Escalating Costs of Social Health Insurance Essay
Unlike any other country in the world, the United States continually experience rising cost of healthcare provision. Wolfe (1999) reports that healthcare costs has been increasing at a high rate for decades, it is estimated that every 40 months, the share of Gross Domestic Product (GDP) spent on healthcare goes up by 1 percent. Health expenditure which stood at 12. 3 percent of GDP in 1990 increased to 16. 0 percent of GDP in 2006 and is projected to reach 20 percent in the next 7 years.
Between 2005 and 2006 alone, healthcare spending increased by 6. 7 percent, exceeding nominal GDP growth by 0. 6 percent, to a whooping $2. 1 trillion, representing an estimated $7,000 spending per person (Kuttner 2008; Catlin et al 2008). Various factors including inflation, aging population and advances in medical technology has been indicted as been responsible for the global increase in health expenditures, however, the American situation appears to be peculiar.
Kuttner (2008) contends that the proliferation of new technologies, poor diet, lack of exercise, the tendency for supply (physicians, hospitals, tests, pharmaceuticals, medical devices, and novel treatments) to generate demand and the culture of the American litigation, resulting in excessive malpractice litigations and the practice of defensive medicine, all adds together to ensure that the country experiences the largest and fastest growth in health expenditures, while at the same time, defeating efforts at cost containments.
Like every other developed country, health insurance systems, especially social health insurance systems constitute the primarily methods of health financing (Carrin and James, 2004). This arrangement ensures that most of the cost of healthcare are paid by third parties, either through public establishments, as in social (public) health insurance systems, or by private bodies, as in private health insurance system, or in some cases, a mixture of both (Wolfe, 1999).
The mixture of private and social health insurance is present in almost every country, with variations in their coverage. While in most European countries, social health insurance is deeply ingrained in societal fabric and provides the largest source of funding and insurance coverage (Saltman, 2004), the vast majority of Americans receive their health insurance coverage through employer based private insurance, with the rest of the country covered by any of the several public health insurance programs (Glover et al 2003).
It is estimated that employer private health insurance covers approximately 63 percent of the population, with 51 percent of these amount covered by their own employers, while the remaining 41 percent are covered as a worker’s dependent; 14 percent are covered by public programs, 5 percent covered by individual insurance policies while an estimated 17 percent of the population are uncovered by any insurance (Devi, 2005).
Medicare is largely regarded as the primary national (social) health insurance program in the United States, providing coverage for an estimated 44 million Americans over the age of 65. It is also estimated that Medicare provides health insurance coverage for about 7 million Americans under the age of 65 who have a disability or chronic condition (Fact Sheet, 2007).
Social health insurance is a vital part of any country’s health care and health financing program, in some part of Europe, there is a general contention that social health insurance is not just an insurance arrangement, but a ‘way of life’, they are seen as a part of a social incomes policy that seek to redistribute wealth and health risk evenly amongst the population, however, the rising costs of these systems, not just in the United States but across the modern world, threatens the system.
Before an analysis of the costs and factors driving costs of social health insurance systems, especially in America and in other European countries, it is important to first briefly describe the underlying principles of the social health insurance system and its difference from the private health insurance programs.
This will be followed by a description of the United States Medicare program and some social health insurance programs in selected European countries and then a look at the costs of these programs. Steps taken towards cutting costs of the social insurance programs and the differences in cost cutting approaches between the United States and European Union countries will be examined.
Lastly, future approaches that could help ameliorate the financial challenges facing the United States public insurance programs shall be recommended. Social Health Insurance Social health insurance, in its basic principle, in any society achieves a set of societal objectives through its peculiar form of financial cross subsidies, which covers redistribution from the healthy to the ill, from the well off to the less well off, from the young to the old and from the individual to the family.
This redistributive focus of any social health insurance program distinguishes it from what is nominally regarded as insurance, thus, in several societies, it entrenches solidarity, income redistribution and is thus seen as a ‘key part of a broader structure of social security and income support that sits at the heart of civil society’ (Saltman, 2004:5) Saltman and Dubois (2004) contend that although Germany is considered the source of the modern day form of social health insurance, when it codified existing voluntary structures into compulsory state supervised legislation in 1883, the history of social health insurance (SHI) dates back longer to the medieval guilds in the late Middle Ages.
However, they agreed that the structure and organization of SHI over time has considerably evolved; the number of people covered has increased from a small number of workers in particular trades to a larger portion of the population, the central concept SHI has evolved from wage replacement a death benefit into payment for and or provision of outpatient physician services, inpatient hospital care and drugs; thirdly, the administrative structure of SHI has also evolved from cooperative workers association to state mandated legislative character, beginning with Germany in 1883 and the most recent, 1996 in Switzerland.
Structurally, social health insurance everywhere possesses three common characteristics. Social health insurance programs are administered privately in both funding and in the provision of health services; as a result of their private administration, social health programs are self regulating, and lastly, as a consequence of their independence and self regulation, social health insurance programs are relatively stable, both in organizational and financial terms (Saltman, 2004).
As a fall out of these structural characteristics, social health insurance posses several core components that differentiate them from private health insurance programs. Under SHI, the raising of funds is tied to income of beneficiaries, usually in the form of a transparent and fixed percentage of wages. As a result, contributions are risk independent and thus encourage maximal risk pooling. Also, collection and administration of revenues for the program are handled by not-for-profit and sometimes, state run funds and these funds are usually managed by board members that are usually representative and elected. The United States Medicare program posses most or all of the characteristics of a social health insurance program.
For over 40 years, the program has successfully provided healthcare access for the elderly and millions of people with disability. It is regarded as the nation’s single largest health insurance program and it covers a wide range of the society for a broad range of health services. For example, Potetz (2008) report that one out of ever five dollars spent on healthcare in 2006 came through the Medicare program. The program is also reported to fund, at least, one third of all hospital stays, nationally. In most European countries too, national, public (social) health insurance programs reportedly covers a large proportion of the population, in most cases, reaching up to 100 percent coverage.
Saltman and others (2004) reports that in Austria, Belgium, France, Germany, Luxembourg, the Netherlands and Switzerland and from 1995, Israel, all have health insurance systems where (public) social health programs plays predominant roles in organization and funding of health care services, where between 60 to 100 percent of the population are mandatorily covered. They further argue that even countries like Finland, Sweden and the United Kingdom, Greece and Portugal that have a tax funded National Health Service schemes, segments of SHI based healthcare funding also exists. Explaining the difference between social health insurance programs and private health insurance, Thomson and Mossialos (2004) contend that private health insurance play very insignificant role in the health systems of several European countries, either in terms of funding or access to healthcare.
Unlike in the United States where more than 60 percent of the population are covered by private employer based insurance, private health insurance programs covers a relatively small proportion of the population and accounts for less than 5 percent of the total health spending, with the exception of France, Germany and the Netherlands. The most common difference between social and private health insurance includes eligibility, risk pooling and benefits. For social health insurance programs, contributions are mostly based on a fixed or varying proportion of wages, without regard for risks, thus a wider proportion of the people are eligible and benefits i. e. health services offered are broader with less out of pocket costs (Thomson and Mossialos, 2004; Saltman 2004). For private health insurance, the reverse is the case in most situations.
Especially in for-profit private health insurance systems, contributions are adjusted according to risks and for the most part high risks individuals are rejected or expected to pay higher premiums. Consequently, eligibility requirements are strict; out of pocket expenses might be higher, while services provided vary significantly across programs, depending on an array of factors. Depending on the generally functions and services offered by private health insurance, the relation to social health insurance can be substitutive, complementary or supplementary. Substitutive private health insurance programs provides insurance covers that is otherwise available from the public programs purchased by individuals or groups who are excluded from the SHI.
The larger proportion of the US society is excluded from the public insurance programs, which are usually available to the elderly, the disabled or the very poor, the rest of the population must rely on private employer based insurance. However, in European countries with effective SHI, only certain individuals with income above a certain upper threshold are excluded from the public insurance program e. g. in Netherlands and Germany, while the rest of the population are eligible. Complementary private health insurance programs provide cover for services not fully covered by the SHI programs or totally excluded, the Medicare + Choice plans is an example of such covers. Lastly, supplementary private health insurance provides cover for faster access and also increased consumer choices for individuals who can afford it (Thomson and Mossialos, 2004).
Eligibility and Coverage The United States Medicare program is essentially for the elderly, thus, individuals are eligible for Medicare coverage if they are citizens of the United States or have been a permanent legal resident for five continues years and over 65 years old. Individuals younger than 65 years of age can also be eligible for Medicare coverage if they are disabled and have been on the Social Security Disability Insurance (SSDI) or the Railroad Retirement Board benefits for a period of two years. Further, individuals with end state renal disease (ESRD) or Amyotrophic Lateral Sclerosis (ALS) known as Lou Gehrig’s disease also qualifies for Medicare coverage. However, many people with disability do not qualify for SSDI benefits and by extension, Medicare.
To qualify for these benefits, disabled individuals must have a family member under age 65 who have a work history which included Federal Income Contribution Act tax (FICA), an individual may also qualifies for SSDI on the FICA contributions of a parent as a Childhood Disability Beneficiary (CDB) or as a disabled spouse of a deceased spouse. Whichever qualification route applicable, an individual qualifies for Medicare two years after he/she starts receiving the SSDI benefits, except for the Lou Gehrig’s disease where Medicare benefits starts in the first month SSDI payments are received or in the case of the ESRD where Medicare benefits starts within three months of the first dialysis (Fact Sheet, 2007). As of 2007, it is estimated that Medicare provides cover and health services to about 43 million Americans.
This figure is expected to double to 77 million by 2031 when the baby boomers of the post World War II period start to retire. However, as mentioned previously, SHI in European countries offer universal coverage that is mandatory in some countries. Coverage for these countries varies from 63 percent in Netherlands to 100 percent coverage in France, Israel and Switzerland. In most of these countries, it is usually the highest income groups that are either allowed or required by law to leave the social health programs for private health insurance (Saltman, 2004:7). Benefits Benefits for Medicare members have continually been modified. The original program has two parts, Medicare Part A and part B.
The Part A program known as Hospital Insurance, covers hospital stays with stays in skilled nursing facilities for limited periods if certain qualifying criteria are met. Such criteria include the length of hospital stay, which most be three days, at least, excluding the discharge day and stay in skilled nursing facility must be for conditions diagnosed during the hospitalization. Medicare Part A allows up to a maximum of 100day stay in skilled nursing facilities, with the first 20 days completely paid for by Medicare and the remaining 80days paid in part and requiring a co-payment from the beneficiary. The Medicare Part B covers services and products not covered by Part A, but on an outpatient basis.
The benefits under this coverage includes physician and nursing services, laboratory diagnostic tests, influenza and pneumonia vaccinations x-rays and blood transfusions. Other services include renal dialysis, outpatient hospital procedures, Immunosuppressive drugs for organ transplant recipients, chemotherapy, limited ambulance transportation and other outpatient medical treatments carried out in a physician’s office. This coverage, to some extent, also includes medical equipments like walkers, wheelchairs and mobility scooters for individuals with mobility problems, while prosthetic devices, such as breast prosthesis after mastectomy or eye glasses after cataract surgery are also covered. The recently added Part C and D of the Medicare benefits slightly deviate from the original Medicare concept.
After the Balanced Budget Act of 1997 came into effect, Medicare beneficiaries were allowed the option of receiving their Medicare benefits through private health insurance plans if they do not want to go through the original Medicare plans. These became known as Medicare + Choice as beneficiaries could choose any private health insurance plans and have it paid for by Medicare. The Medicare + Choice or Part C arrangement later became known as the Medicare Advantage Plan after the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 came into effect. The Part D plan, on the other hand, covers mainly prescription drugs and anyone in the original Plan A or B is eligible for this plan.
However, in other to receive the benefits of the Plan D, a beneficiary must enroll and be approved for a Stand-alone Prescription Drug Plan (PDP) or Medicare Advantage plan with prescription drug coverage (MA-PD). However, because Plan D is effectively operated by private health insurance companies, there are no standardized benefits, like the plan A and B; the private insurance companies could choose to cover some drugs or classes of drugs and not cover others, with the exception of drugs excluded from Medicare coverage. Beneficiaries are therefore restricted to the drugs coverage of the plans they choose (Merlis, 2008; Potetz, 2008). Contributions towards Social Health Insurance Medicare financing, like social health insurance everywhere, is financed through a complex mix of taxes, contributions, co-payments and the likes.
The most important source of financing for the Medicare expenditures is through the payroll tax imposed by the Federal Insurance Contributions Act and the Self-Employment Contributions Act of 1954, while other sources of financing includes general revenue through income taxes, a tax on Social Security benefits, and payments from states required for the Medicare drug benefits which started in 2006. In addition to these, beneficiaries also contribute directly to Medicare financing through premiums, deductibles and co-insurance. It is reported that income cases, physician do charge beneficiaries an additional out-of -pocket ‘balance billing’ to cover for services rendered (Potetz, 2008). The federal payroll taxes are paid by the working population or by the beneficiaries throughout their work history.
The tax equals 2. 9 percent of gross wages, with half (1. 45 percent) deducted from the worker’s salary and the other half paid by the employer. Initially, there was a ceiling on the maximum amount any single person can contribute; however, beginning from 1994, the maximum limit was removed. Self employed people who do not have an employer to cover the other half of their taxes are mandated by law to pay the full 2. 9 percent of their estimated earnings. However, the contributions from the beneficiaries vary considerably depending on the plan and also range from premiums, deductibles, co-payments or in some cases, the balance billing mentioned previously.