What are the pros and cons of the Affordable Care Act?
What would you change about our healthcare system?
What are your views on universal healthcare?
If questions like these bring about a sinking feeling in your stomach, then fear not, you’re not alone. I once felt the same. I would have rather repeated the krebs cycle 20 times over rather than trying to explain the difference between Medicare and Medicaid. Why? Because I didn’t understand it. I didn’t foresee its implications. What did it have to do with medicine; I thought. Well, as it turns out, it has everything to do with medicine. Maybe not pertaining to the granular individual patient interactions, but it makes up the underlying framework of how healthcare is delivered and payed for in the United States.
Going into medicine without understanding our healthcare system is equivalent to pro-athletes who play without ever reading their financial contracts.
Not only does it not make any sense from an individual standpoint, but medical schools expect you to come in with a basic understanding regarding the realities of our healthcare system. So this prompted me to do my research, and to educated myself. Surprisingly, I found that many of the stomach-churning jargon and convoluted acronyms can actually be distilled down into simple bits and pieces. In this article, I aim to deliver a basic understanding of how our healthcare system works, and to uncover some of the mystery and ambiguity behind the policies that have shaped our current system.
The first step to understanding our healthcare system is to define the key players involved. Believe it or not, doctors and nurses only make up a small portion of the pie. The key parties of the US healthcare system are:
- Federal Government: Overarching governing body that legislates and creates standards and laws for all the other players involved
- Insurance Companies: Aka the payers, who collect money from the patients they insure and reimburse the providers for the care that they deliver
- Providers: Aka doctors, nurses, NPs, PAs, or any allied health professional that is actually providing the physical care to patients
- Pharmaceutical Industry: Manufactures and sells prescription drugs. Also conducts research & development in attempts to discover new innovative drugs
- Medical Device Industry: Manufacturers and sells imaging and laboratory equipment mainly for the purposes of diagnostic testing. (ie: CT and Xray machines, centrifuges)
US Healthcare System Overview
The next step is to understand how the US healthcare system came to be. The United States is one of the only countries that predominantly operates on an employer based system, meaning that half of all Americans get insurance through their workplace. This originated from the days where the total healthcare spending were low and where complex surgeries/ treatments didn’t exist yet. As this trend became popular, more and more employers decided to jump on board, often using health insurance as a way to attract competitive workers.
If your job didn’t provide health insurance, or if you are self employed, you essentially had 3 options in terms of paying for healthcare costs:
- Enroll in Medicare/ Medicaid: This is government sponsored insurance; however, not everyone qualifies. Medicare is only for individuals over the age of 65, and Medicaid is only for low income individuals.
- Buy private insurance- This is essentially the same as car insurance. You pay a constant amount every week (premium), and if something bad happens, the insurance company will cover your healthcare costs (up to an extent). In the pre-ACA days; however, insurance companies could charge you extremely high prices if you had preexisting conditions, or if you were considered ‘risky’.
- Go Uninsured/ Pay out-of-pocket: This is astronomically expensive. If you have ever seen a hospital/ ER bill before the insurance kicks in, then you know what I’m talking about. And if you haven’t, it might just give you a mini stroke.
As mentioned, just about half (49%) of all Americans are insured through employers. The rest are distributed in the following: 7% buy individual coverage, 19% use Medicaid, 14% use Medicare, and 9% are uninsured. Source: http://www.kff.org/other/state-indicator/total-population/
How does Insurance Work
This seems like a basic concept, but it’s an important aspect that many students tend to overlook or aren’t very knowledgeable on. Below, I have provided the definitions on some common insurance related terms:
Copay: Usually a low fixed amount ($10-20) that you pay every time you visit a doctor/dental office, no matter what you’re there for.
Premium: This is the monthly contribution to your health plan. Consider this analogous to a Netflix subscription. You must keep on paying in order to maintain access to its benefits. Instead of an endless movie selection, what you’re receiving is financial protection when you get sick and require expensive medical care. Premium costs differ between the type of health plan that you get. Plans who have low deductibles tend to have higher premiums, and vice versa.
Deductible: A deductible is a set amount that you have to pay before the insurance kicks in. It’s usually measured annually, so for example, if your deductible is $500, then the first 500 dollars you spend will come out of your own pocket before the insurance comes in and covers the rest. The point of setting a deductible is so that the consumer (patient) has some skin in the game, which is supposed to disincentivize the over-utilization of healthcare.
There are two major pricing models for health insurance plans:
- High Premium / Low Deductible: You’re paying more every month, but when you seek medical attention, you don’t need to pay much before your insurance kicks in.
- Low Premium / High Deductible: You pay a little every month, but when you do need medical attention, you have to pay a lot more before your insurance kicks in.
Medicare vs Medicaid
Which one is which? How do you remember the difference? Here’s a method that worked for me:
Old people have no hair. Therefore, they need MediCARE.
Medicare: Government sponsored health insurance for individuals over the age of 65. Medicare is funded by payroll taxes and premiums paid by beneficiaries. On average, medicare covers about half of all healthcare costs for its enrollees. It consists of 4 parts (A-D) that cover different types of care (ie: hospitals, outpatient, prescription drugs, etc). Although Medicare is government sponsored, they still contract with private health insurance companies.
- tl;dr: Government sponsored health insurance for people 65+, but you have to pay into it, and it doesn’t cover all your healthcare costs
Medicaid: Government sponsored health insurance for low income Americans. Think of it as a safety net for individuals who cannot afford private health insurance. One major component of the ACA was what’s called Medicaid Expansion. This was essentially the federal government giving individual states lump sums of money in order to cover more poor individuals under Medicaid (up to 133% above poverty line). However, states weren’t required to comply, and many Republican states decided to opt out.
- tl;dr: Government sponsored health insurance for individuals who are at or below the poverty line. It was expanded during the ACA. Every state has a different Medicaid program.
Affordable Care Act
Aka Obamacare. Below, I’ve tried to summarize the ACA into a bullet form tl;dr version, which objectively breaks down the pros and cons of this polarizing piece of legislation. For a more comprehensive article regarding the ACA, refer to my previous post.
- ACA successfully expanded health coverage to about 20 million Americans who were previously uninsured.
- ACA eliminated the pre-existing conditions that were used by insurance companies pre-ACA to discriminate or deny individuals coverage based on their prior medical history.
- ACA created an individual insurance marketplace and regulations around minimal health coverage standards, which must include factors such as access to preventative care, maternity care, etc. (Insurers could no longer sell skimpy health insurance)
- ACA began to shifted healthcare reimbursement from a fee-for-service system into a value based payment system. (Quality of care vs. Volume of care)
- Kids can now stay on their parent’s insurance plan until they’re 26 y.o.
- ACA expanded Medicaid (in some states), where states received federal funds in order to cover health costs for low-income individuals.
- ACA did not succeed in decreasing the total healthcare spending, which still fluctuates around 3 trillion dollars a year.
- More specifically, ACA did not do anything to curb the rising drug prices. Medicare is still unable to negotiate drug prices.
- ACA imposed an individual mandate, meaning that everyone was required by law to purchase health insurance, or else they would suffer a tax penalty.
- ACA’s much anticipated Individual Marketplace website crashed right after its launch, followed by a succession of other technical difficulties
- ACA’s Marketplace have been ‘unstable’ in light of the recent political uncertainty. Many insurers have pulled out of rural counties, resulting in areas where there are few insurers competing in the marketplace
Other Healthcare Systems – Single Payer: You may hear the term ‘single payer’ be used interchangeable with ‘universal healthcare’. This is the healthcare model of choice for many socialist countries such as Canada, UK, Finland, Germany, and many Scandinavian countries. All of which are operated by the government. Every citizen pays into the system, meaning that the government collects a single “healthcare tax”. In return, all public health facilities are free to use. You won’t get charged for hospitalizations, surgeries, or any healthcare related expenses. In many of these countries, you also have the option to buy additional insurance if you seek more specialized care, or want a higher quality of care that exceeds what the government system can provide.
Pros: Everyone has access to healthcare. No one has to worry about setting money aside for medical emergencies. Cheap drugs.
Cons: Lower physician autonomy and compensation. Possible longer wait times. Less room for ‘innovation’. Much more bureaucracy.
Healthcare Buzzwords/ Acronyms
This could sound something like HMOS, PPOs, PBMs, or ACOs. For many of you, your eyes have already glossed over. I don’t blame you. Below, I try to explain these terms as clear as possible without using obnoxious or convoluted jargon.
PCP: Primary Care Physician
EHR/EMR: Electronic Health Records/ Electronic Medical Records. The ACA mandated that all healthcare facilities must switch over from physical paper charting into electronic patient records.
Health Maintenance Organization (HMO): HMO is a type of health insurance plan that employs a ‘managed care’ approach in healthcare delivery. This meant that individuals who had an HMO plan can only go see doctors within their insurance network. This network is also guarded by the patient’s primary care physician (PCP), who acted as a ‘gatekeeper’, meaning that that you could not walk into a specialists office if you had a specific problem. You must first go see your PCP, who would then refer you to a specialist. An analogy for HMOs would be the too-good-to-be true coupons. On face value, it seems like a great deal; however, when you read the fine print, you see that they are filled with caveats and restrictions.
Preferred Provider Organization (PPO): PPO is another type of health insurance plan. PPOs differ in that they don’t require you to go through a PCP Gatekeeper in order to see a specialist. In fact, you’re allowed to see whichever doctor your heart may desires without the need to obtain a physician referral. You can even go see physicians who are outside your network. It therefore makes sense that PPOs are generally more expensive. An analogy for PPO is an all you can eat buffet. You are paying more for a wider access to physicians with a lot less restrictions, allowing you to pick and choose your choice of care with much more flexibility.
MACRA/ CHIP legislation of 2015: Fancy term for a piece of legislation that was passed with bipartisan support in 2015. MACRA accomplishes 2 things. First, it offered incentives to healthcare providers to adopt EHR systems nationwide. Second, it works to shift Medicare reimbursements from fee-for-service to pay-for-performance. In simpler terms, doctors won’t get paid more money simply by delivering more care; instead, they get paid more based on hitting certain performance metrics (ie: low re-hospitalization rates, pt satisfaction). These metrics are called merit based incentives, or MIPS.
Accountable Care Organizations (ACO): ACOs are a broad term that describes any healthcare insurance system that ties its reimbursement payments to a defined set of quality metrics as opposed to simply measuring the volume of care delivered. Same idea as before. Quality of care > Quantity. ACOs were supposed to be a revolutionary step in terms of lowering overall spending. However, the results thus far have been mixed. Some ACOs have reported noticeable savings while others experienced quite the opposite. The implementation of ACOs have still been relatively new, therefore hospitals and providers alike are still experimenting with the logistics and the details. Nonetheless, this seems like the preferred method moving forward.
Pharmacy Benefit Managers (PBM): PBMs are essentially the middlemen in the pharmaceutical supply chain. They negotiate on behalf of their clients who are the payers (insurance company, employer group) in order to get a better deal from pharmaceutical manufacturers and pharmacies. PBMs turn a profit by taking a cut out of every deal that they negotiate on behalf of their clients.
Health Savings Account (HSA): HSA was a term that kept getting brought up during Republican’s efforts at passing Trumpcare, although HSAs have been around since 2003. HSAs simply means that you’re funneling a portion of your income into a side account that does not get taxed, which can then be used only for health related expenses. Think of it as a personal healthcare piggy bank that the government can’t tax. The issue with HSAs, (which reflect a bigger issue overall) is that most Americans are not good at saving. So in a case that a medical disaster actually happens, if you don’t have enough in your HSAs, then you’re out of luck, meaning that you must take out a loan or declare bankruptcy.
Integrated Healthcare Systems (IHS): This is a loose term that is used to describe a vast network of healthcare facilities that’s managed under a single umbrella organization. A good example would be Kaiser Permanente. Aside from in patient hospitals, Kaiser also runs many outpatient/specialty clinics, physical therapy clinics, and follow up care. The mission of IHS is to promote care collaboration and to provide a smooth transition for patients throughout the different stages of their care continuum.
Provider Reimbursement Models
Lastly, I wanted to cover provider/ physician reimbursement. In recent years, we have seen a huge trend in consolidation, meaning that the days of solo practice are becoming obsolete. In the new era of medicine, more and more doctors are working as hospital employees, or are bonding together to create physician groups or Independent Practice Associations (IPAs).
Fee for Service: FFS is a type of reimbursement model where a provider gets paid more for the more care that they deliver. This could be measured by metrics such as surgeries performed, patients seen, or the length of patient visit. However, keep in mind that simply providing more care or doing more procedures does not necessarily equate to better patient outcomes.
Capitation: This is a type of reimbursement model where providers are paid a certain flat fee for every enrolled patient that they care for. Think of it as opposite of FFS. Given that the majority of the enrollees won’t use any healthcare services, the capitation model rests upon the assumption that the ‘high utilizers’ of healthcare should balance out other members that use little or no healthcare. The logic is to align provider incentives so that doctors are rewarded more so for keeping their patients healthy as opposed to simply delivering more care.