Policy Analysis on Health Care, Essay Example
The healthcare industry is the United States is evenly divided between the public and the private health sectors. In the year 2007, healthcare expenditures in the country totaled $ 2.2 trillion, which is equivalent to 16 percent of the gross domestic product. Of this amount, $ 1 trillion was spent in the public sector, while the remaining amount went into the private sector. In both the sectors, there an increasing need for changing due to rising costs of healthcare (Smith 254). The main source of revenue for public healthcare programs comes from tax, while those with private health insurance are funded through their employers, with contributions from both the employer and the employee. Those who are not employed buy health insurance from the private market. Other groups that provide funding for health insurance include churches and non-governmental organizations (Rushefsky 36).
There are two publicly funded healthcare programs in the United States. These are Medicaid and Medicare. Medicaid is a healthcare program that is funded jointly by the federal and state governments to provide healthcare to the economically disadvantaged. The federal government funds Medicare and it serves Americans who are sixty fives year sand old and the disabled. These two programs combined provide medical services to more than 104 million Americans. The Children’s Health Insurance Program is the latest government funded health program that offers health insurance to children whose parents are beyond the provisions of Medicaid, but cannot afford private insurance. There are also additional programs that cater for special groups such as the veterans and Native Americans. Community health centers also provide affordable healthcare to poor Americans (Smith 254).
As of 2008, there were 45 million Americans under Medicare. Out of this number, 38 million were the elderly, while the remaining number was disabled. In 2009, the medicate program cost $ 477 million, which came from taxation, premium contributions and general revenues. Beneficiaries of this program receive health services through public and private health centers. Healthcare providers and physicians receive payment at government-determined rates founded on intricate government-determined fee timetables.
Individual states are free to design their Medicaid programs, but must adhere to federal government regulations. In 2006, 59 million Americans were under Medicaid, with costs projected to reach $ 304 million in 2007 in both federal and state expenditure. Finances for this program are generated from federal, state, and local government revenues. Although beneficiaries of the health program receive treatment at public health institutions, access to private health institution sis limited due to the program’s minimal payment rates. To regulate Medicaid budget, politicians determine the number of people who can benefit from the program (Goldman 43).
A majority of Americans receives their health insurance through the workplace, while other purchase insurance privately on their own. There are several insurance options that Americans can purchase with various financing options. Some of the policies can cover all healthcare costs, but the premiums for these insurance policies are expensive. One of the novel insurance options is the Health Savings Accounts (HSA), which offers Americans a different way of paying for insurance. In this options, American set money for daily medical expenses and buy a high-deductible health insurance plan to cater for major medical expenses. Majority of Americans who purchases HSAs were uninsured before the launch of the insurance plan.
Despite the presence of flexible heath insurance options, many Americans still remain uninsured or underinsure. As of 2007, the number of uninsured Americans stood at 45.7 million. The likelihood of being insure is mainly related to income, if employers provide health insurance or employment status. The uninsured mainly comprise racial minorities, low income Americans and those between the ages of eighteen and twenty-four. According to the census bureau, the uninsured are families with an annual income of $ 25,000 or less or employees of small businesses and their families. Considering that health insurance is related to employment, many Americans change their jobs with health insurance being the main consideration. This implies that there are periods when these groups of American are uninsured. Another group is the underinsured, which is made up of Americans who cannot afford health insurance to cover all their medical needs. This means that they have to seek out of pocket funds to cater for additional medical costs (Hammaker & Tomlinson 165).
The problem of the underinsured and the uninsured led to the passage of the patient protection and affordable healthcare act, which was signed into law by President Barrack Obama. The aim of this legislation was to provide coverage for the uninsured and rectify some unfair components of the American healthcare system such as denial of coverage by health insurers due to pre-existing conditions, and paying insurers for quality instead of quantity. This legislation raised a fierce political storm leading to compromise among political groups, but even after its passage many opponent still criticize this legislation (Hammaker & Tomlinson 165).
It is estimated by the Congressional Budget Office (CBO) that ACA will extend insurance to 33 million Americans by 2022. This group will not have been insured with this legislation. The graph below summarizes the findings.
Through ACA, families who fall below the poverty line (133%), which means making less than $ 29,000 annually for a family of four, will be covered through Medicaid. Additionally, families making 133% to 400% of the poverty line will receive tax credits on a sliding scale to aid them in paying for private insurance. Families making less than 400 percent of the poverty line will have their premiums capped. Therefore, families making between 150 percent and 200 percent will not have to pay more than 6.3 percent of their earning on health insurance premiums. For those making 300% and 400%, they will not be required to pay more than 9.5% of their income on health insurance premiums. Since individual mandate will be phased out, Americans who can afford coverage (insurance not exceeding 8% of their yearly earnings) but choose to forfeit it will be forced to pay 2.5% of their yearly income depending on which is greater.
Other provisions of the act concern small business with less than ten employees, which the average annual wages less than $25,000. These businesses will receive 50% tax credit on their contributions. These tax credits also benefit businesses with 50 employees and annual pay of $ 50,000. These credits are reduced as the business grows and lasts for two years, but it is expected that congress will extent it, which will have the im0lication on increasing the costs of the legislation. The legislation also prohibits insurance companies from discrimination basing on preexisting conditions. They are only allowed to discriminate basing on age, tobacco use, premium rating area, and family composition. From 2018 onwards, the legislation enforces a 35% tax on employers funded health plans that exceed $ 10, 200 for personal and $ 27,500 for family coverage. The aim of this provision is to cap the tax deduction for employer-funded health insurance. Another objective of this scheme is to compel employers to shun expensive insurance policies and insurers to limit the costs of providing health insurance (Goldman 43).
ACA requires insurers to use between 80 and 85% of every contribution medical care instead of advertising or administration. Incase insurance companies overspend; they are required to refund the additional amounts to their customers. Since the legislation is already operational, insurance companies rebated % 1.2 billion in 2012. ACA is expected to consume $ 1 trillion in the next 10 years. The spending cuts that are contained in the legislation, which will benefit Medicare, and tax increases are anticipated to raise or save more than this amount, which will in turn lower the deficit. With time, it is expected that savings will exceed spending. CBO estimates the law will reduce the deficit by a trillion dollars in the next decade. The graph below shows this estimated savings from 2012 t0 2020:
For the last couple of years, health care costs have decreased significantly, which is attributed to the recession. The law will seek to change the way medical care is provided as it accelerates efforts to move away from fee-for-service to payments that are hinged on quality care. This will rely heavily on how healthcare is provided, which has always received minimal attention. The law supports Accountable Care Organizations, penalizing healthcare institutions with high levels of preventable diseases, spreads medical homes, and creates independent board to swiftly execute new reforms through the medical system.
Before the enactment of ACA, health reform had failed and patients had limited access to specialists. From the graph below, it is clear that healthcare related costs grew faster than other elements of the economy. As the law takes effect, healthcare costs are expected to drop from the current $ 3 trillion to $ 1 trillion in the next decade.
One of the areas that this legislation will impact the most is the American economy. From an economic standpoint, lowering the federal deficit to sustainable levels will be a boon to the American economic competitiveness and employment creation. Spending at the current levels will expose the American economy to sovereign debt crisis that will entail imposition of high taxes or government spending cuts that will have long-term adverse consequences for economic growth and employment creation (Rushefsky 36). Reducing the rate of government healthcare sponsored programs such as Medicaid and Medicare will be an important step in managing the American structural deficit. The main disadvantage of ACA is that is creates a new entitlement class of substantially subsidized private insurance, which almost doubles the current size of entitlement programs. This may not be the best approach of lowering the spiraling healthcare costs because it creates new groups of healthcare spending and an increase in demand will exert an upward pressure of the cost of healthcare. Some of the measures adopted by ACA such as Accountable Care Organizations and bundled payment programs are trial programs that may fail or succeed in the long run. The problem with these programs is that they are underpowered, which means that they may undermine the interest groups in the healthcare sector (Hammaker & Tomlinson 165). The top-down planning adopted by the legislation will ignore the various unintended impacts that result when bureaucracies with restricted information try to control the activities of thousands of healthcare providers and healthcare institutions. These institutions have sufficient finances to ensure maximization of profits by engaging in administratively approved programs and activities and shun painful cuts to unfavorable ones.
Even if the legislation is taken at face value, it is insufficient to address the rising costs of entitlement programs. Two months after its enactment into law, CBO noted that the rising costs of healthcare would exert great pressure on the federal budget in the next ten years and beyond. This means that the legislation cannot decrease the pressure on the budget in the long run. There are claims that the legislation will lower the deficits by a small degree in the first decade and by trillion sin the next coming years. The federal government will spend billions of dollars in the coming years on Medicaid, novel subsidies to the low-income earners and middle class who cannot afford health insurance and other entitlement programs commencing in 2014. In the first decade of ACA, the federal government will spent approximately $ 401 billion, while also raising government revenues through taxation and imposition of fees to $ 525 billion, while at the same time, half a trillion dollars will be removed from the private economy and put in healthcare spending. This will lower money available in the private sector that can be directed towards employment creation and funds necessary for future deficit reduction efforts will be lost. The fact that ACA will be lowering the deficit by $ 143 billion may be reassuring, but if only one ignores the transfer of funds from non-healthcare sources to novel healthcare responsibilities (Hammaker & Tomlinson 165).
Additional costs that will be the result of ACA include $ 53 billion on social security payments and $ 70 billion on premium payments for novel and long-term insurance programs, which will be classified as income. The legislation also ignores approximately $ 115 billion in discretionary cost related to it comprising $ 10 to 20 billion direct implementation costs. These costs include between 5 and 10 billion to be used by the IRS in determining eligibility, cost sharing credits, documentation and verification procedures; and between 5 and 10 billion for different government agencies that will be involved in its implementation. There are additional costs that loom over the horizon as the sustainable growth rate (SGR) formula used by Medicare means huge cuts to healthcare providers. In 2011, congress reschedule cuts without giving a long lasting solution, which means that the SGR will have to be resolved, but the fiscal cost will be increasing and is estimated at $ 276 billion in the next decade. CBO also estimates that insurance subsidies costs and Medicaid growth under the new legislation will grow at an annual rate of 8 percent starting from 2019.
Although ACA will be costly in the initial years of implementation, there are gains in the second decade of implementation with costs related to Medicare expenditures being reduced substantially. The problem with this projection is that it assumes congress with accept huge cuts in payments for Medicare providers because doing so will affect the services that beneficiaries of the program receive. A report by Medicare actuaries approximate that Medicare costs will reduce by a third of the current costs of Medicaid in 2019. This means that by 2019, 15 percent of Medicare providers will be unprofitable with potential of unprofitability increasing with time. These spending cuts will be unsustainable in the long term and coupled with the deficit cost of the legislation, it will be expensive in meeting these costs, which means that funding to other government priorities will be affected. Currently, most state budgets are straining and considering that the legislation will bring in addition 16 million Americans into Medicaid, the costs will crowd out spending on other services such as education and infrastructure development.
In the first initial years starting from 2014, the federal government will be responsible for 100% of the entire healthcare costs stipulated by the legislation, which will reduce to 90% in 2019. Despite this enormous responsibility shouldered by the federal government, states will have to shoulder $ 21 billion in Medicaid costs starting from 2-14 to 2019 and additional $ 12 billion in administrative costs. Although this cost are small compared with the $ 443 billion to be shouldered by the federal government, the state budgets of many states are in poor financial states that it cannot afford additional costs; in fact they require to cut spending.
There are currently 11 million uninsured Americans, but when the law takes effect in 2014, many of these individuals who qualify for Medicaid will be forced to enroll, meaning that states will have to shoulder the additional financial responsibility because they will not be covered under the federal matching rate, but will be covered under the pre-PPACA rate, which differs from one states to the other, but has similar provisions (Shi 32).
The implications of ACA will not be felt immediately, but the legislation has some provisions that can adversely affect the cost of healthcare insurance and the decisions of employers whether to hire or not. These provisions include insurance mandates, employer penalties, and taxes. The legislation imposes new requirements such as extending coverage of dependent adult children till they are twenty six years old, removing the lifetime cap on insurance coverage and steadily augmenting and then removing yearly coverage limits, prohibiting insurance companies from not including children with pre-existing conditions contained in child-only coverage and removing cost sharing for preventive services provided for by Medicaid and private insurance plans.
These provisions may encourage higher premiums that must be shouldered by employers, which may result in reduction of ages or job creation. New taxes that will be imposed on pharmaceutical companies, insurance companies and medical technology companies will be ultimately transferred to employers and employees in the form of increased insurance premiums. These costs can also be transferred to consumers in the form of increased prices of medical goods and services. Massachusetts implemented a healthcare reform policy similar to ACA, and it is clear that the cost of health insurance will increase for employers and particularly small businesses. Studies conducted in the area reveal that premiums for employer funded insurance increased in Massachusetts after implementation of the health reform policy (Ketler 6).
ACA also provisions for penalizing employers with more than fifty employees but fail to offer affordable coverage. This provision referred to as “play or pay” not only affect small businesses, but also those with 500 to 20,000 employees. These provisions will impact employment because companies not offering coverage will not be willing to grow beyond the cap in order to avoid penalties, which will in turn lower employment. For example, the $ 2,000 penalty amounts to 15 percent of average pay in the restaurant industry and 10 percent in the retail industry. This will encourage employers to hire few low wage employees or prefer automation (Morrison 154).
Additionally, employers not offering affordable insurance coverage can avoid the penalty by increasing spending on healthcare related benefits to lower employee’s contribution towards healthcare costs below the 9.5 percent threshold of household earnings. The problem with such an approach is that it will compete with employee earnings and recruitment decisions. It will be hard for employers to determine employee’s household income for the sake to determining it their health insurance is affordable because it changes throughout the year and can cause serious privacy implications (Morrison 154). Despite that fact that it is hard to approximate the impact of the legislation on employment-based coverage, it is expected that more than 3 million employees will lose employment based coverage and firms that will not be offering affordable coverage will tend to hire low wage employees. This will force many low-income earners to enroll in Medicaid, but this program has serious implication s on the quality of healthcare services due to low reimbursements and for medical services. This may have worst outcomes for diseases such as cancer and coronary diseases (Morrison 154).
Considering the implication of the ACA, Americans are worst off with this legislation than without it. The legislation will lead to increased medical costs because more people will receive preventive medical care, which were not available before the legislation. These services are beneficial, but it drives the cost of healthcare up, which will be transferred to employees in terms of wage reduction and compensation. Financing ACA will require substantial amounts of funding, which will lead to an increase in taxation in order to fund the program and other critical services such as education. Considering that pharmaceutical companies will be required to pay $ 84.6 billion in the next ten years, they will in turn increase the cost of drugs, which will affect consumers. Excise tax imposed on medical-devise manufactures will discourage these potential employers from hiring new workers (Shi 32).
The legislation may also encourage businesses and other employers to pay the penalties and let the workers buy their own insurance policies. In such a scenario, many employees will lose their company-paid health plans. This may force them to enroll into Medicaid; therefore increasing the costs of the program. Other provisions of the legislation may force individuals who are currently purchasing their own health plans to change them if they do not meet the minimum requirements of the legislation. The United States should have adopted incremental reforms to provide coverage to those with the most medical and economic needs, and implement healthcare insurance reforms that promote competition and consumer choice to realize the reduction of healthcare costs (Ketler 6). The current legislation creates an endless federal entitlement that will drive the cost of medical insurance and introduce regulatory procedures that will have adverse unintended outcomes for many years to come.
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