image by: Ted Eytan
If Obamacare is so wonderful, why is it that its loudest advocates don't want to be subject to it - Ted Cruz
It was March 23, 2010 and the United States became one of the last countries in the developed world to establish a national health plan as President Obama signed into law the Affordable Care Act. Many long time students of health care delivery still doubted if a rational, effective plan could ever work. Joseph Califano, long-time student of health care and former secretary of the department of Health, Education and Welfare, had often been quoted as saying, “You can never have an effective, efficient health care system in this country. There are just too many special interest groups at work.”1
Every president since Theodore Roosevelt had tried to get meaningful health care reform.2 Each had failed for one reason or another. The history of health care reform and the early attempts to establish reform goes back many years before the first President Roosevelt and consisted of local, small scale plans, some of which would develop into regional plans and systems. But nothing on a wide scale developed until many years later.
The first group insurance plan was established by the Pilgrims in colonial New England. It was maintained and managed by Parish members. The plan was funded by members who, upon leaving the church would have the opportunity to put pennies in the Penny Box which was located at the rear of the sanctuary. Pennies would accumulate and be used for whatever medical emergency presented itself to the congregation.
All three key questions of a group health plan were met.
- Who was covered? Everybody.
- What was covered? Everything.
- Who paid? Everyone, risk was shared back into the group.
Administrative costs were essentially nonexistent.
On a small scale this colonial America system illustrates a definition of a national health care system: Risk to any one person is diffused back to the group which funds itself through premiums. The best way for this variety of insurance to work is for everybody to participate and for there to be no “carve outs” where certain people or certain illnesses are excluded from coverage.
Some members of the group may decide they want more benefits than those offered by the plan. They pay more and create what is called a multitiered plan. And here begins the strategic questions for any large plan. How many tiers will there be? What conditions will be covered? Will people with wealth have their own plans, will they fund the basic plan as well as their own.
With these rudimentary concepts group insurance plans were offered by employers beginning in the mid-1800s a way to protect their workers with sick benefits, accident, and unemployment insurance, and medical insurance. Employers, such as Montgomery Ward wanted to protect their work force from being wiped out financially should they lose their ability to work.
Others pursued health benefits for the country at large but only for specific conditions. Dorothea Dix3 tried to get national health plan coverage for the mentally ill. The bill passed congress but was vetoed by President Pierce because he didn’t think the government should get involved with social programs. After the Civil War the federal government established a limited national health system, not just a plan, but a system called the Freedmen’s Bureau which consisted of hospitals and 120 contracted doctors. It cared for the post-war freed slaves from 1865 to 1870 when it was absorbed by Howard University.4
The establishment of Blue Cross of Texas is often credited as being the first modern day group insurance plan to use state of the art, scientific actuarial methods to determine the amount of a group plan premium.
Justin Ford Kimball, a Latin teacher from Mineola Texas, used data from a sickness insurance plan his teacher group had established.5 He determined the premium rate for group health coverage should be 50 cents per person per month. He later confided that he had calculated much less but had trebled the initial rate to give him a cushion were utilization to be excessive. And the utilization was more than had been calculated. Mr. Kimball had come upon what is known by economists as ”Demand Barriers.” Once the barrier of cost is lowered through insurance, demand and utilization goes up. Through some lean years Blue Cross survived and continued to operate their group plan.
In a personal conversation with me, Rogers Coleman, M.D., once President and CEO of Texas Blue Cross told me “The teachers and other employee groups wanted their jobs and assets protected while the doctors wanted to get paid, and the hospitals wanted to get paid for all the new equipment that was being developed for diagnosis and treatment.” It was an age of cost-plus accounting, if an entity came out a little short financially it would just raise their fees. Most boards were made up mostly of doctors with an occasional accountant or lawyer.
Franklin Roosevelt was next to try. He went up against the AMA as he tried to pass his social reforms and welfare legislation and withdrew the health plan provisions for fear his entire package for economic recovery would be jeopardized.6
Harry Truman and his Fair Deal met the same fate. Notable for this attempt was the first use of the term “Socialized Medicine." 7 Mr. Truman did get funding for in-need hospitals, usually rural ones by virtue of the Hill-Burton Act. But there was no mechanism to fund actual care.
“Medicine was cheap, buildings were cheap,treatment was cheap. It was our last chance.” Peter Drucker told this author in a conversation at Claremont University circa 1990. He went on to explain that President Eisenhower, in 1954, had asked him to design a National Health System, with buildings, doctors, and equipment, much like the British Health System. But organized labor, in the form of Walter Reuther and others had exercised their influence and gotten the plan defeated. It seems, Dr. Drucker went on, that the unions wanted to offer their own health plans as incentives to their potential new membership. It was 1954 and the Democrats were in the majority of both houses of the legislature. They voted down the plan and put icing on the cake by making employer funding of premiums tax free.8
More demand for health care dollars followed the enactment of Medicare and Medicaid were entitled, and sophisticated, expensive technology became more and more costly.
The first organized health system in the western world was Germany’s, in 1883, under the rule of Otto von Bismarck. The very last was ours. British health care reform started with a modest National Health Insurance in 1908 and developed into the National Health System in 1948. It was resisted by British conservatives and narrowly passed parliament. Attempts to repeal it persisted for years.
Long waiting, it was time for HMOs to make the scene.
In 1973 President Nixon signed the Keene Act9 which established the framework for the HMO era to begin. It was never meant to resemble a national plan. But it was meant to control costs and enhance access. It provided grants for development of experimental health delivery systems. HMOs had not done well in recruiting patients because the employers simply never invited them to sell their plans. The Keane act required employers with more than 25 employees to offer HMO plans to their employees.
In 1910 the Western Clinic of Tacoma, Washington offered local businesses prepaid health services for about fifty cents per worker per month.10 America Connecticut General insurance company, founded in 1865 merged to start a company called Cigna which evolved into Cigna Ross Loos which is generally considered to be the oldest managed care group in the country. It was an age of innovation and scores of group and HMO insurers experimented with different types of delivery systems. HMOs offered low, if any, out of pocket expenses and fixed premiums with the emphasis on maintenance of health.
But still, there was no national health plan or system that would allow more centralized cost control or monitoring of profiteers or third parties who found ways to divert cash flows. The cost run ups were in full swing. Health Care was costing a lot and there seemed no way to control administrative costs which sometimes edged over 20% for some of the managed care groups, one fifth of every dollar went to shareholders or board members.
The Affordable Care Act11 initiated health care reform by:
- Passing the Patient Bill of Rights that protected consumers from long-standing abuses of the insurance industry like denying coverage or cancelling policies if their insured got sick. They also couldn’t scour patient records for errors in their original applications for purposes of cancelling coverage and denying payment.
- Establishing insurance exchanges where the potentially insured could shop competing plans.
- Mandating an emphasis on evaluation of care, rewarding health maintenance as opposed to sickness care.
- Expansion of Medicaid and using tax credits to insure the poor and disadvantaged.
- Making it illegal to deny coverage for anyone with preexisting conditions.
- Making it illegal to cancel policies if an insured is diagnosed with certain conditions like cancer.
- Eliminating lifetime or annual limits on payouts.
- Tax credits were offered to small businesses to help them offer coverage to employ.
- Preventive care is free to seniors and offered to others with no increase in co-pays or deductibles.
- Mandating procedures aimed at preventing the $2.5 billion dollars in fraudulent Medicare billing.
- Funding $15 billion in preventive care related to smoking and obesity.
- Anyone with a catastrophic, pre-existing condition can be insured by a program administered by the state or the federal government, depending upon the state’s preference .
- Young adults can stay on their parents’ plans till age 26.
- If a state elects to expand its own Medicaid program it can receive matching federal funds.
Are the market places functional? Answer: Improving, after the initial debacle increasing numbers of enrollees are signing up.12 There was a rocky start to the plan, mostly due to technology failing miserably. Consumer satisfaction surveys, toward the beginning of the plan showed about 60% of users rated the performance of the exchanges as poor or unacceptable. Not a good rating. One might observe the plan itself wasn’t on display due to the information technology snafus. But the numbers of insured are increasing.
Are the new coverages attractive to consumers? Was the plan being evaluated and used by consumers? The answer yes. The congressional budget office raised its initial estimates for utilization to 7 million new marketplace enrollees and 8 million in the Medicaid expansion plans.
Is quality of insurance improving, is it making lives easier? The trends seem to say so, 60% of patients using their new plans report better coverage, less co pays.
Are people using their new insurance plans? So it seems. 60% of consumers used plans for care they were unable to get before. This data is from the Commonwealth Fund. Notably, the uninsured percentage dropped from 16% to 11% of the population.
Is healthcare cost moderating? Initiatives to control costs are almost entirely initiated for Medicare patients since that’s where most of the costs in healthcare are. And this part of ACA was implemented last in the overall plan for starting up. None-the-less some of the yardsticks, like hospital readmission rates, are decreasing. And the number of five star Medicare facilities, like getting a gold star from your teacher, has increased 16 to 55%. Rates of cost increases have dropped, overall health care cost are still going up but at a lower rate of 5.7% as opposed to %7.2 per annum in the decade before the ACA.
Overall the general impression, as backed up by reasonably scientific data, is that the AHA is improving quality of care with costs moderating and getting more people insured with sound plans.
Hospitals are actually given cash rewards if they keep care costs under a certain percentile. One of the first trends noted by AHA administrators was the sharp spike in administrative costs to 22.5 percent. One out of every five dollars is for administrative costs. Government programs usually cost about 10 percent to administrate, private plans with stockholders sometimes 20 percent13. These costs were unexpected, especially since the Obama administration had required administrative costs for both private and government entities to be no more than 20%. On balance, some of the high costs are for enrolling the larger numbers of new enrollees.
One goal for the ACA was to reduce the frequency and cost of emergency department care. But it quickly became obvious there weren’t enough primary care doctors and patients would use their local emergency departments as primary care doctors. Primary care appointments take an average of two weeks. Early data suggests that patients with newly acquired Medicaid coverage will contribute to about two million emergency room visits a year.14
After a miserable launch the ACA seems to be benefitting a considerable number of people. Assessment of the ACA’s performance is difficult due to the acrimony surrounding its trip through the legislature and its implementation. A reasonable prediction seems to be the ACA is here to stay and that efforts to repeal it will, vis-a-vi the British system, become less fervent as people get used to the benefits it offers to them.
About the Author:
Senior Correspondent Jones practiced emergency medicine in Southern California for 30 years and now writes for HealthWorldNet.com. He has also published several scientific papers as well as his novel A Murder in West Covina, Chronicle of the Finch-Tregoff case.
Image by: U.S. Department of Commerce
- Califano Jr, Joseph, Inside. NY: Public Affairs, 2004, p. 464.
- Avlon, John, What we in 2012 can learn from Teddy Roosevelt in 1912, CNN.com, August 6, 2012.
- Dorothea Dix
- Freedman's Bureau
- Justin F Kimball
- Zelizer, Julian E, How Medicare Was Made, The New Yorker, February 15, 2015.
- Markel H, 69 years ago, a president pitches his idea for national health care, PBS Newshour, November 19, 2014.
- Devlin, R Eisenhower's health plan shelved in 1954, Reading Eagle, February 8, 2010.E
- Knox-Keene Act 1975
- The Origins of Managed Health Care, jblearning.com
- Affordable Care Act 2010
- Geyman, John P, A Five-Year Assessment of the Affordable Care Act, International Journal of Health Services, April 2015 vol. 45 no. 2 209-225.
- New State-by-State Report: Affordable Care Act Will Have Modest Impact on Demand for Primary Care Doctors and Hospitals, The Commonwealth Fund, February 25, 2015.
- Blumenthal, David MD et Collins, Sara R, Assessing the Affordable Care Act: The Record to Date, The Commonwealth Fund, September 26, 2014.
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