Health Care Reform

The basics of health care reform

On March 23, 2010, after a year of bitter conflict between Democrats and Republicans (and between liberal and conservative Democrats), President Obama signed health care reform into law with the Patient Protection and Affordable Care Act. The new law will provide health insurance for millions of Americans who now have none. The law will require nearly all Americans to carry insurance—there will be fines for those who don’t—and will forbid insurance companies from denying coverage to people with pre-existing medical conditions.

The Supreme Court has upheld the law

For three days beginning on 3/26/12, the U.S. Supreme Court heard oral arguments on the health care reform law. On 6/28/12, the Court announced its decision. By a 5-4 majority, the Court upheld the law. Chief Justice John Roberts, who sided with the Court’s liberals in this case, wrote the majority decision.

The central and most controversial issue was the legality of the individual mandate: whether or not the law violated the U.S. constitution by requiring that every American purchase health insurance (beginning in 2014). The constitution’s Commerce Clause gives Congress the power to regulate economic activity among the states, but opponents of the law (including the 26 states that took this case to the Supreme Court) said the Commerce Clause doesn’t allow Congress to force individuals to buy a product against their will. Supporters of the law said that requiring everyone to buy insurance is the only way to guarantee that insurance companies have enough funds to cover all Americans. The Roberts decision declared the individual mandate valid—not under the Commerce Clause, but instead by considering the penalty for failing to purchase insurance as a tax.

While the Court let the individual mandate stand, it said part of the law needs to be revised: the part requiring states to cover more people under Medicaid. The law threatens to take current Medicaid funds away from states that refuse to expand this coverage, and the Court said that threat must be removed.

For details on the decision, see CNN.

Why was there a need for change?

• Too many people without insurance. According to the U.S. Census Bureau, about 47 million people in the U.S. had no health insurance in 2009. Medicaid covers some of the poorest Americans, but many workers whose employers don’t offer insurance can’t afford to buy their own. One grim result: a 2009 Harvard study found that more than 44,000 deaths each year are associated with lack of health insurance. (Dr. Andrew Wilper, the study’s lead author, said, “We doctors have many new ways to prevent deaths from hypertension, diabetes, and heart disease — but only if patients can get into our offices and afford their medications.”)

• The need to control runaway costs. The costs of medical care have risen sharply in recent years—faster than wages, and faster than the rate of inflation. Individuals, employers, and the government have all been hit hard. In 2008, spending on health care in the U.S. averaged more than $7,600 per person—nearly twice what’s spent in Europe and Canada. In 2007, 62% of all personal bankruptcies were at least partially caused by medical expenses, and ¾ of those who declared bankruptcy had health insurance.

• The rising costs of prescription drugs. Americans spend more on prescription drugs per person than anyone else in the world. Pharmaceuticals are the fastest-growing part of our health care spending. New drugs are protected by patents for up to 20 years, during which time their manufacturers can set prices as they choose. Drug companies set prices high in order to earn back the costs of research and generate profits. (Critics argue, though, that much of the research that produces new drugs is actually funded by the government.) Even seniors covered by the Medicare prescription drug benefit have to pay some of the costs themselves.

• Mediocre health outcomes. Life expectancy in the U.S. ranks 38th in the world. The infant mortality rate is higher here than in the European Union. (One reason why this might be so: there are huge disparities in the health care received by rich and poor in the U.S. Among low-income Americans, late treatment and lack of access to basic care result in serious health consequences and preventable deaths.) On the positive side, cancer survival rates are higher here than in Europe, and Americans have more access to advanced medical technology.

What changes will the new health care bill bring?

• About 32 million Americans who were previously uninsured will be covered.

• Starting in September, 2010, all new health insurance plans have had to include free preventive care, with no co-pays or deductibles.

• Starting in September, 2010, health insurers have not been allowed to cancel coverage when a patient reaches a lifetime limit, or if the patient gets sick and files claims.

• Since 2011, insurance companies have been required to spend 80-85% of their revenue on medical services for their customers or activities that improve the quality of care. Profits and administrative costs (including salaries and marketing) are limited to the remaining 15-20%.

• Starting in 2014, every American will be required to buy health insurance or risk a $695 fine each year. Some low-income people will be exempt from the requirement; and subsidies will help low- and middle-income citizens buy insurance through state-run insurance exchanges.

• Starting in 2014, insurance companies won’t be allowed to deny coverage to anyone because of a pre-existing condition.

• Starting in 2014, businesses with 50 or more employees will have to provide health insurance. If they don’t, they’ll face penalties for each worker not covered.

• Over the five years following the bill’s passage, the government will spend $11 billion to fund community health centers, in order to expand access to health care to 25 million more people across the country.

• By the president’s Executive Order, no federal funds can be used for abortion, except in cases of rape, incest, or danger to the mother’s health.

• By 2020, the gap in seniors’ prescription drug coverage (the “doughnut hole”: see below) will be closed.

• Medicaid is expected to cover 16 million more Americans

Costs and savings

• The bill will cost $940 billion over ten years.

• The nonpartisan Congressional Budget Office (CBO) estimates that the new law will reduce the deficit by $143 billion over the first ten years, and $1.2 trillion over the next ten. How? By encouraging coordinated care for Medicare and Medicaid patients, especially those with chronic conditions, so that tests aren’t duplicated; by expanding preventive care; and by supporting pilot programs that pay doctors for quality of care rather than individual tests and procedures. Critics contend, however, that the CBO’s estimates are overly optimistic, and that the new law will cost billions more than projected.

• $500 billion will be cut from Medicare spending from 2010-2020.

• The costs will be paid for, in part, through a 40% tax on high-end health insurance plans (“Cadillac” plans), starting in 2018.

Criticisms of the law

• It doesn’t do enough to make health care affordable. Many Americans with insurance can’t afford to go to the doctor, and the new law won’t change that. (A 2009 study in Massachusetts found that 18% of residents had health insurance but couldn’t afford to use it.)

• The tax on high-end plans will result in employers switching to cheaper plans with less generous benefits. In the end, the tax won’t generate as much revenue as projected, and many people will have worse insurance than they had before.

• Conservatives feel that requiring everyone to buy insurance is a violation of individual liberty.

Why the bill requires Americans to buy health insurance

Without this mandate, many people would put off buying insurance until they got sick. With fewer healthy people in the insurance pool, premiums would be higher—but requiring everyone to be covered spreads the risk more widely, making it possible for insurers to reduce premiums and to cover patients with preexisting medical conditions.

Updates

• For a progress report on the new law’s implementation, see “The Health of Reform,” a N.Y. Times chart, 9/23/10.

• 12/13/10: A federal judge in Virginia ruled that the most controversial part of the new health care bill—the requirement that all citizens buy health insurance—is unconstitutional. The Obama administration is expected to appeal, and observers anticipate that the case will be decided in the Supreme Court. The Virginia judge, a Republican appointed by George W. Bush, has allowed the mandate to go forward until higher courts make a final decision. Earlier in the year, two other federal district judges (both Democrats) had ruled that the mandate was permissible. For details, see this Los Angeles Times story.

• 1/19/11: The new Republican majority in the House of Representatives has passed a bill to repeal the health care law of 2010. The Senate, however, is still controlled by Democrats, who promised that the bill will not pass there. Anticipating defeat of the repeal effort, Republican leaders said they will follow up with proposals to change key parts of the law—for example, the requirement that individuals buy insurance. For details, see MSNBC.

• 2/1/11: A second federal judge has ruled the health care law unconstitutional because of the individual mandate—but this judge, in Florida, wrote that the entire law must be struck down. The conflict of judicial opinion is expected to be resolved, eventually, in the Supreme Court.

• 2/2/11: The Senate’s Democrats rejected the House bill to repeal the health care law.

• Jacob S. Hacker and Carl DeTorres, “The Health of Reform,” an op-ed chart, New York Times, 2/17/11: evaluates the progress that has been made so far in implementing the new law. Are milestones being met? Are elected officials, insurers, and employers cooperating? Are the new regulations providing more Americans with health coverage, and controlling costs?

• 11/14/11: The Supreme Court has agreed to hear an appeal from a lower court’s decision that ruled the government overstepped its power by requiring all Americans to purchase health insurance. The court will hear oral arguments by March, 2012, and release its decision in June—during the next presidential election campaign. For details on the challenges to the law, and what issues the court will decide, see the New York Times.

A bit of history

President Franklin D. Roosevelt wanted to include a national health insurance program in Social Security in 1935. President Truman called for universal health care in 1949, but ran into strong opposition.

A bill President Nixon introduced in 1974 required employers to provide health insurance for their workers, and created a federal health plan with a sliding scale of premiums, but the bill never made it through Congress. (Ted Kennedy, who favored a single-payer plan, later said that the biggest mistake of his political career was not supporting Nixon’s plan to achieve universal coverage.)

In 1993, President Clinton appointed his wife, Hillary, to head a task force and draft legislation that would give all Americans health insurance. The resulting plan required employers to provide insurance and to pay 80% of the premiums. Conservatives and the insurance industry fiercely opposed the plan. A widely-broadcast TV ad produced and paid for by the Health Insurance Association of America attempted to turn public opinion against the plan; the ad featured a fictitious American couple named Harry and Louise, who lamented the changes in their insurance.

No one dared touch the issue again until the 2008 presidential campaign, when Democratic primary candidate John Edwards made universal health coverage a cornerstone of his campaign. His opponents, Barack Obama and Hillary Clinton, then proposed their own plans.

Once in office, Obama made health care reform his priority. According to Jonathan Alter’s book, The Promise, Obama asked himself on election night what single achievement would most help average Americans, and his answer was health care reform. Obama wanted to offer a public option—a government-run, subsidized insurance plan with affordable premiums to serve low-income citizens who couldn’t afford private insurance—but he was willing to sacrifice it in order to win passage of the bill.

Why is health care so expensive in the U.S.?

Analysts point to a few important factors:

• Insurance companies are profit-making businesses. Between 12 and 20% of their spending is on overhead and profit: costs that become part of the total cost of medicine. Advocates of a single-payer system (in which medical care is still provided by private doctors and hospitals, but a single agency organizes payment of health bills) point out that this system would automatically eliminate many of these costs. Opponents of the single-payer system argue that it also eliminates competition, deprives patients of the right to choose the insurance that best suits their needs, and would create a host of new problems.

• Widespread use of expensive equipment and procedures such as CT scans, MRIs, and implanted defibrillators adds significantly to our health bills. Some expensive treatments are no more effective than cheaper alternatives, but doctors continue to use them, partly because they generate higher fees and partly because patients want to take advantage of the latest technology.

• Many doctors practice “defensive medicine”: ordering more tests than are strictly necessary, to defend themselves if sued for malpractice. Reformers recommend changing the law to limit the amount that can be awarded to victims of malpractice; this would bring down the cost of malpractice insurance, which in turn would bring down the fees doctors charge.

• Because most doctors are paid for each test or procedure they perform, there’s a financial incentive to do more than is necessary. Health care reformers say that switching to a system in which doctors are paid per patient, rather than per service—with a bonus for good outcomes—would help bring down costs without sacrificing quality of care.

There’s another way to look at our inflated spending, however. N.Y. Times economics writer David Leonhardt points out that the U.S. has become the medical research laboratory for the world. Our dollars have bought us new treatments for all sorts of medical problems. Rather than a wasteful drag on the economy, he calls our medical spending “an investment in the most important thing of all: our well-being.”

Democrats vs. Republicans on health care

Whether they’re voters or elected officials, Democrats and Republicans tend to disagree on both the details and the philosophical basics of health care reform. Most Democrats believe the system hasn’t worked as well as it should, and that all Americans should have access to health care. Most Republicans oppose further government involvement in a field they think belongs in the hands of private enterprise. (Republicans in both the Senate and the House of Representatives voted against the health care bill unanimously.) Republicans see the new requirement that all Americans carry health insurance as a violation of individual liberty, while most Democrats accept it as a necessary step if we want to provide health care to the millions of uninsured Americans—because, without the requirement, many young and healthy people would go without insurance, leaving fewer people to share the costs through their premiums.

The public option we already have

Although the new legislation doesn’t include a public option, the government already provides health insurance or medical care to about 100 million Americans through Medicaid, Medicare, the Children’s Health Insurance Program, and benefits for military families and veterans.

How does our system compare with those in Europe?

Although the U.S. spends more per person on medical care than any other country in the U.N., most studies rank our country’s health care below that of other industrialized nations. In most of Europe, virtually every citizen has health insurance. The health systems in these countries have their share of problems—see this article from USA Today and this one from Bloomberg Businessweek—but access to care isn’t one of them.

Health care programs and terms to know

Medicaid: a program jointly funded by the federal and state governments, providing health insurance to low-income Americans and people with certain disabilities.

Medicare: a federal program that provides health insurance to people 65 and over.

Children’s Health Insurance Program (CHIP): Created in 1997 and originally known as the State Children’s Health Insurance Program, or SCHIP, this federal program provides matching funds to states to help insure children in low-income families who don’t qualify for Medicaid.

the doughnut hole: the gap in Medicare coverage for senior citizens’ prescription drugs. Under Medicare, seniors pay only 25% of their drug costs, but once the costs total $2,830, the seniors must pay the entire price of their prescriptions out of pocket until they’ve paid $4,550—at which time Medicare kicks in again and covers 95% of the bills. The problem is, once they reach the doughnut hole, low-income seniors sometimes skip days of taking medication or stop filling their prescriptions.

Underlying the debate

Beneath the policy specifics, a few basic questions lie at the heart of the disagreement over reforming health care:

• Is there a fundamental right to health care?

• Since our society can’t afford to spend infinitely on health care, how will we decide how to limit the services we provide?

• How big a role should the federal government play in the health care system?

Opinions

Bill Keller, “Five Obamacare Myths,” N.Y. Times, 7/16/12: defends the health care law against the most common Republican criticisms.

Barack Obama, “Why We Need Health Care Reform,” N.Y. Times, August 15, 2009

Jeffrey S. Flier, “Health ‘Reform’ Gets a Failing Grade,” Wall Street Journal, November 19, 2009. (The author is the dean of Harvard Medical School.)

Jane Hamsher, “18 Myths About Health Care Reform Bill Revealed,” aolnews.com, March 19, 2010. (A critique of the bill’s shortcomings.)

David Brooks, “Buckle Up For Round 2,” New York Times, 1/7/11: explains various threats to the new health care law (including court challenges, faulty cost projections, and the public’s hostility) and outlines positions Democrats and Republicans may take as the battle unfolds.

Laurence H. Tribe, “On Health Care, Justice Will Prevail,” New York Times, 2/8/11: based on Supreme Court decisions since the New Deal, this op-ed predicts that the Court will uphold the health care law. “Only a crude prediction that justices will vote based on politics rather than principle would lead anybody to imagine that Chief Justice John Roberts or Justice Samuel Alito would agree with the judges in Florida and Virginia who have ruled against the health law.”

Einer Elhauge, “The Broccoli Test,” New York Times, 11/16/11: argues that requiring all Americans to buy health insurance is constitutional, and explains why.

Should health care be considered a right?

For opinions on both sides, go to ProCon.org

To learn more…

Wikipedia

Newsbatch.com

For answers to common questions about the new law: PBS NewsHour

For more details about what’s in the bill: CBS News

For a short history of the political battle over the bill: N.Y. Times

About how the law will affect you: CNN

For an overview of inequalities in health care in the U.S.: the National Healthcare Disparities Report, from the U.S. Department of Health & Human Services

Why prescription drugs cost so much: Kaiseredu.org

Books

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Last updated 7/16/12

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