people who are unable to obtain insurance through their employer. In contrast to the group market (employment-based insurance), the individual market allows health insurance companies to deny people coverage based on pre-existing conditions.
Administration: The plans are administered by private insurance companies.
Financing: Individuals pay an insurance premium out-of-pocket for coverage.
Risk in the individual market depends only on the health status of the individual, in contrast to the group market, in which risk is spread out among multiple individuals. As such, low-risk, healthy patients will have a low premium, whereas the opposite is true for high-risk, sick patients.
Benefits: Benefits vary widely with the specific health insurance plan.
2. FINANCING OF THE U.S. HEALTH CARE SYSTEM
The financing of health care centers around two streams of money: the collection of money for health care (money going in), and the reimbursement of health service providers for health care (money going out). In the United States, the responsibility for these two functions is shared by private insurance companies as well as the government, both of which are known in policy terms as “payers.” As such, the United States can be thought of as a “multi-payer” system.
• Individuals and businesses
Taxes: Both individuals and businesses pay income taxes to the government. In addition, there is a payroll tax on employers and employees to finance Medicare.
Premiums: Businesses pay all or most of the premium for employer-based insurance for employees, and employees pay the remainder. On the individual market, individuals pay for all premiums out of pocket. Employer-based insurance premiums and individual insurance premiums are collected by private insurers.
Direct or out-of-pocket payments: This is a direct payment to a provider for health care services (e.g. a co-payment).
• Government
Medicare, Medicaid, S-CHIP, and the VA: The government uses money generated from taxes to reimburse providers who take care of patients enrolled in these programs.
Public employees’ premiums: The government also uses tax dollars to pay private insurers a health insurance premium for federal employees and other public employees.
Tax subsidy: There is a tax subsidy of employer-based insurance (not shown in the graph) that represents a major cost to the government (on the order of $100 billion). Employees receive health insurance benefits as tax-free compensation, and employers are able to deduct health insurance benefits as a cost of doing business. Since employers are only taxed on profits, defined as any income above the cost of doing business, being able to deduct health insurance benefits as a cost of doing business is a tax subsidy for employers.
• Private insurers
Private insurers accept premiums from individuals, businesses, and the government. In turn, they reimburse providers for taking care of patients with private insurance.
• Health service providers
Providers (doctors, allied health professionals, hospitals, and other health care facilities) take care of individuals. They are reimbursed for their services by private insurers and the government.
