Will Universal Access to Care Reduce Health Care Costs



Will Universal Access to Care Reduce Health Care Costs?

Bill Castor

HPA 520

Professor Meacham

November 28, 2006

Will Universal Access to Care Reduce Health Care Costs?

INTRODUCTION

The American health care system is unique in that it does not guarantee access to health care services for all of its citizens. As a result, many Americans are either uninsured or underinsured. According to recent statistics, approximately 45 million Americans are without health coverage and 70 million Americans are underinsured (Menzel and Light, 2006, p. 38). There are reasons why the number of uninsured and underinsured is so high in the United States. The main reason why many Americans do not have health coverage or limited health coverage is because it is too expensive (Mundinger, Thomas, Smolowitz, and Honig, 2004, p. 239). As a result, the high expense “causes many with low incomes to forgo insurance and care” (Mundinger et al, 2004, p. 239).

Because of the high costs associated with health care coverage, there is a reliance on employers to provide health care coverage to their employees. As a result, the costs of providing health coverage for employees are rising at such a high rate that many “companies have begun asking employees to pay a greater share of the cost, or eliminate coverage entirely” (Epstein, 2002). Because employers are raising the costs or eliminating benefits all together, this not only raises the number of employed without health care coverage, but also limits health care coverage to family members. This is especially troublesome as “56 percent of the uninsured are members of families where there is a full-time worker” (Mundinger et al, 2004, p. 240).

Access to health care is especially difficult for young adults. Adults aged 18-24 “are less likely than any other age group to have health insurance coverage, a reflection of the low wage or temporary jobs available to them that do not usually offer health benefits” (Mundinger et al, 2004, p. 240).

In addition, the number of unemployed is rising each year (Mundinger et al, 2004, p.). As a result, more workers are losing their employer sponsored health care coverage (Mundinger et al, 2004, p. 240). According to Keith Epstein (2002), “during 2001, 2.2 million Americans lost their insurance…” Because it so expensive to self-insure when unemployed, many unemployed individuals cannot find an affordable way to obtain health coverage and remain uninsured.

The growing number of uninsured and underinsured is putting an extreme strain on the health care system as costs continue to rise. Each year the United States spends $1.3 trillion dollars on health care (Epstein, 2002). According to Mundinger et al, (2004), “In 2001, the annual cost for all care for those uninsured at least part of the year was $100 billion” (p. 239). In addition to the health care costs, the uninsured and underinsured incur “economic costs from their lack of coverage, including disability and lost work for additional aggregate costs of $65 to $130 billion” (Mundinger et al, 2004, p. 239). Why are the costs so high to care for the uninsured and underinsured?

One of the main reasons why health care costs to provide services to the uninsured and underinsured are so high is because of the amount of uncompensated care provided. Uncompensated care can happen in two different forms. The first form is when a patient receives medical care, is billed for the service, and is unable to pay for the service, causing the provider to cover the costs. The other form of uncompensated care is in the form of free care provided by non-profit hospitals and other charitable organizations. In 2001, about $62 billion dollars was provided in the form of uncompensated care to the uninsured and underinsured (Mundinger et al, 2004, p. 239).

These uncompensated care costs have far reaching affects on the health care industry. For example, hospitals are required by law to provide emergency care to all patients who come to their emergency rooms, regardless of the patient’s ability to pay for services. Since these patients don’t have health care coverage, this “prevents the poor from getting treatment more cheaply — in a primary physician's office when their ailments are in their infancy — thus fueling the increase in health-care costs” (Epstein, 2002).

Further evidence to show that this expensive care is unnecessary can be highlighted in a study performed by the United States Institute of Medicine titled The Future of Emergency Care. According to this study, “Only half of ED [emergency department] patients require life-saving intervention” (Brooks, 2006, p.464). This reliance on emergency care places a huge burden on hospitals because they must find ways to recover the money they lose in uncompensated emergency care. In order for hospitals to be able to recover the monies lost from uncompensated care and continue to provide services, “hospital revenues run at about 114 percent of costs — so the excess can subsidize the uninsured” (Epstein, 2002).

These costs can also be passed on to those who are insured. According to a study done in 2005 by Families USA, “$43 billion of the care that the uninsured received was "uncompensated," with $29 billion of that cost-shifted to those who pay higher premiums for private health insurance” (Menzel and Light, 2005, p. 39). As a result, this cost-shifting causes “private insurance premiums [to be] 8.5 percent higher than they would otherwise be” (Menzel and Light, 2005, p.39). With costs rising, and the threat of even more individuals losing their health coverage, there must be a solution to this problem.

One of the most common suggestions to address this serious problem is to adopt a universal health care system where all Americans would have access to care. A universal health care system may be able to reduce costs in the long run, but could also lead to a temporary increase in costs.

REDUCTION OF ADMINISTRATIVE COSTS

One of the main areas where our health care system costs are growing is through administrative costs. A study was performed by the Medical Group Management Association (MGMA) to determine exactly how high these costs were. According to this study, “[for] a medical group practice of ten physicians, an average of $247,000 per year is wasted on useless or duplicative administrative costs” (Whalen, 2006, p. 5). The breakdown of this expense is as follows: $38,000 to verify patient coverage, $20,000 on phone calls regarding formulary issues, $33,000 on negotiating contracts with health plans, $9,000 on resubmission of medical claims, and $8,000 for credentialing with each insurance plan (Whalen, 2006, p. 5).

These administrative costs are also high for other health care providers as well. According to Himmelstein and Woolhandler, “Administration consumes 35% of home care agency budgets in the United States” (2003, p.103). If a single-payer universal healthcare system were to be put in place, much of these high administrative costs could be avoided. This could save hospitals approximately $20 billion (Whalen, 2006, p.6). In addition, this would save the health care industry about $140 billion (Himmelstein and Woolhandler, 2003, p.103). As a result, the money saved from this unnecessary spending could be used “to fully cover the uninsured and upgrade coverage among those now underinsured” (Himmelstein and Woolhandler, 2003, p.103).

INCREASED SOURCES OF CARE

As previously mentioned, the uninsured and underinsured rely on expensive emergency care and other forms of uncompensated care because of their lack of appropriate health care coverage. If universal access to health care was available, patients would have access to primary care physicians at a much lower cost. As a result, these patients will no longer need unnecessary emergency room visits or rely on uncompensated care from hospitals. This could save hospitals about $19 billion (Epstein, 2002).

WHY A SINGLE-PAYER SYSTEM?

There are many different forms of universal health coverage throughout the world. The main form that would be of most benefit to the United States is the single-payer system. In this system there is a “single source payment through a public insurer” (Himmelstein and Woolhandler, 2003, p.103). For example, in Canada “Physicians bill a single insurer using a simple form, and fee schedules are negotiated annually between provincial medical associations and governments” (Himmelstein and Woolhandler, 2003, p.103). This system is favored over a mutli-payer system because “a multi-payer structure requires duplication of claims processing facilities and reduces the size of the group that is insured, which increases overhead” (Himmelstein and Woolhandler, 2003, p.103). For example, Germany (a country with a multi-payer system) has “at least double” the overhead costs of Canada (a country with a single-payer system) (Himmelstein and Woolhandler, 2003, p. 103). As a result, a single-payer system is the best system because of its ability to minimize administrative health care costs.

CASE STUDY

Because the United States does not currently have a universal health care plan, the best way to see how universal access to care would affect health care costs in the United States is to observe the economic results from a country with a similar economic background that recently adopted a universal health care policy. The country of choice for this case study is Taiwan. Taiwan recently adopted a single-payer, national health insurance (NHI) program in 1995 because of rising costs associated with their fee-for-service reimbursement system and “unequal access to health care between socioeconomic classes” (Lu and Hsiao, 2003, p.77).

The NHI program provided “a comprehensive benefit package that covers preventive and medical services, prescription drugs, dental services, Chinese medicine, and home nurse visits” (Lu and Hsaio, 2003, p.77). The financial obligations for patients is “a $5 co-payment for each outpatient visit to clinics, an $8 co-payment for each visit to hospital outpatient clinics, and 10 percent coinsurance for inpatient services but capped the total amount that a patient has to pay each year at 10 percent of the average national income per person”(Lu and Hsaio, 2003, p.77).

So has the implementation of NHI in Taiwan reduced health care costs? In order to answer this question Lu and Hsaio studied the residuals from 1992-2000. Residuals “represent the unexplained causes of health spending increases after the plausible causes were removed” (Lu and Hsaio, 2003, p.77). According to their study, “The residual, adjusted for the increasing insured population, has been approximately two percent per year between 1992 and 1995…” (Lu and Hsaio, 2003, p.77). Lu and Hsaio (2003) also noted “the residual jumped to close to eight percent in 1995, when the NHI was implemented” (p.77). From 1996 to 2000, “…the residual fell measurably below the historical level [two percent], averaging close to one-half percent from 1996 to 2000...” (Lu and Hsaio, 2003, p.77). So what caused these changes in residuals?

According to Lu and Hsaio (2003), the eight percent residual was most likely due to the implementation of NHI (p.77). There are various reasons that can explain the reduction from eight percent to one-half percent. First, there was administrative cost savings as a result of the single-payer system (Lu and Hsaio, 2003, p.77). The single-payer system also resulted in savings because it “provided comprehensive information to create provider profiles to reduce potential fraudulent claims, abuses in coding, and the overuse of tests” and “allowed stringent control of claim payments across the board” (Lu and Hsaio, 2003, p.77).

Other forms of savings resulted from introducing “a reasonable volume standard for outpatient visit coupled with a sliding fee schedule for visits above the volume standard” which reduced demand and number of visits per person (Lu and Hsaio, 2003, p.77). In addition, “a type of diagnosis-related group (DRG) payment system was phased in for the fifty most common diseases and treatments,” this reduced length-of-stays in the hospital (Lu and Hsaio, 2003, p.77). The Taiwanese government also reduced “the reimbursement rates for drugs and by using reference pricing” (Lu and Hsaio, 2003, p.77).

In conclusion, the Taiwanese case study can give us a good idea as to how the implementation of NHI may effect health care spending in the United States. The initial implementation of the program may result in an increase in spending for a short period of time. However, if the United States is able to adopt a single-payer system and implement similar versions of many of the programs used by the Taiwanese, universal access to health care could result in a dramatic decrease in health care expenditures.

CONCLUSION

Providing universal access to health care can have a dramatic effect on health care spending in the United States. First, by adopting a single-payer system, administrative and overhead costs can be reduced or eliminated. In addition, universal access to care can eliminate uncompensated care and unnecessary visits to hospital emergency rooms, saving billions of dollars. While the case study shows that there may be a temporary increase in health care spending following the implementation of a universal health care plan, in the long term there would be a dramatic reduction in the costs of health care in this country.

WORKS CITED

Brooks, J.R. (2006). Crisis in US emergency departments. Canadian Medical Association. Journal, 175(5), 464.

Epstein, K. (2002, June 14). Covering the uninsured. CQ Researcher, 12, 521-544. Retrieved November 28, 2006, from CQ Researcher Online

Himmelstein, D. and Woolhandler, S. (2003). National health insurance or incremental reform: Aim high, or at our feet? American Journal of Public Health, 93.1, 102-105.

Lu, J. and Hsiao, W. (2003). Does universal health insurance make health care unaffordable? Lessons from Taiwan. HealthAffairs, 22(3), 77-88.

Menzel, P. and Light, D. (2006). A Conservative Case for Universal

Access to Health Care. The Hastings Center Report, 36(4), 36-45, 48.

Mundinger, M., Thomas, E., Smolowitz, J., and Honig, J. (2004). Essential Health Care: Affordable for All? Nursing Economics, 22(5), 239-244.

Whalen, J. (2006). Money Down the Medical Drain. The Humanist, 66.5, 5-6.

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