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American Health Care Since 1994: The Unacceptable Status Quo

SOURCE: AP/Mel Evans

Since the failure of health care reform in 1994, costs have increased, quality has been inconsistent, and more Americans have joined the ranks of the uninsured.

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Introduction

2009 presents a rare opportunity for health care reformers to achieve their goals of affordable, accessible, and effective health care for all. American families and businesses are ready for sweeping changes after years of skyrocketing costs, increasing numbers of uninsured, and inconsistent quality of care. President-elect Barack Obama has promised to make health care a top priority, and congressional majorities are eager to pass reform.

Fifteen years ago, the United States had a similar opportunity to reform health care. But conservatives and insurance industry lobbyists defeated Bill Clinton’s efforts by claiming the plan would "socialize medicine," and arguing that there was "no health care crisis." Today, their successors are making the very same arguments against Barack Obama’s plan.

If opponents of reform succeed, the next 15 years are likely to resemble the last 15. The result is predictable: higher and higher costs for a health care system that leaves out more and more people. Like today, businesses will be burdened with spiraling costs, states will spend more for safety nets for high-risk populations and the uninsured, and the whole system will encourage excessive and unnecessary spending while leaving millions behind.

Looking back at the last 15 years, we can assess the quality of the American health care system and how we got here. Examining the consequences of the 1994 failure to reform health care should be a stark warning for those who would once again choose to continue our deeply flawed health care system.

Rising costs

Since 1994, the cost per person of American health care has more than doubled, with an annual growth rate regularly more than twice that of inflation. Fueled by rising costs of prescription drugs, inefficient outpatient care, expensive and unnecessary medical procedures, and ballooning insurance premiums, these costs are a burden on state and federal governments, businesses, and families.

Per-person health care expenditures in the United States have risen 6.5 percent per year since 2000, and 5.5 percent per year on average since 1994. In contrast, consumer inflation has averaged just 2.6 percent per year.

Health care costs burden American employers, who are forced to cut back on providing coverage and benefits or suffer a competitive disadvantage against international companies who don’t bear health costs. Premiums for employer-provided health care have doubled since 2000 (the earliest year the Medical Expenditures Panel Survey has on record). That year the average family premium was $6,800. By 2008, it had risen to $12,700. This premium growth eats away at wages and pressures firms to reduce coverage.

The share of American firms offering health benefits shrank to 60 percent today, from 66 percent in 1999. And the percentage of Americans covered through their employers, where coverage is of a much higher quality than in the individual market, was 59 percent in 2007, down from 64 percent in 1999. Without workplace health insurance, Americans must struggle to find coverage in the unregulated private market (where people with pre-existing conditions find it difficult or impossible to secure coverage), go on public assistance, or become uninsured.

Our productive capacity is suffering, too. The United States spent approximately 16 percent of its 2006 gross domestic product on health care, up from 8 percent in 1975. Without reform, the Congressional Budget Office projects that health expenditures will rise to 25 percent of GDP by 2025. Health care spending among other rich, developed countries in the Organisation for Economic Cooperation and Development averaged just 9 percent of GDP in 2006.

These costs are increasingly painful for American families, who face higher premiums, deductibles, and co-pays. According to Bureau of Labor Statistics consumer expenditure data, the share of household income spent on medical expenses has crept up since 1994. A recent study by the Commonwealth Fund found that, "accelerated growth in health care spending has translated into increased burdens on family budgets." According to the most recent data, an average of 13 million families (11 percent of American families) spent 10 percent or more on out-of-pocket health care expenses in 2000-01. That’s up from 8 percent in 1996-97.

American spending on health care is wildly out of sync with other large developed economies. A recent McKinsey study found that the United States spent $650 billion more on health care than peer OECD countries even after adjusting for wealth.

Americans spend well over twice as much as the OECD median in annual per-person health care expenditures, and around 150 percent of the next highest-spending country. In 2006 (the most recent data available), the United States spent $6,700 per capita on health care, over double the OECD median expenditure of $3,100. Norway, the second biggest spender, spent $4,500 per person.

Higher medical costs are also taking a toll on America’s fiscal health. As the CBO has warned, "the rate at which health care spending grows relative to the economy is the most important determinant of the country’s long-term fiscal balance." Federal health care expenditures, including Medicare and Medicaid, have risen to over $800 billion, or $2,650 per person, in 2008, from $300 billion, or $1,600 per person, in 1994 (in constant 2008 dollars). The burden on states has increased as well, to $300 billion in health care costs in 2008, from $190 billion in 1994 (including each state’s share of the Medicaid program). These trends are projected to speed up, with per-person federal expenditure nearing $6,000 by 2017 and state and local expenditures projected to increase to $2,000 per-person (in 2008 dollars) over the same period.

While some of this increase is attributable to population growth, an aging population, and changes to the policy structures of Medicare and Medicaid (including an expansion of the State Children’s Health Insurance Program), much of it comes from the underlying inefficiencies and excess costs of the American health care system.

Vanishing coverage

Despite surging expenditures, the number of Americans going without insurance has risen to 46 million, or 15 percent of the population in 2007, up from 38 million, or 14 percent, in 1999. Among people aged 18-65, the uninsurance rate increased to almost 20 percent in 2007, up from 17 percent in 1999. If the 1999 rate had stayed constant, 4.5 million more American adults would have health insurance today.

In 36 states, the percentage of adults aged 18-65 going without health insurance has increased since 1999. Millions more are living with subpar or insufficient coverage. The Commonwealth Fund found that in 2007 there were "an estimated 25 million underinsured adults in the United States, up 60 percent from 2003." Underinsured adults "have health coverage that does not adequately protect them from high medical expenses," and they regularly go without needed care, leading to higher medical costs down the road.

The uninsured typically get care in the most expensive way: through hospitals and last-minute emergency care. These additional costs drive up premiums for those with health insurance. A 2005 Families USA study found that, by 2010, $1,500 of the cost of a family insurance premium will be due to costs associated with uncompensated care for the uninsured.

Declining quality

It would be one thing if America’s massive health care expenditures since 1994 were yielding first-rate results in health outcomes and the quality of care. Unfortunately, this isn’t the case. In practically every international comparative measure of health quality, the United States lags behind other developed nations who spend just a fraction of what America does on health care.

A recent Commonwealth Fund study found that across 37 indicators covering quality, access, efficiency, and equity, the United States achieves "an overall score of 65 out of a possible 100 when comparing national averages with benchmarks of best performance achieved internationally and within the United States." In other words, the United States as a whole is performing well below the standards of health, efficiency, and care that are realistic and have been achieved in the most successful U.S. states and other developed nations. And the trends are pointing in the wrong direction: "On those indicators for which trend data exist, performance compared with benchmarks more often worsened than improved… between the 2006 and 2008 Scorecards."

One indicator of America’s declining health care quality is infant mortality. In 1994, America’s infant mortality rate (measured as infant deaths per 1000 births) was 0.8 deaths below the OECD average of 8.8. By 2004, it was more than 1 death above the OECD average. Despite enormous per-person health expenditures, the United States ranks 26th in the world in infant mortality, behind the Slovak Republic and just ahead of Poland

Life expectancy at birth shows the same pattern. In 2004 (the most recent data available), the United States ranked 23rd in the world in life expectancy, and it has been falling relative to the OECD average since 1994. In 2003, the United States fell to last place among 19 industrialized nations in mortality from cases that "might have been prevented with timely and effective care," according to a 2008 wide-reaching study from the Commonwealth Fund. The study found that "101,000 fewer people would die prematurely each year from causes amenable to health care if the U.S. achieved the lower mortality rates of leading countries."

Obesity rates, a key indicator of chronic conditions like heart disease and diabetes, have risen steadily since 1994, too. The percentage of Americans considered obese rose to 26.3 percent in 2007, from 16 percent in 1995. Effective chronic disease management and preventive care have been woefully neglected as a national priority and should be a key piece of any comprehensive and effective reforms.

Life expectancy varies wildly within the United States, from region to region, and across racial and class lines. A report by the Harvard School of Public Health found that "the gap between the highest and lowest life expectancies for race-county combinations in the United States is over 35 years." Working to reduce these disparities would go a long way toward raising overall performance and improving cost-effectiveness and health outcomes.

Furthermore, within the United States, standards of care vary widely. Correcting these internal inequities would save the United States billions of dollars and improve the health of millions of Americans. To give just one example, in the typical U.S. state, 40 percent of people over 50 receive the recommended screenings and preventive care. In the top five states, that rate is 50 percent, and in the lowest performing states, that rate is 30 percent. Making the worst states perform as well as the best states in this and the other benchmarks Commonwealth identifies (by improving access to primary care and expanding investment in prevention) would help 70 million more adults get the preventive care they need, which will both save money and improve health.

Conclusion

The status quo of American health care is spending more money to cover fewer people, yielding disappointing outcomes. Effective reforms, which would invest in measures to improve the quality and delivery of care, reform payment to reward outcomes, and provide affordable, accessible, comprehensive health insurance for all Americans, are long overdue. The best time to fix American health care was over a decade ago. The second best time is now.

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