Dana Goldman, professor and the Norman Topping Chair in Medicine and Public Policy at the University of Southern California, spoke about health care spending, background on the Affordable Care Act (ACA), the virtues and pitfalls of private insurance markets, and lessons about the Medicare prescription drug program on Tuesday, Nov. 5, in the Student Center’s Crystal Cove.
In 2006, the United States pushed for health care reform with the addition of a prescription drug benefit program called Medicare Part D. The plan expanded prescription drug coverage within the Medicaid system. Previously, Medicaid eligibility was available for the elderly and persons with disabilities including children and pregnant women. Now, the coverage is extended to all adults, but is limited in various states.
“We expand Medicaid, we make employers ‘pay or play’ so they either have to provide insurance or pay a fine. It developed private insurance markets through doing this and it subsidizes insurance for the poor, which is going to cost about one trillion dollars over the next ten years. People up to 400 percent of the Federal Poverty Line will be eligible either for Medicaid coverage or access to these subsidies,” Goldman said.
To adjust to the new health care plan, Goldman stressed the importance of how Medicare Part D will be funded. Goldman stated that more than half of the income provided is from public sources rather than private systems.
“The rate of health care spending is a share of total income in the US. So in 1960, we were spending about 5 percent of our national income on health care and now the number is closer to 18 percent today,” Goldman said. “We have a quasi private health care system and when you’re spending public dollars that means we have to tax people and use that money to buy healthcare for others and that creates problems.”
However, Goldman believes the larger concern lies in the sense that people do not get enough for their out of pocket expenditures. When it comes to expenses, the growth of insurance plays an important role according to Goldman.
“If you look back in the 1960s, more than 50 percent of all health care spending is out of pocket. What that means is that it wasn’t covered by insurance, but it was paid at the time of health care delivery. And in fact that share has gone down, and we are now at a historical low,” Goldman said. “When you lower the price, people consume more. Well in fact that may be true, the reason why is because the share of our national economy that is going to healthcare has risen so much, that even though the percentage we are paying out of pocket is declining, the absolute level is going up.”
The question still arises, ultimately what can be done to lower costs? Goldman said finding ways to prevent disease would provide the most positive results.
“In some ways, we are victims of our demographic success. That is, we’re living longer now and with that we’re developing a constellation of diseases. Studies have shown that if you can do something for people to treat diabetes more effectively, it would be worth about 1.5 trillion dollars to society, so there is a lot of value on the table if we can prevent disease and in thinking about health care reform.”
There are several factors driving health care spending, such as demographics, income and technology. Although prevention is one key to controlling these costs, one of the problems with the debate in Washington is the cost of doing something.
“The bright criterion to impose is not whether something is cost saving. It is whether is has a good positive return. And in these fiscal times, that is actually not what is happening. If something costs money, it is not done,” Goldman said.
In that effect, Goldman addressed how the ACA can address these concerns through private insurance. One of the fundamental debates is if insurance should be provided through national health insurance or through private markets. Goldman explained that there are certain advantages through private markets.
“One, it gives people freedom of choice. Two, we get to unleash the benefits of competition to make markets more efficient,” he said.
However, he added that there are several disadvantages as well. “First off, individuals may make some unwise decisions. In addition, insurers can engage in costly efforts to avoid high risks, and we see this a lot. It is called adverse selection. It is one of the big disadvantages of private markets. That is, if our insurers compete not by trying to provide the best product but by selecting those of you who they think aren’t going to cost very much, we really haven’t done much to get the advantages of private markets,” Goldman said.
More importantly, data collected shows there is not a significant variation when comparing a “low user” to a “high user” as there is not much of an out of pocket difference. “If you’re a high user, and you go to a generous plan, you only spend $125 but if you go to a stingy plan you can spend up to $6000 so what that says is for the lower users, doesn’t matter but for high users choose.” Because of that, Goldman emphasized that lately what is available in the market are less generous plans, which will in turn affect those who rely primarily on health care.
Ultimately the success of future healthcare reform will depend on a variety of interlinked factors in addition to Medicare coverage. “The success of the ACA is going to depend on three factors. The first is long-term control of healthcare expenses. The second is that these insurance markets function well. The third is we don’t see a steady erosion of coverage over time.”