INTRODUCTION TO US HEALTH POLICY
2
Introduction to US Health
Policy
The Organization, Financing, and
Delivery of Health Care in
America
FOURTH EDITION
Donald A. Barr, MD, PhD
Department of Pediatrics
Stanford University
Stanford, California
Johns Hopkins University Press |
Baltimore
3
© 2007, 2011, 2016 Johns Hopkins University Press
All rights reserved. Published 2016
Printed in the United States of America on acid-free paper
First edition published in 2002 by Benjamin Cummings, Inc., California
Johns Hopkins edition published 2007, 2011, 2016
987654321
Johns Hopkins University Press
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Library of Congress Cataloging-in-Publication Data
Names: Barr, Donald A., author.
Title: Introduction to US health policy : the organization, financing, and delivery of health care in America / Donald A. Barr.
Other titles: Introduction to United States health policy
Description: Fourth edition. | Baltimore, Maryland : Johns Hopkins University Press, 2016. | Includes bibliographical references and
index.
Identifiers: LCCN 2015050789| ISBN 9781421420714 (hardcover : alk. paper) | ISBN 1421420716 (hardcover : alk. paper) | ISBN
9781421420721 (pbk. : alk. paper) | ISBN 1421420724 (pbk. : alk. paper) | ISBN 9781421420738 (electronic) | ISBN
1421420732 (electronic)
Subjects: | MESH: United States. Patient Protection and Affordable Care Act. | Delivery of Health Care | Health Policy | Health
Care Reform | Health Planning | Financing, Government | Economics, Medical | United States
Classification: LCC RA393 | NLM W 84 AA1 | DDC 362.10973—dc23 LC record available at http://lccn.loc.gov/2015050789
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FOR DEBRA
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CONTENTS
Preface
1
2
3
4
5
6
7
8
9
10
11
12
13
14
The Affordable Care Act and the Politics of Health Care Reform
Health, Health Care, and the Market Economy
Health Care as a Reflection of Underlying Cultural Values and Institutions
The Health Professions and the Organization of Health Care
Health Insurance, HMOs, and the Managed Care Revolution
Medicare
Medicaid and the State Children’s Health Insurance Program
The Uninsured
The Increasing Role of For-Profit Health Care
Pharmaceutical Policy and the Rising Cost of Prescription Drugs
Long-Term Care
Factors Other Than Health Insurance That Impede Access to Health Care
Key Policy Issues Affecting the Direction of Health Care Reform
Epilogue/Prologue to Health Care Reform in America
Appendix: Summary of the Changes Contained in the Affordable Care Act
References
Index
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PREFACE
In teaching my class on American health policy, I often show the students two statements, and then ask which
is correct. The first slide states:
The United States has the best medical care system in the world.
The second states:
The United States has one of the worst health care systems among the developed countries of the world.
We spend several minutes in a discussion and debate regarding which of the statements is more accurate. The
irony of US health care, and a principal message of this book, is that both statements are simultaneously true.
From one perspective, we have the best health care available anywhere. From another, equally valid
perspective, we are close to worst among developed countries in the way we structure our health care system.
Which perspective one adopts depends on the measure of quality one selects.
This seeming paradox is illustrated by the way health care is provided in the communities adjoining the
office in which this book was written. Approximately five hundred yards to the north is Stanford University
Medical Center, a world leader in technological sophistication in medical care. Physicians there, who are
among the best in the world, are able to perform remarkable feats, such as a life-saving organ transplantation
or the reattachment of a severed hand. The physician-scientists at the Lucile Packard Children’s Hospital are
able to save amazingly tiny, premature babies weighing less than this book. Specialist physicians in the
emergency room are able to reverse heart attacks and strokes after they have already happened. Nowhere in
the world is a higher level of advanced medical care available.
Approximately two miles to the east of this office is the community of East Palo Alto. The population of
East Palo Alto is predominantly low income, mainly nonwhite, and largely without health insurance. Many of
the people there have no regular source of medical care. When they or their children become ill, the only
source of care available to them is often the emergency room at Stanford Hospital, where physicians-intraining will see and treat them between treating patients with heart attacks or major traumatic injuries. If
patients from East Palo Alto need to be hospitalized, those without a life-threatening condition who have no
insurance and no means of paying for care out of pocket are not allowed treatment in Stanford Hospital.
Rather, they are referred to a county hospital, several miles away. East Palo Alto has a high rate of premature
babies; violence is a major health problem; diseases such as diabetes and high blood pressure often go
untreated; and children can go without needed checkups and immunizations.
We are simultaneously the best and one of the worst. This is the dilemma of health care in the United
States.
This book is about the US health care system. It introduces the various organizations and institutions that
make our system work (or not work, as the case may be). It identifies historical forces that have brought us to
our current state of health care and examines the way in which the need of the American people for health
care services is sometimes met and sometimes not.
As this book describes, the United States spends more on health care, both overall and per capita, than any
other country in the world. Yet the health of our society, measured by indices such as infant mortality and life
expectancy, and our access to care are worse than those of nearly all other industrialized countries.
Two broad forces contribute to the relatively poor state of health in the United States: (1) socioeconomic
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factors, such as education, poverty, and lifestyle, and (2) the quality of our health care system. It may be that
socioeconomic factors have more to do with the overall health of our society than does our system of health
care. This book, however, looks at only the latter—our health care system.
It has been health care, not health, that has focused national attention and stirred national discourse for the
past several years. During the intense debate that led to the passage of the Patient Protection and Affordable
Care Act (ACA) of 2010 and that has continued since its passage, we have had a graphic illustration of how
our health care system is made up of various organizations and groups that often can’t agree on how the
system should be structured. This was not the first time we tried to initiate broad reform of the health care
system in this country. In the 1930s, a national health care plan was considered as part of Social Security. It
was seen as too far-reaching and was dropped from Social Security to assure passage. In the years following
World War II, President Harry Truman proposed a national system of health insurance but was defeated by
the forces of organized medicine. In the 1960s, Congress adopted major policy reforms in the financing of
health care for elderly and poor people but stopped short of comprehensive national reform. In the 1970s,
facing for the first time the rapidly rising cost of health care that characterized the last part of the twentieth
century, Congress came close to adopting comprehensive national reform, only to back away in the wake of
the Watergate scandal. Again, in the 1990s, we came very close to enacting comprehensive health care reform,
only to see the Clinton reform proposals defeated and abandoned following a midterm election that shifted
the center of power within Congress.
As health care costs continued to rise and more and more people were left without health insurance, the
beginning of the twenty-first century required that we deal with the same problems we confronted at the end
of the twentieth century. Congress came close to inaction but in the end did approve ACA and a companion
reconciliation bill, the combination of which offered access to affordable health insurance to as many as 30
million Americans who previously were uninsured. ACA has not solved all the problems inherent in our
system of health care, however. While access to health insurance has expanded substantially, the rise in health
care costs is predicted to continue. At some point in the future, Congress will again need to deal with the
continuing problems of health care in America.
How much can we as a country afford to spend on health care? Can we both constrain the growth of health
care expenditures and improve access to care? Whether as a health care professional who participates in the
system, as an academician who studies the system, as a business manager who must arrange health coverage
for your workers, or as a patient who turns to the system for care, you, the reader of this book, will doubtless
confront these questions again. It is my hope that, by reading this book, you will be in a stronger position to
help find an answer to them.
Who will be the leaders in finding the answers and making the difficult choices? Physicians, health care
administrators, and those responsible for the public sector will all play an important role in this process. Many
physicians and other health care professionals, however, do not receive adequate training in the knowledge
and skills necessary to make informed choices about health care delivery. In 1995, Drs. Ira Nash and Richard
Pasternak reported their experience in interviewing applicants for one of the most competitive and prestigious
fellowship training programs in the country. They found that nearly all the applicants had consistently high
clinical qualifications. They then asked these young physicians, the future leaders of the medical profession,
what they thought about the issue of health care reform.
We were shocked when we barely got a response. A few residents offered some brief insight into the
scope of the challenge to reform. Fewer enunciated some broad goal of reform such as universal
insurance coverage. None had any well-formed ideas about how to actually address these challenges or
realize these goals, or could even render a reasoned opinion about somebody else’s well-formed idea.…
How can it be that the apparent “best and brightest” of internal medicine are on the intellectual sidelines
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of the debate over health system reform?
If, as is now the case, we find time in medical school and residency training to teach things that most
physicians will never need to know, we should find the teachers and the time to teach what nearly every
physician will soon need to know to help address the health care needs of the nation. (Nash and
Pasternak 1995, p. 1534)
Medical science has been expanding steadily since the beginning of the twentieth century. Initially,
physicians had a fairly small core of knowledge they needed to acquire. As scientists learned about bacteria
and other microorganisms, physicians needed to expand their base of knowledge to include microbiology.
When X-ray technology began to expand, physicians needed also to learn the basics of radiology. In the 1960s
and 1970s, as a phenomenal number of new drugs were discovered, physicians needed to learn more about
pharmacology. Every time a new development has occurred in medical practice, physicians have needed to
expand their base of knowledge to include the new area.
Another new area has developed, with at least as much significance for the practice of medicine as others
that came before it. This development is the tremendous change we are seeing in the financing and
organization of health care and the profound consequences this change will have on health care delivery. Just
as physicians expanded the knowledge required for the practice of medicine in the face of technological
advances, many now suggest that health care professionals of all types need to expand their knowledge to
include a familiarity with the health care delivery system and the effects of alternative delivery and financing
methods on the outcomes of care. Whether acquired as part of an undergraduate education or as part of the
curriculum of health professions schools, an understanding of health policy will be an important part of
professional knowledge in the twenty-first century.
The purpose of this book is to provide the reader with just such knowledge. Developed from a course I
have taught at Stanford University for more than two decades, it describes the historical, social, political, and
economic forces that have shaped our health care system and created the policy dilemmas we face. The
information offered in this book has proven to be of interest to undergraduates, medical students, and
practicing professionals alike, all of whom have participated in the course.
WHAT IS HEALTH POLICY?
This book introduces health policy in the United States. The growing problems that have surrounded health
care over the past several decades have created the field of health policy. Forty years ago, few if any universities
or professional schools had teaching or research programs in health policy. Today, nearly every major
university includes active programs in health policy. Academic journals specializing in health policy are
increasingly numerous and well respected. The advent of the Internet has made an extensive library of health
policy data and information immediately available to all with basic computer access.
As with any new academic discipline, there is not universal agreement as to what precisely constitutes the
field of health policy. Overlapping interests among those in fields such as public health, health economics, and
health services research have made agreement on a precise definition of health policy sometimes difficult to
attain. This book hopes to address this issue by approaching health policy as the study of the way health care
is organized, financed, and delivered. It does this by drawing on theories from fields such as economics,
sociology, and organizational behavior to offer a view of the broad social forces that coalesce to create the
structure of our system of health care and the problems inherent to it.
In its broadest sense, health policy includes all those factors and forces that affect the health of the public.
This book, however, focuses its study of health policy more on the structure of health care than on the health
of a community or society.
Health policy overlaps with health economics but broadens its scope to include social and political
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processes affecting health care. Health policy and health services research have much in common; however,
the latter tends to look more at specific clinical issues, such as the optimal way to treat coronary artery disease,
whereas health policy looks at questions such as the optimal way to structure care overall.
WHO MAKES HEALTH POLICY?
The organizing, financing, and delivery of health care in the United States is affected by a broad range of
forces, public as well as private, national as well as local. Congress and the federal health agencies within the
executive branch have major roles in developing health policy. Federal laws such as Medicare and Medicaid
that affect the financing of care have reshaped health care organization and delivery in a number of ways.
Rules established by the US Department of Health and Human Services govern much of the health care that
is provided in this country. As we have experienced during the ongoing debate over ACA, the congressional
system of committees and subcommittees plays a continuous role in monitoring the delivery of health care
throughout the country and initiating reform when necessary.
States also play a major role in the organization and financing of health care. Most laws governing
professional licensure and medical practice come from the states. Financing care for the poor has become
largely the responsibility of the states.
Health policy, however, includes more than just the creation of governmental policies pertaining to health
care. As discussed later in this book, private businesses play a major role, both as purchasers of health
insurance and as providers of health insurance, in driving recent changes in the way health care is organized,
financed, and delivered. The shift to a market-based system of managed care was largely the result of the need
to control costs. The effect this shift has had on the delivery of care at every level is profound.
The providers of care also play a large role in developing health policy. The American Medical Association
(AMA), the private organization representing physicians, has been one of the most powerful forces behind the
creation of the private practice, fee-for-service model of delivering health care that came to dominate the
health care system for much of the twentieth century. Other providers, competing with the AMA, formed
cooperative associations of physicians and hospitals as an alternative to fee-for-service care. These alternative,
prepaid systems created the model on which the concept of the health maintenance organization (HMO) was
based. They have also provided a basis for the development and expansion of accountable care organizations
(ACOs).
Local communities also play a role in creating health policy. Community hospitals, community clinics, and
local government health departments continue to play a major role in the organization and delivery of care at
the local level.
So the creation of health policy is more than simply passing laws. It is the coalescence of forces on multiple
levels, representing multiple interests and constituencies, to organize and finance a system to deliver health
care to the American people.
THE STRUCTURE OF THE BOOK
The fourteen chapters of this book present the dilemma of US health care, describe its basic structure, and
identify recent changes and trends in the system. For each chapter, I identify key concepts that summarize the
way social, economic, and political factors have acted to shape the delivery of health care in this country, either
historically or currently. By fully understanding these concepts, the reader will have a comprehensive grasp of
our system of care.
Chapter 1 offers an introduction to ACA, how it was passed, what it was intended to do, and how it has
fared in the years following its enactment. In noting the extreme social and political polarization that has
emerged as part of the debate over ACA, I also provide a historical perspective on other attempts to pass
health care reform and the polarization of opinion they engendered.
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Chapter 2 offers a brief historical background about some of the important policy decisions our country has
made over time to create the system we now have. It provides data about the rising cost of health care in this
country and the burdens these costs place on both government and the private sector. It compares our country
to other developed countries, in both the amount we spend on health care and the overall health of our
population.
Chapter 3 describes how many of the institutional norms and expectations that are unique to the United
States have created a health care system that is also unique. By means of comparison, it traces the history of
the Canadian health care system and examines how fundamental cultural differences between US and
Canadian societies are reflected in our health care systems. It looks at institutional aspects specific to the US
system such as the “technologic imperative” and the approach we take to medical malpractice.
Chapter 4 looks at the professional structure of US health care. It describes the history of the medical
profession, examining such issues as the number of physicians in practice and their practice specialty. It covers
the history of the nursing profession and the evolving role of advanced practice nurses. Finally, it examines the
structure of hospitals and other types of specialized referral centers.
Chapter 5 addresses the various ways health insurance can be structured. It provides a close look at the
health maintenance organization, or HMO. It looks at the evolution of the Kaiser Permanente system, for
years the nation’s largest HMO. It then describes the emergence over the last several years of newer types of
HMOs and various other types of managed care organizations. It moves on to a discussion of the “managed
care revolution” we experienced in the 1990s and distinguishes between the concepts of managed care and
managed competition.
Chapters 6 and 7 explore the two principal government health care programs: Medicare and Medicaid.
Established in the 1960s, these programs had two important outcomes: (1) they simultaneously extended
health insurance coverage to millions of Americans who were previously without insurance coverage, and (2)
they set off the escalation in health care costs that continues to plague us today. Chapter 6 describes some of
the policy questions confronting Medicare and identifies changes in the Medicare system involving HMOs
and other types of managed care organizations. It looks at some of the weaknesses and problems that have
developed with the system of Medicare HMOs, as well as steps Congress has taken to reform this program.
Chapter 7 describes efforts by several states to restructure their Medicaid systems to both constrain costs and
broaden coverage, as well as the Supreme Court’s 2012 ruling that allowed states to opt out of the Medicaid
expansion included as part of ACA. It also summarizes the Children’s Health Insurance Program (CHIP)
enacted by the federal government to reduce the number of children without health insurance.
Chapter 8 brings up the issue of the uninsured and the impact of ACA on the number of Americans
without health insurance. At the time ACA was approved by Congress, 50 million Americans were without
any type of health insurance coverage and, as a result, lacked access to many types of basic medical care. The
majority of these uninsured were not people who are poor and unemployed but rather were mostly people in
families with at least one adult who worked on a regular basis. The chapter also looks at the earlier success of
two states’ efforts to reduce the number of uninsured: Hawaii’s employer mandate for the provision of health
insurance to workers and Massachusetts’s individual mandate for basic health insurance coverage.
Chapter 9 asks how the rapid shift to for-profit health care initially seen in the 1990s has affected the
delivery of care. It considers the effects of the increasing prevalence of for-profit hospitals and specialized forprofit treatment centers for conditions such as heart disease and kidney disease. It then considers the extent to
which physicians have allowed the profit motive to affect their professional practice.
Chapter 10 explores the world of pharmaceuticals and pharmaceutical policy. It describes recent increases
in the cost of pharmaceutical products and steps taken by managed care organizations, Medicare, and state
Medicaid programs to control pharmaceutical costs. It describes the 2003 expansion of Medicare to include
coverage of outpatient pharmaceuticals.
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Chapter 11 explores the often hidden side of US health care: our system of long-term health care. It covers
a variety of long-term care options, including nursing homes and home health care. It documents the expected
surge in frail elderly Americans who will soon need long-term care services, and it looks at alternative ways of
providing and financing long-term care.
Chapter 12 looks at social factors other than health insurance that affect the delivery of and access to health
care. It asks, What are some of the other factors that impede people’s access to health care even after financial
constraints have been removed? It describes how forces such as culture, ethnicity, and social class can
independently affect access to care.
Chapter 13 offers a unified model of our current health care dilemma. It suggests that forces of cost,
quality, and access continue to compete for preeminence in the health policy arena, and that the interjection of
the for-profit motive has complicated the model and made a solution more difficult. It proposes an ethical
heuristic that physicians and other health professionals can use to navigate the currents of for-profit health
care. It explores the issue of health care rationing and the lessons that can be learned from the country’s
response to historical shortages of flu vaccine and from the Oregon Medicaid plan, one of the country’s first
attempts at the explicit rationing of health care services as a means to expand access. It moves on to look at
ACA’s approach to the issues of comparative effective analysis, cost-effectiveness analysis, and health care
rationing.
In chapter 14, I suggest that, despite the substantial improvements that have resulted from the enactment
of ACA, we will continue to face unanswered questions that are central to eventually finding a means of
stabilizing and securing our system of health care for the long term.
At the end of each of the aforementioned chapters, I describe the specific changes contained in ACA that
affect the topics discussed in the chapters. At the end of the book, I combine these descriptions into an
outline of the major changes that have resulted and will result from ACA. It would not be possible to include
in this outline every change contained within the ACA legislation, given its length and level of detail. Instead,
I also identify a series of websites that provide a nonpartisan summary of ACA and its specific policy effects.
I hope that, at the completion of this book, the reader will have gained an appreciation of how health care
in the United States in all its complexity still presents a fundamental dilemma: How much health care can we
afford and who will have access to that care? I will consider the book a success if, as a result of this
appreciation, the reader will be in a better position to contribute to solving this dilemma.
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CHAPTER
1
The Affordable Care Act and the Politics of Health
Care Reform
The headlines in March 2010 just about said it all. On March 22, a New York Times editorial declared,
“Health Care Reform, at Last.” Two days later, the New England Journal of Medicine announced, “Historic
Passage—Reform at Last” (Iglehart 2010b). President Barack Obama had signed the Patient Protection and
Affordable Care Act (ACA)—the most significant reform of our health care system since the 1965 enactment
of Medicare and Medicaid under President Lyndon Johnson. After what Bruce Vladeck, administrator of the
Health Care Financing Administration under President Bill Clinton, characterized as “the epochal,
exhausting, and contentious task of enacting comprehensive health care reform” (Vladeck 2010, p. 1955), the
tumultuous process that had begun more than a year before with the release of President Obama’s first federal
budget proposal had finally come to a conclusion.
The passage of reform legislation over the unanimous and strident opposition of congressional Republicans
was assuredly a major step in the evolution of health care in America. ACA has extended publicly funded
health insurance coverage to millions of formerly uninsured adults whose income falls near or below the
federal poverty level (FPL). ACA has also made affordable health insurance available to millions more
Americans who are not poor, yet who previously could not afford the cost of acquiring health insurance in the
private marketplace.
As it moved through Congress, the proposed health care reform legislation exposed deep divisions among
politicians and within the US population over core issues of health policy. Do Americans have a right to
health care? What should the role of government be in financing or regulating health care and health
insurance? To what extent should we rely on the private marketplace as the source of health insurance? How
much should the government pay for health care? Perhaps even more important, how much can the
government afford to pay for health care?
The passage of ACA did not provide definitive answers to these questions. We may well be discussing and
debating them again in the not-too-distant future. In light of the likelihood of this ongoing discussion and
debate, it is appropriate to look more closely at the process by which Congress and the president enacted the
reforms included in ACA and then to place that reform process in the considerably broader context of the
history of health care reform efforts in the United States.
HEALTH CARE REFORM AND THE 2008 PRESIDENTIAL ELECTION
The presidential election scheduled for November 4, 2008, began in earnest with the primary elections in
January and February of that year. Before the first vote was cast, health care reform was an important issue in
the minds of most voters. A series of public opinion polls conducted between 1994 (the year the Clinton
health reform proposals collapsed) and 2007 showed that “about 90% of Americans were fairly consistent in
agreeing that the U.S. health care system should be completely rebuilt or required fundamental changes”
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(Jacobs 2008, p. 1881).
In January 2008, Robert Blendon and his colleagues published the results of a series of opinion surveys of
likely primary voters from thirty-five states with early presidential primaries (Blendon et al. 2008b). They
found widespread awareness of problems inherent to health care in the United States among both Republicans
and Democrats. While Republicans and Democrats were in general agreement on the need to enact some type
of health care reform, however, they were divided on what the reform should look like. Among Democrats, 65
percent favored providing health insurance to “all or nearly all of the uninsured” and were willing to accept
substantially increased government spending to accomplish this goal. By contrast, 42 percent of Republicans
supported extending coverage “to only some of the uninsured,” with an additional 27 percent preferring
“keeping things basically as they are now” (p. 420). Before the first vote was cast in the presidential primaries,
our country was divided largely along political party lines as to how we should address health care reform.
In November 2008, Blendon and colleagues reported a second series of opinion polls, this time comparing
those who had voted for John McCain in the primary with those who had voted for Barack Obama (Blendon
et al. 2008a). Consistent with the earlier polls, most Obama voters wanted the government to take
responsibility for extending health insurance to the uninsured, while McCain voters were of the view that
responsibility for acquiring health insurance should rest with the individual consumer. Obama voters favored a
larger, more comprehensive reform plan, while McCain voters favored a more limited, smaller-scale approach.
Before President Obama was to take office, a substantial polarization of views between Democrats and
Republicans was already in place.
Shortly after his inauguration, President Obama released his first budget proposal. In it, he called on
Congress to work collaboratively with the White House to design major reform of the health care system. It
was clear, though, that Obama had learned the lesson of the failed Clinton reform proposals of 1993–94,
which I describe in chapter 5. Rather than defining the specifics of the reform proposals himself, President
Obama wanted Congress to take the lead in developing reform legislation.
Within a few months of Obama’s budget message, Congress had begun to work on reform legislation. The
process of developing the actual legislation fell to five separate congressional committees: two in the Senate
and three in the House of Representatives. A consensus began to emerge that the most promising approach to
expanding health insurance coverage would be through requiring all US residents to carry health insurance
(individual mandate) while also requiring most US employers to offer health insurance to their employees
(employer mandate). This approach mirrored reforms that had been adopted in Massachusetts a few years
earlier.
It did not take long in this process for the political divide evident in preelection polls to resurface.
Mandating health insurance coverage would require creating a place for individuals and employers to go to
acquire coverage. As part of its mandate program, Massachusetts had created a central clearinghouse to
connect insurance companies offering coverage options with individuals or employers seeking coverage. Fairly
quickly, leaders of the Senate committees dealing with reform agreed to adopt a model similar to that in
Massachusetts. They would establish health insurance “exchanges” through which those seeking insurance
could select from among the insurance options various companies had available.
As chair of the Senate Finance Committee, Senator Max Baucus (D-Montana) initially proposed that
among the insurance options available through these health insurance exchanges would be a “public option,”
an insurance plan analogous to Medicare, organized and administered by the federal government. Almost
immediately, Senate Republicans condemned the public option approach. Senator John Cornyn (R-Texas)
criticized the public option approach as “a Washington-directed unfair-competition plan” (quoted in Iglehart
2009a, p. 2386). Senator Charles Grassley (R-Iowa) argued that the Democrats’ approach “would cause us to
slide rapidly down the slope towards increasing government control of health care” (Grassley 2009, p. 2397).
President Obama countered these criticisms in a New York Times Op-Ed. He argued that the Democrats’
14
plan “is not about putting the government in charge of your health insurance. I don’t believe anyone should be
in charge of your health care decisions but you and your doctor—not government, not bureaucrats, not
insurance companies” (Obama 2009b). With substantial majorities in both houses of Congress, Democratic
leaders pushed for a comprehensive expansion of the existing health insurance system to include most of those
who were without insurance. The federal government would take principal responsibility for organizing and
financing this expansion. Republicans, on the other hand, with substantial support from the health insurance
industry, argued for a more limited approach. As described by Karen Ignagni, CEO of America’s Health
Insurance Plans (a leading industry group), Congress should instead focus on “building on the strengths of the
present public-private health care system rather than replacing it” (Ignagni 2009, p. 1134).
By the fall of 2009, the debate over health care reform had hit an impasse. There was a line drawn in the
congressional sand separating Democrats from Republicans. It appeared there was no room for compromise—
Democrats would not accept the approach supported by Republicans, and Republicans were equally unwilling
to consider seriously the Democrats’ proposals. It seemed to many that, once again, health care reform might
end in failure.
At this point, President Obama chose to take decisive action, addressing a joint session of Congress in
front of a prime-time viewing audience. Chiding both sides of the aisle for their impasse, Obama stated, “now
is the season for action.” He indicated that, from that point on, he was going to assert his leadership in the
effort to enact health care reform. He identified three overarching goals for the reform effort: (1) expanding
health insurance coverage to those who lacked it, (2) constraining the rising cost of health care, and (3)
improving the security of coverage for those with chronic illness (Obama 2009a).
With a great deal of political maneuvering, carried out in the face of substantial public confusion, each
house of Congress enacted health care reform legislation: the House of Representatives on November 7 and
the Senate on December 24. While each bill had many things in common, each had unique features. Some
form of compromise between the two versions would need to be agreed upon. Usually this process would
involve the creation of a House-Senate Conference Committee, made up of members of both houses. The
compromise struck by the Conference Committee would then be taken back for final approval in each house
before being forwarded to the president for his signature.
This process turned out not to be an option, though. Senator Ted Kennedy of Massachusetts, a leader of
Senate Democrats and for more than four decades a leading voice in the US Senate for health care reform,
died of cancer. A special election in Massachusetts to fill his seat resulted in a Republican being elected,
thereby giving the Republicans the forty-one votes needed to mount and sustain a filibuster in the Senate.
With unanimous Republican opposition to passage of any health reform bill approved by Democrats, there
was no chance for compromise legislation coming out of a House-Senate Conference Committee to gain
passage in the Senate. Nor was there any chance the Senate would simply approve the reform bill passed
previously by the House. There was only one option open to the Democrats: for the House of Representatives
to approve the bill passed by the Senate, even though the Senate bill had several provisions to which House
Democrats were opposed. Following House passage of the Senate bill, however, the House and Senate could
then agree on a series of modifications to the bill under a special provision referred to as “reconciliation.”
Not being a scholar of the intricacies of the legislative process, I will leave it to others to describe in more
detail the history, purpose, and intended use of the reconciliation process in Congress (Herszenhorn 2010;
Iglehart 2010a). As I understand it, the reconciliation process was established by Congress in 1974 as a
simplified means of changing federal programs or policies to align them more closely with previously
established budget policy. If legislation is passed that is inconsistent with the budget guidelines set by
Congress, or, similarly, if an existing program is inconsistent with those guidelines, Congress can change the
programs or policies to align them with the budget. Making these changes under the reconciliation process
requires a simple majority vote in both houses of Congress—and therefore is not subject to a filibuster in the
15
Senate.
Congress had previously used the budget reconciliation process at various times and for various purposes.
One of the best known instances of reconciliation is the Consolidated Omnibus Budget Reconciliation Act,
passed by Congress in 1986 and best known by its acronym, COBRA. COBRA gives employees who have
lost their jobs the right to continue their previous group health coverage for a period of time. People
frequently talk of their “COBRA benefits.”
Sensing a potential procedural impasse, on February 25 President Obama convened an urgent summit
meeting of leading Democrats and Republicans to discuss, and in front of a national television audience to
debate, competing perspectives on health care reform. The political impasse that preceded Obama’s summit
was still there after it was over. All Republicans in Congress remained opposed to the bills that had been
passed by the House and the Senate. President Obama and Democratic leaders had no choice but to invoke
the budget reconciliation process. In an all-day session on Sunday, March 21, the House approved the health
reform bill previously passed in December by the Senate, and on March 23 President Obama signed it into
law. Then, on March 25, both the House and the Senate passed, by simple majority vote, the reconciliation
bill that made a series of changes to the original bill that bridged the divisions between the original House and
Senate bills. In essence, the reconciliation process replicated what the House-Senate Conference Committee
process is intended to do: to find a middle ground between similar bills passed in the House and the Senate,
and then to gain final approval of both houses of the compromise bill.
As Congress completed passage of ACA, the rhetoric on both sides made clear the continued deep
divisions between Democrats and Republicans over how health care in the United States should be organized
and financed, and the role government should play in the health care system. On the day he signed ACA,
President Obama hailed the historic step that had been taken: “Today, after almost a century of trying …
health insurance reform becomes law in the United States of America.… We have now just enshrined the core
principle that everybody should have some basic security when it comes to their health care” (Obama 2010).
Republicans were not so sanguine. Representative Marsha Blackburn (R-Tennessee), following the House
vote in favor of the ACA legislation, remarked, “Freedom dies a little bit today.” Carl Hulse, reporting on the
House’s approval of ACA, stated that “Republicans were outraged, characterizing the legislation as a major
step toward socialism and an aggressive government takeover of the health care system” (2010, p. A17). These
comments echoed those made a few months earlier by Representative Michele Bachmann (R-Minnesota),
that Democrats were pushing for “socialized medicine” and a “government takeover” of the American health
care system (quoted in Herszenhorn 2009).
This continued polarization over what ACA represented for the United States—a new “core principle”
assuring access to health care, or a “government takeover” and a step closer to “socialized medicine”—
remained in the wake of the year-long health care reform process. It would be easy to point to President
Obama and the political parties in Congress as the source of this polarization. It is fundamental to our
understanding of US health care reform, however, to consider, again, what President Obama said when he
signed the ACA: “Today, after almost a century of trying … health insurance reform becomes law in the
United States of America.”
The health care reform process did not begin with the inauguration of President Obama. Nor did it begin
with the presidential campaign leading up to his election. The United States had been arguing over health
care reform for nearly a century before President Obama was elected. A review of the repeated efforts over
that century for or against reform reveals a striking similarity between what was proposed in 2009–10 and
what had been proposed previously, as well as a striking similarity between the rhetoric of health care reform
in the past and the rhetoric of 2009–10.
A CENTURY OF TRYING TO ACHIEVE HEALTH CARE REFORM IN THE UNITED STATES
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Theodore Roosevelt first attempted to reform US health care during his presidential campaign in 1912. As
part of the Progressive Party’s platform, Roosevelt proposed a system of national health insurance, modeled
after the German system, to be administered by a new National Health Department. Those supporting
national health insurance viewed health care as a right of all members of our society, analogous to the recently
recognized right to a publicly financed education for children. Teddy Roosevelt lost the 1912 presidential
election to Woodrow Wilson, however, and health care reform had to wait for another day.
In 1927, a group of physicians, public health professionals, and others concerned with national health care
issues came together to form the Committee on the Costs of Medical Care (CCMC) (Ross 2002). CCMC
was an independent group and was supported by a number of foundations. Committee members set in motion
a five-year project to study and report on the economics and organization of health care in America. On
March 10, 1931, the New York Times carried an article titled “Family Health Bill Put at $250 a Year” in which
the CCMC was cited, stating that “the average family of five in an American city” spent $250 per year on
medical care, a figure that raised serious concerns about the rising costs of medical care in a time of economic
hardship. The committee’s majority report, issued in 1932, recommended shifting the delivery of most
medical care to a model that emphasized organized medical groups and prepayment of health costs through
either insurance premiums or taxation. The American Medical Association (AMA), however, was stridently
opposed to this approach, labeling such prepaid medical groups “medical soviets” and suggesting that “such
plans will mean the destruction of private practice.… They are, in a word, ‘unethical’ ” (American Medical
Association 1932, p. 1950). The AMA’s House of Delegates unanimously approved a motion to oppose the
majority report of the CCMC, and to mount “an intensive campaign … among the medical profession and
the public” to prevent adoption of the CCMC’s recommendations. A follow-up report to the House of
Delegates reported that “all the facilities of the American Medical Association have been used to oppose this
trend and the propaganda in support of it” (American Medical Association 1934b, p. 2200). The AMA
prevailed in its efforts to block the recommendations of the CCMC’s report, and the report was shelved.
Franklin Roosevelt took up the issue of health care reform in 1934 as part of his initial proposals for old
age security and unemployment insurance for workers. In response to Roosevelt’s early proposals to include
national health insurance as part of Social Security, the AMA House of Delegates passed a resolution
reiterating its position that “all features of medical service in any method of medical practice should be under
the control of the medical profession. No other body or individual is legally or educationally equipped to
exercise such control” (American Medical Association 1934b, p. 2200). When it appeared as though health
insurance might be added to the pending legislation for creation of the Social Security system, the AMA
House of Delegates met in special session to reiterate its “opposition to all forms of state medicine” and to
“reaffirm its opposition to all forms of compulsory sickness insurance” (American Medical Association 1935,
pp. 750–51). Once again, AMA opposition to government involvement in health care was effective, and when
Roosevelt signed the Social Security Act in 1935, health insurance was not part of it.
Roosevelt continued to support the creation of a system of national health insurance and appointed an
“Interdepartmental Committee to Coordinate Health and Welfare Activities,” charging it with studying the
issue of extending Social Security benefits to include health care. At a national conference held in July 1938,
the committee proposed a series of changes to US health care, including “a ten year program providing for the
expansion of the nation’s hospital facilities” and “a comprehensive program designed to increase and improve
medical services for the entire population” (Interdepartmental Committee to Coordinate Health and Welfare
Activities 1938, p. 433).
One month later, the AMA convened an emergency meeting of its House of Delegates to respond to the
government’s “campaign for some radical changes in medical practice” (American Medical Association 1938,
p. 1192). The speaker of the House of Delegates reminded the delegates that the AMA had consistently
“opposed legislation which would have the effect of vesting in some governmental agency power to enforce its
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decrees on patients and doctors” (p. 1192). The AMA president then addressed the delegates, stating that
“the Association has constantly opposed the adoption of any form of state medicine by any definition of that
term” (p. 1194).
It is interesting to note that at this special session, the leaders of the National Medical Association (NMA)
—the national association of black physicians, most of whom were prevented from joining the AMA because
of their race—were (after majority vote of the AMA delegates) invited to address the meeting. The past
president of the NMA voiced his support for the position of the AMA, arguing that “if we have socialized
medicine in America, I am very sure, as you must be sure, that the standards of medical practice will
degenerate … and the patients again will suffer as they have suffered in Europe” (American Medical
Association 1938, p. 1211).
Once again, fears that “governmental agency power” over the financing of health care would lead to “state
medicine” and “socialized Medicine” were sufficient to derail Roosevelt’s efforts. Health care reform would
have to wait another decade before it was back on the table.
In January 1948, President Harry Truman asked Oscar Ewing, one of his senior administrators, to prepare
a report on the status of health care in the United States. Released in September of that year, the Ewing
Report outlined a series of steps the federal government should take to make health care more available. As
Roosevelt’s Interdepartmental Committee did in 1938, this report recommended extensive new hospital
construction and a compulsory “system of Government prepayment health insurance” (Furman 1948) that
over a period of three years would provide universal insurance for both hospital care and physician care, as well
as coverage of certain prescription medicines.
The response of the AMA to the Ewing proposals is interesting. The AMA first went through a formal
procedure to adopt the following definition: “Socialized medicine—Socialized medicine is a system of medical
administration by which the government promises or attempts to provide for the medical needs of the entire
population or a large part thereof” (American Medical Association 1948, p. 685). A few weeks later, Morris
Fishbein, the longtime editor of the Journal of the American Medical Association, published a special editorial in
which he warned physicians that the profession of medicine was “at a point of decision which may well
determine the nature and the freedom of medical practice for many years in the future” (Fishbein 1948, p.
1254). Responding to politicians who denied that President Truman’s proposals for national health insurance
constituted “socialized medicine,” Dr. Fishbein argued that “nations that embark on such programs move
inevitably into a socialized state in which … practically all public services become nationalized, private
responsibility and ownership disappear, individual initiative is destroyed and the result is a socialized state” (p.
1256).
In 1948, the AMA hired a political consulting firm from California that had successfully defeated
California governor Earl Warren’s 1945 proposal for a statewide health insurance plan. With a budget of
more than $1 million, funded largely by an assessment of $25 on every AMA member, the firm developed a
national strategy with two principal goals, as cited by Lepore (2012): “1. The immediate objective is the defeat
of the compulsory health insurance program pending in Congress. 2. The long-term objective is to put a
permanent stop to the agitation for socialized medicine in this country” (p. 57). As reported by the New York
Times, the AMA fought Truman’s proposals “with all the vigor and manpower it [could] assemble” (Phillips
1949), with the result that, once again, the efforts at health care reform went down to defeat in Congress.
It would be seventeen years before Congress would take up health care reform again, this time under the
leadership of President Johnson. With large majorities in both houses of Congress following the 1964
election, Johnson moved quickly to enact Medicare (health care for the elderly) and Medicaid (health care for
the poor) as amendments to the Social Security system. Headlines in the New York Times announced,
“A.M.A. Opens Bid to Kill Medicare” (Wehrwein 1965). Testifying before the Senate Finance Committee,
Dr. Donovan Ward, president of the AMA, warned senators, “This may be your last chance to weigh the
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consequences of taking the first step toward establishment of socialized medicine in the United States”
(American Medical Association 1965, p. 16).
In 1965, Congress was not swayed by claims that government financing of health care for the elderly and
the poor constituted a government takeover of the health care system. It was swayed even less by claims that
the proposed Medicare and Medicaid programs would be “the first step toward establishment of socialized
medicine in the United States.” By substantial margins, both houses of Congress passed the Social Security
Act of 1965, establishing the Medicare and Medicaid programs. President Johnson flew to the Missouri home
of Harry Truman to sign the legislation in the presence of the former president.
Of course, providing government payment for health care for the elderly and the poor was only a partial
fulfillment of earlier proposals for universal health insurance. As monumental an accomplishment as it
represented, the passage of Medicare and Medicaid left substantial segments of the American population
without the means to pay for health insurance. As we will see in later chapters, the aggregate cost of health
care began to rise sharply in the years following the enactment of Medicare and Medicaid. By 1970, both
President Richard Nixon and Senator Ted Kennedy were calling for expanded health insurance coverage to
help individuals and families offset the rising costs of care. Nixon’s plan called for private financing through
what we today would call an employer mandate. Kennedy’s plan called for direct government financing of
care. Neither plan gained approval, and any further steps toward health care reform were lost in the wake of
the Watergate scandal and President Nixon’s resulting resignation.
Health care reform was again on the table in the early years of President Clinton’s administration, as I
discuss in chapter 5. An effective national ad campaign by the health insurance industry, warning of a new,
massive federal bureaucracy taking over American health care, coupled with a shift of congressional control
from Democrat to Republican majorities, led to the defeat of the Clinton reform proposals. As many had
warned, in the years following the defeat of the Clinton proposals health care costs continued their steep rise,
and growing numbers of Americans became or remained uninsured against the cost of illness or injury—the
situation confronting the candidates in the 2008 presidential election.
PLACING THE OBAMA REFORMS IN THE HISTORICAL CONTEXT OF PREVIOUS
REFORM EFFORTS
During the intensity of the yearlong debate over President Obama’s proposals for health care reform, it was
often difficult to gain a clear sense of what the core issues were. The heated rhetoric from all sides led to
widespread confusion as to what the proposed reforms would or would not accomplish. A national poll
(Kaiser Family Foundation 2010) taken two weeks after President Obama signed ACA showed that 55
percent of respondents were confused about what was in the new law. Support for the law fell largely along
party lines, with 79 percent of Republicans having an unfavorable view of the law and 77 percent of
Democrats having a favorable view.
Which view was correct? Would the law assure most Americans access to needed health care, as many
people seemed to believe? Or would it mean the potential destruction of our health care system through a
government takeover, as many others appeared to believe?
Taking a step back from this debate, it is informative to compare ACA and the political response to it with
various proposals for health care reform made over the last century. As illustrated in table 1.1, there is a
remarkable similarity between what ACA was intended to accomplish and what earlier proposals hoped to
accomplish, and an equally striking similarity between the rhetorical opposition to ACA and the rhetoric in
opposition to those earlier proposals.
In 1931, when the Committee on the Cost of Medical Care recommended programs to bring health care
“within reach of persons of average means,” the opposition predicted that the programs would “mean the
destruction of private practice.” When Franklin Roosevelt proposed “to increase and improve medical services
19
for the entire population,” the AMA labeled his proposals “socialized medicine” and predicted that, if
Roosevelt’s plan were implemented, “standards of medical practice will degenerate … and patients will suffer.”
Truman’s proposal for “universal access to hospital and physician care” was predicted to lead to “a socialized
state in which … practically all public services become nationalized.” Johnson’s proposal for Medicare and
Medicaid would, the AMA predicted, “be the first step toward establishment of socialized medicine in the
United States.” President Obama’s proposals were characterized by many Republicans as “a major step toward
socialism and an aggressive government takeover of the health care system.”
The history of health care reform in the United States is the history of our deep-seated divisions over core
principles of health care delivery and of the role of government in the provision of health care. Is a basic level
of health care a right of all Americans? If so, should the government enact and enforce the mechanism to
ensure that right? Alternatively, is it inappropriate for government to interfere in the private provision of
health services? Our society has struggled with these issues for a century. The kerfuffle surrounding the
passage of ACA has simply been the latest episode in our attempts as a society to address these divisions.
Despite the confusion surrounding it, it is clear that ACA is bringing major change to our health care
system. Among other things, it has:
Extended Medicaid coverage to more than 10 million people living in or near poverty who previously
were ineligible for coverage
Provided health insurance to an additional 11 million formerly uninsured people with low to moderate
incomes through a combination of regulated insurance exchanges and tax subsidies for the cost of
insurance
Made a series of changes to regulations affecting companies that provide health insurance with the intent
of making that insurance more affordable
Made a series of changes in the Medicare program to reduce costs and improve benefits
Created a series of new sources of tax revenues to support these programs
TABLE 1.1. A history of arguments for and against health care reform
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When Congress passed Medicare and Medicaid in 1965, our health care system was changed
fundamentally. Yet those changes stopped short of solving many of the policy issues at the heart of our health
care system. Nor did the passage of Medicare and Medicaid resolve our national ambivalence over what the
role of government should be in our health care system.
When Congress passed ACA in 2010, our health care system was again changed fundamentally. Yet
Congress again left unaddressed many continuing core questions. In future years, in future presidential
elections, and in future Congresses, we will undoubtedly again be talking about health care reform. Rather
than debating how to extend coverage to the uninsured, we likely will be debating what parts of ACA need to
be changed and how to rein in the continuously rising cost of health care. When we have these discussions,
the appropriate role of government will again be a topic of sharp debate.
Rather than trying to describe in one place what the ACA does and does not do, I instead address the
changes contained in the 1,000-plus-page ACA legislation sequentially as we go through this book. In the
following chapters, I address issues of the cost, quality, and availability of health care; the cultural factors
unique to the United States that surround health care; the professional organization of health care; the various
private and public mechanisms for financing health care; and specific health care issues such as pharmaceutical
policy and long-term care. In each chapter, I describe how these aspects of health care have evolved to what
they are now. I then address specifically how the new policies enacted by ACA will affect or change the topic
under discussion. At the end of the book, I address what ACA has left undone—the problems in the
organization, financing, and delivery of American health care that have yet to be resolved. Finally, as an
21
appendix to the book, I provide a comprehensive listing of the various components contained in ACA.
LEGAL CHALLENGES TO THE AFFORDABLE CARE ACT AND THEIR OUTCOMES
It did not take long following the enactment of ACA for those who opposed its passage to file legal challenges
against it. On March 23, 2010, the same day President Obama signed ACA, the state of Florida filed a
lawsuit in federal court challenging two core aspects of the act: the “individual mandate” that all Americans
either enroll in health insurance or pay a penalty to the federal government (described in chapter 5) and the
mandatory expansion of state Medicaid programs to include all citizens and certain permanent residents with
incomes below 138 percent of the FPL (described in chapter 7). In fairly rapid succession, twenty-five other
states joined Florida in challenging the constitutionality of ACA (Kaiser Family Foundation 2012). A
separate lawsuit was filed by a group of private business interests. Eventually, the Supreme Court heard both
suits in a case known as National Federation of Independent Business v. Sebelius (132 S. Ct. 2566 [2012]).
As described in chapter 5, ACA includes a provision known commonly as the individual mandate that
requires most people in the United States to maintain a minimum level of health insurance coverage for
themselves and their dependents. While some individuals and families are exempted from this requirement
due to their low income, those who fail to maintain this coverage will be required to pay a penalty to the
federal government. The penalty will be collected as part of the individual’s yearly income tax return. The
plaintiffs argued that individual choices in matters of health insurance were not part of interstate commerce
and therefore were not covered under Article 1 Section 8 of the US Constitution, which grants the federal
government authority “to regulate commerce … among the several states.”
The second issue raised in the lawsuits challenged the authority of the federal government to withhold
preexisting Medicaid funding to states that decided not to expand Medicaid. Previously, only certain
categories of poor people (children and their parents, elderly, blind, and disabled) were eligible for Medicaid
coverage, with the federal government reimbursing states 50–75 percent of the cost of the program, depending
on state income levels. ACA expanded coverage to all poor people, redefining “poor” as having incomes less
than 138 percent of the FPL. Those states refusing this expansion of coverage would, as a consequence, lose
not only the added federal support for those newly eligible but all federal funding for the program as well,
both for the newly eligible and for those previously eligible. The states argued that the withholding of funds
granted under the preexisting program was overly coercive and violated the federal government’s
constitutional authority.
The Supreme Court heard arguments from both the state suits and the private suit, issuing its ruling in
June 2012. The outcome was a split decision. The Court upheld the individual mandate but removed the
federal government’s authority to withhold preexisting Medicaid funding from states electing not to adopt the
new eligibility levels. Interestingly, the Court agreed that the interstate commerce clause of Article 1, Section
8, did not apply to the decision to purchase health insurance, as individual decisions of this type are not part of
interstate commerce. However, while the federal government may not force someone to acquire health
insurance, it can levy an extra tax on those who elect not to obtain coverage. Even though ACA legislation
identified the required payment as a “penalty,” it was included under the federal government’s authority under
Article 1, Section 8, to “lay and collect taxes.”
In ruling on the Medicaid expansion, the Court determined that ACA did not simply expand Medicaid;
rather, it fundamentally changed the program. As described by Chief Justice Roberts in his majority opinion,
“It is no longer a program to care for the neediest among us, but rather an element of a comprehensive
national plan to provide universal health insurance coverage” (US Supreme Court 2012, p. 53). Individual
states were free to expand Medicaid eligibility or not to do so, with no loss of preexisting federal funding for
the program.
The Medicaid ruling was somewhat of a surprise for many. As described by Mariner et al. (2012), “The
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Court had never before found a federal spending program to be coercive, and most scholars believed coercion
to be an illusory standard that the Court would not apply” (p. 1157). By the end of 2015, this state-based
discretion had resulted in thirty-one states (including the District of Columbia) electing to expand Medicaid
eligibility, nineteen states electing not to expand coverage, and one state involved in discussions with the
federal government about possible expansion (Kaiser Family Foundation 2015d).
To many observers, it appeared that the Supreme Court’s 2012 decision in National Federation of
Independent Business v. Sebelius had put to rest the issue of the constitutionality of ACA. Within weeks of that
decision, however, another legal challenge arose with potentially devastating impact on coverage offered under
ACA. The issue addressed in this legal challenge was not the constitutionality of ACA but rather the
meaning of four words contained in the roughly one-thousand-page legislation: “established by the State.”
As described in more detail in chapter 5, one of the central outcomes of ACA was the creation of publically
available, online exchanges for individuals and small businesses to shop for health insurance coverage. Given
that the individual mandate had been upheld as constitutional by the Supreme Court, people needed an easy
place to go to acquire the mandated insurance coverage. In order to facilitate that acquisition, ACA provides
federal subsidies to help pay the premiums for coverage, so long as the coverage was acquired through the new
exchange. In a manner very similar to what had been proposed under the Clinton reform proposals, a separate
health insurance exchange would be established for each state. As stated in Section 1311 of ACA, “Each State
shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title
as an “Exchange”) for the State.”
As part of the intense negotiations between the White House and several different congressional
committees that resulted in passage of ACA, Congress decided that no state would be required to establish an
exchange. For any state electing not to establish its own exchange, Section 1321 of ACA states that “the
Secretary [of Health and Human Services] shall … establish and operate such Exchange within the State.”
States have the option of operating their own exchange or letting the federal government establish it on their
behalf. As of the 2014 enrollment period, sixteen states had opted to establish their own exchange, while
thirty-four states relied on HealthCare.gov, the federal exchange created in response to the act. Within these
thirty-four states, approximately 6.4 million people were benefitting from the tax credits provided by Section
1401 of ACA (Kaiser Family Foundation 2015c). That section states that those with incomes less than 400
percent of the FPL will qualify for a “premium assistance credit” if they enroll in a qualifying health plan
“through an Exchange established by the State under 1311.”
In July 2012, only weeks after the Supreme Court issued its ruing in National Federation of Independent
Business v. Sebelius, two different federal courts of appeal issued conflicting rulings on the same question: Does
the wording of Section 1401 only allow premium assistance credits to go to those who enrolled in one of the
sixteen exchanges that were literally “established by the State”? Alternatively, does enrollment through the
federal HealthCare.gov exchange also qualify for premium assistance credits? In separate suits, the appeals
court in the District of Columbia ruled that the credits were unavailable to those enrolled through
HealthCare.gov, while the court in Richmond, Virginia, ruled that the credits were available both to those
enrolled in individual state exchanges and in the federal exchange. To settle this issue, the Supreme Court
agreed to decide this issue in a case known as King v. Burwell.
On June 25, 2015, the Court released its decision. As summarized by Hall (2015) in an article titled “King
v. Burwell—ACA Armageddon Averted,” “the ACA’s tax subsidies for insurance premiums are available both
in states with their own insurance exchanges and those relying on a federal exchange.… The Court
emphasized that Congress obviously did not intend such destructive consequences, so it must have meant for
premium subsidies to be available in all states” (p. 498). In the closing paragraph of the Court’s decision,
Chief Justice Roberts concluded that “Congress passed the Affordable Care Act to improve health insurance
markets, not to destroy them.” The 6.4 million people receiving subsidies through HealthCare.gov will
23
continue to be eligible for those subsidies. What many had suggested would have meant the end of ACA was
averted.
There was a third legal challenge to ACA that was also decided by the Supreme Court. This case, known
as Burwell v. Hobby Lobby Stores, addressed the issue of religious exemption to the ACA requirement that
larger employers offer affordable health insurance to all their full-time employees or pay a financial penalty to
the federal government. As described by Gostin (2014), in accepting the case for review, “the Court thus
entered a political quagmire at the intersection of religious freedom, women’s health, and corporate
personhood” (p. 785).
Section 2713 of ACA mandates that the insurance provided by the employer cover, without copayment or
deductible, preventive health services identified as effective by the US Preventive Services Task force, as well
as, “with respect to women, such additional preventive care and screenings … as provided for in
comprehensive guidelines supported by the Health Resources and Services Administration for purposes of this
paragraph.” The Health Resources and Services Administration charged the Institute of Medicine (IOM) of
the National Academy of Sciences to study this concern and issue guidelines for preventive services for women
that must be covered under ACA. The IOM issued its report in 2011 (IOM 2011a), which included the
guideline that covered services include “a fuller range of contraceptive education, counseling, methods, and
services so that women can better avoid unwanted pregnancies and space their pregnancies to promote optimal
birth outcomes.”
The final regulations issued by the federal government specifying the contraceptive services to be covered
under ACA included the caveat that “group health plans established or maintained by certain religious
employers (and group health insurance coverage provided in connection with such plans) are exempt from the
otherwise applicable requirement to cover certain contraceptive services” (Federal Register 2013, p. 39870).
This exemption for religious employers such as churches or religious schools is consistent with long-standing
federal policy of avoiding policies that substantially burden a person’s exercise of religion (Religious Freedom
Restoration Act of 1993). ACA has provided other mechanisms for women who work for these types of
religious institutions to obtain coverage for contraceptive services, without requiring the institution itself to
provide the coverage.
Few would argue that a church or religious school should not qualify for the exemption to offering
contraceptive coverage. Would a large, national, for-profit corporation that owns and operates hundreds of
retail stores also qualify as a “religious employer” if its principal owner has a religious objection to certain
forms of contraception for women? Hobby Lobby is just such a corporation. As described on its Facebook
page, “Hobby Lobby is an industry leading retailer offering more than 70,000 arts, crafts, hobbies, home
décor, holiday, and seasonal products.” As described by Annas et al. (2014), “The owners of Hobby Lobby …
objected to the inclusion of four of the FDA-approved contraceptives (two types of intrauterine devices
[IUDs] and the emergency contraceptives Plan B and Ella) because they believed that these devices or drugs
could induce abortion” (p. 862). Is a corporation a “person” for the purposes of exercising freedom of religion?
In its opinion, the Supreme Court cited previous acts of Congress, stating that, “the wor[d] ‘person’ …
include[s] corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as
well as individuals” (p. 19). Accordingly, both for-profit as well as nonprofit organizations may claim the
religious exemption provided by ACA for the coverage of contraception for women. As described previously,
female employees of these organizations will still benefit from contraceptive coverage. Technically, however,
their employer will not provide that coverage.
THE AFFORDABLE CARE ACT: ON THE CUSP?
The Oxford English Dictionary defines a cusp as “a point at which two branches of a curve meet and stop,
with a common tangent.” Since its passage in 2010, ACA has been on a steady upward curve of expanding
24
health insurance coverage to millions of previously uninsured Americans. While the Supreme Court decisions
described previously have added some interesting wrinkles to that curve, the curve has remained nonetheless
on a continuous upward trajectory.
There continue to be many, however, who want to shift that curve to a downward trajectory. The New York
Times (2015) reported that between January 2011 and March 2015, the US House of Representatives voted to
repeal or defund ACA more than fifty times. While none of these votes were subsequently passed by the
Senate, this pattern nonetheless bespeaks continued and strident opposition to ACA on the part of many
Republicans and other political conservatives. Who will be president in 2017? Who will control Congress?
Will state legislatures that have avoided Medicaid expansion continue to do so? As the American political
landscape evolves over the next several years, answers to these and other related questions will play out, and
the shape of the curve of health care reform will become more apparent.
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CHAPTER
2
Health, Health Care, and the Market Economy
WHOSE RIGHT? (WHO’S RIGHT?)
After signing the Affordable Care Act (ACA) into law in March 2010, President Barack Obama declared
that, in passing the act, “we have now just enshrined the core principle that everybody should have some basic
security when it comes to their health care” (Obama 2010). As seen by President Obama (and by many of his
supporters), Americans have a right to a basic level of health care, and ACA was the acknowledgment of that
right.
Others, however, hold a very different view of the core principles of American health policy. In an opinion
piece published in August 2009 in the Wall Street Journal, John Mackey, the cofounder and CEO of Whole
Foods Markets, wrote, “How can we say that all people have more of an intrinsic right to health care than
they have to food or shelter? Health care is a service that we all need, but just like food and shelter it is best
provided through voluntary and mutually beneficial market exchanges.… This ‘right’ has never existed in
America” (Mackey 2009).
This debate over who in America has a right to health care and what level of care that right entails has
been going on for nearly a century. In 1918, Dr. John Bowman, at the time director of the Board of Regents
of the American College of Surgeons, wrote that “as a people we are accustomed to hospital service; we look
upon that service no longer as a luxury which we may buy, but rather as an inherent right. The humblest
patient is entitled to the best of medical service. In the last twenty years especially this idea has taken hold of
us. We regard the right to health today much as we regard the right to life” (Bowman 1918, p. 1). Made by
the leader of one of the most prestigious groups of physicians in the United States, this statement bespeaks a
commitment on the part of the medical profession and the country to approach health care as a basic right for
all individuals. This was the position President Obama was supporting in asserting that all Americans have a
right to some “basic security when it comes to their health care.”
Those opposed to President Obama’s position would instead agree with the comments of Dr. R. M. Sade,
published in the New England Journal of Medicine, one of the most prestigious medical journals in the country:
“Medical care is neither a right nor a privilege: it is a service that is provided by doctors and others to people
who wish to purchase it” (Sade 1971, p. 1289). In Dr. Sade’s approach, medical care is no different from any
other type of commodity that is bought and sold in the open market. If you want new sneakers, you buy a pair
from the shoe store. If you do not have enough money to pay for the sneakers, then you are out of luck—you
do not have a right to sneakers. Neither do you have a right to medical care, suggests Dr. Sade. If you do not
have enough money to pay for care, then you are out of luck.
While Dr. Bowman’s remarks from 1918 offer for many a laudable perspective on the issue of who by
rights should have access to health care, they do not accurately describe the direction health care in America
actually took in the decades following 1918. Ironically, the United States Supreme Court has identified one
group of Americans who have a constitutional right to an adequate level of health care: those who are
incarcerated in America’s prisons (Ruger et al. 2015). In addition, in 1986 Congress passed the Emergency
26
Medical Treatment and Active Labor Act (EMTALA), assuring that all people coming to a hospital
emergency room would be assured an initial assessment, without consideration of ability to pay, to determine
if they were experiencing a life-threatening condition, severe pain, or active labor. Beyond these exceptions,
for much of the twentieth century, the structure of our health care system was more consistent with Dr. Sade’s
perspective and with that of John Mackey of Whole Foods. Americans had no right to health care.
THE UNIQUE HISTORY OF HEALTH CARE IN THE UNITED STATES
When Dr. Bowman published his statement in 1918, the future direction and shape of the US health care
system was still in a formative state. By the time Dr. Sade published his remarks in 1971, the shape of our
system had largely been decided through a series of political and economic choices. The history of US health
care during this period largely reflects the comments of Dr. Sade. With a few notable exceptions, which I
address in subsequent chapters, before President Obama signed ACA, Americans did not have a right to
medical care.
In 1948, as part of the founding of the United Nations, the UN General Assembly adopted a Universal
Declaration of Human Rights, with “recognition of the inherent dignity and of the equal and inalienable
rights of all members of the human family.” Article 25 of the declaration states: “Everyone has the right to a
standard of living adequate for the health and well-being of himself and of his family, including food,
clothing, housing and medical care.”
The United States, despite its role in founding the United Nations, did not adhere fully to the declaration,
instead choosing a market approach to medical care. In approaching medical care as a market commodity that
can be bought or sold, rather than as a social good that should be made available to all people, the United
States adopted a policy position that was unique among developed countries. In the words of economist Uwe
Reinhardt, “Americans … decided to treat health care as essentially a private consumer good of which the
poor might be guaranteed a basic package, but which is otherwise to be distributed more and more on the
basis of ability to pay” (Reinhardt and Relman 1986, p. 23).
The United States was alone among industrialized nations in approaching health care in this marketoriented way. By the end of the twentieth century, all other developed countries had adopted national health
plans that assured citizens access to basic medical care. These plans ranged from fully socialized systems such
as that in Great Britain to systems such as Canada’s, in which most physicians are in private medical practice.a
The decision to approach medical care as a market commodity rather than a right was closely linked to a
second national policy decision that was to have equally profound effects on the way health care would evolve
in the United States. This was the decision made in the early part of the twentieth century to vest in the
medical profession substantial authority over the organization and financing as well as the practice of medical
care. At the beginning of the twentieth century, the US medical profession was a complex array of
practitioners from diverse educational backgrounds with a variety of knowledge and skills. There were no
standards, either legal or ethical, to maintain a consistent level of quality in the way physicians practiced
medicine.
In response to what was perceived as a national crisis, a prestigious commission was asked to conduct a
national study of the issue of medical education and to make recommendations about a thorough restructuring
of medical education, and as a result, medical practice. In 1910, the commission published its
recommendations in its report Medical Education in the United States and Canada, often referred to as the
Flexner Report. Based on the views expounded in this report, state and local governments increasingly relied
on the American Medical Association (AMA) (the principal professional association of physicians) and on the
AMA’s affiliated state and local medical associations to guide the restructuring of medical practice. (For a
more comprehensive discussion of this period in the history of US medicine, see Paul Starr’s Pulitzer Prize–
winning book, The Social Transformation of American Medicine.)
27
The rise in the sovereignty of the US medical profession was based on a somewhat idealized view of
physicians. Consistent with the increasing legitimacy of science and technology common during that time,
physicians were typically seen as altruistic agents who possessed valuable scientific knowledge and technical
skills (Parsons 1951, 1975). Their role as social agents was guided by a code of medical ethics that placed the
utmost importance on acting at all times in the best interest of the patient. They could be trusted to make
decisions on behalf of the patient in a paternalistic manner, acting always as a disinterested agent on the
patient’s behalf. This view of the medical profession led state and local governments to vest considerable
authority in physicians and their professional organizations over medical education and the practice of
medicine.
In 1938, Dr. Irvin Abell, then president of the AMA, spoke to a special meeting of the AMA’s House of
Delegates, reminding physicians of this professional responsibility. “The medical profession by principle and
tradition is committed to the idea that the prime object, the standard of value and the social reason for its
existence are all one thing—the service it can render to humanity” (Abell 1938, p. 1192). Part of this
obligation of service, Dr. Abell explained to the assembled physicians, was “the fundamental tenet of the
American Medical Association that the poverty of a patient should demand the gratuitous service of a
physician.” Beyond this obligation to treat the poor without charge, however, Dr. Abell stated the AMA’s
position that “the individual physician has a right to determine the conditions of his service” (p. 1193).
While this view of physicians as agents of reason, worthy of our trust to act autonomously on behalf of
patients, exerted substantial influence over governmental policy toward medical care, a historical examination
of the ways in which physicians’ professional organizations actually exerted the authority delegated to them
offers a very different picture (Freidson 1970). While physicians were granted this authority because of their
specialized knowledge and skills, they often used this power to further their own ends. In this view of
physicians as agents of power, the medical profession is seen as using its control over knowledge to limit entry
into the profession and to maintain political sovereignty over the system of medical care. The power of the
medical profession has been used to support and protect the role of the individual physician as self-interested
entrepreneur. Those interests were best served by establishing and maintaining the policy principle that
medical care was, as described by Dr. Sade (1971), “a service that is provided by doctors and others to people
who wish to purchase it” (p. 1289) under “conditions of … service” determined solely by the physician, as Dr.
Abell described (Abell 1938, p. 1193).
By creating and maintaining a system that approached medical care as a market commodity, physicians
were able to establish their right to charge a separate fee for each service they provided, and to base that fee on
whatever the market would bear. In 1934, the AMA established the explicit policy that once the fee for the
medical service was set, “the immediate cost should be borne by the patient if able to pay at the time of
service” (American Medical Association 1934a, p. 2200). Except for the poor, patients were purchasing
medical care from their physician as a market commodity and, as is typical of market exchanges, were expected
to pay for it at the time the service was rendered. Thus the name applied to the system of medical care that
predominated throughout much of the twentieth century: fee-for-service.
In making medical decisions in a fee-for-service system, physicians were simultaneously looking out for the
needs of the patient and for their own financial interests. As medical science and medical technology evolved
and expanded, more care came to be perceived as better care. More care also generated higher fees. Both the
perceived quality of care and the physician’s income went up as the physician did more for the patient. This
system of dual loyalties, while seemingly good for patients, can also place the physician in the role of an
imperfect agent when making or recommending treatment decisions on the patient’s behalf (Freidson 1970).
In deciding whether a patient does or does not need additional care, the financial incentive might push the
physician to provide care that otherwise might not be seen as medically necessary.
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CONCEPT 2.1
Two policies established early in the twentieth century had major effects on our system of care and contributed to our current
problems:
1. Approaching medical care as a market commodity
2. Granting sovereignty to the medical profession over the organization and financing of medical care
These alternative views of the medical profession, as agents of reason or as agents of power, are described
in table 2.1. As we proceed in our examination of health care in the United States, we will find that neither
view offers a fully accurate description of the US medical profession. Physicians act neither as agents of pure
reason nor as agents of pure power. Medicine in this country has instead evolved as a blending of the two
models.
TABLE 2.1. Two ways to look at the medical profession in the United States
For much of the twentieth century, our health care system and the medical profession’s authority over it
were stable and noncontroversial. Only in the past few decades, as the rising cost of health care and the
growing number of uninsured Americans increasingly commanded public attention, has there been a full
examination of the effects of approaching medical care as a market commodity and sanctioning the use of
medical knowledge as a source of political and economic power. Nonetheless, these two policies have had
profound impacts on the development of our health care system and have differentiated our system from those
of other industrialized countries.
THE COST OF CARE—NOW AND IN THE FUTURE
In 1970, people in the United States spent a total of $73 billion, or an average of $341 per person per year, on
all types of health care combined. The total national expenditure on health care in 1970 represented 7.1
percent of the gross domestic product (GDP). At that time, people talked about a national health care
expenditure of 7 percent of GDP as representing a “crisis” that needed to be addressed urgently.
In 2010, the year ACA was enacted, the United States spent $2.6 trillion on health care, or about $8,400
per person (Hartman et al. 2015). This level of expenditure represented 17.4 percent of GDP, more than
twice the amount of GDP apportioned to health care in 1970. The rate of increase in health care costs had
slowed somewhat in 2009 following the 2008 recession, rising only 3.8 percent, the lowest rate of growth in
health care costs since we began keeping track of costs in 1960 (Mitka 2010). The year 2010 represented an
increase of 3.9 percent. Without taking into account the potential effects of ACA, federal analysts had also
predicted continued future growth in national health care expenditures, with health care expected to consume
19.3 percent of GDP by 2019 (Truffer et al. 2010).
Economist Victor Fuchs has pointed out that, over the years, health care costs have risen an average of 2.8
percentage points faster than GDP. If this gap continues, Fuchs suggested, the percentage of GDP going to
pay for health care can be expected to double every twenty-six years (Fuchs 2010). Fuchs argued that there are
“distinctive institutional features of health care and their consequences” that “distinguish health care from
29
other goods and services” (p. 1859). Fuchs suggested that market competition alone cannot change this longterm pattern. Instead, we will need to rely on a combination of “government regulation and self-regulation [of
the medical profession] through professional ethics” (p. 1860).
Where does all this money for health care come from and where does it go? Figures 2.1 and 2.2 show the
sources of the money that pays for health care and the principal categories of national health care
expenditures. To gain a better sense of what these data mean, we can compare our country to other developed
countries. The Organisation for Economic Co-operation and Development (OECD) compiles economic and
other statistics from thirty-four of the world’s leading developed countries. Table 2.2 shows national
expenditures on health care for a selection of OECD countries. In 2013, the United States reported to the
OECD that it spent 16.4 percent of GDP on health care. This was by far the highest expenditure in the
world. The closest countries to the United States were Switzerland, with an expenditure of 11.1 percent, and
both Germany and Sweden, with total expenditures of 11.0 percent.
Every year, the US government publishes predictions of where health care costs will go in the future. If
current government projections through 2019 are accurate, by that time nearly $1 of every $5 in the entire
national economy will be spent on health care. The difference between the share of our economy going to
health care and what other developed countries spend will be even larger than it is today. This investment in
health care will be at the expense of other sectors of the economy, such as education and national
infrastructure. We will have less money available for schools, for roads and other forms of transportation, and
for investing in the capital and technology necessary for continued expansion of the economy.
Beyond the effects on the US economy in general, health care expenditures in the range of 20 percent of
GDP will have severe consequences for government as well. Recall from figure 2.1 that in 2013, governments
at all levels—federal, state, and local—were responsible for a combined 47 percent of all health care
expenditures (Medicare, Medicaid, and other public expenditures). Following the enactment of ACA,
government expenditures will rise to more than half of all health expenditures. New sources of revenue
included in ACA will offset part of this increase. Governments rely on taxation to obtain revenue. Unless tax
rates change, tax revenues generally rise at the same rate as GDP. As described previously, however,
historically the cost of care has risen more rapidly than GDP—especially during times of recession, when
health care costs have continued to rise even in the face of a shrinking economy.
Health care expenditures in the United States, 2013: Where the money came from. Source: Data from US Centers for Medicare and
Medicaid Services.
FIGURE 2.1.
30
Health care expenditures in the United States, 2013: Where the money went. Source: Data from US Centers for Medicare and
Medicaid Services.
FIGURE 2.2.
TABLE 2.2. National health care expenses as a percentage of GDP for selected countries, 2013
Consider the effect on governments of health care expenditures continuing to rise faster than GDP, and
therefore faster than tax revenues. More than half of future increases in health care costs that are over and
above the rise in GDP will have to come from government sources. For every dollar that health care costs go up
faster than GDP, government sources will pay more than half. This is an important concept to understand.
How will government come up with the money to pay for this rise, given that tax revenues increase only as
fast as GDP increases? There will be two options:
1. increase tax rates to cover the increased cost of care or
2. borrow the needed money, thus adding to government debt.
Neither option is palatable to politicians or the American public. Either would have a severe, long-term,
destabilizing effect on the US economy. Chernew and colleagues have written about “The Specter of Financial
Armageddon” if nothing is done to change this pattern (Chernew et al. 2010). Governments will face a
serious dilemma if a solution is not found to the rising cost of health care.
CONCEPT 2.2
If the rising cost of health care as a percentage of GDP is not slowed, there will be substantial effects on our economy.
• Investment in other sectors of the economy will shrink.
• The federal government will have to either raise taxes or go increasingly into debt.
• State and local governments will face increasing budgetary strain; many will reduce health benefits to their least well-off
residents.
This dilemma will be especially difficult for state and local governments, which typically are forbidden by
law from engaging in deficit spending. To maintain health care expenditures at this level, growing faster than
31
GDP growth and thus faster than the growth in state and local tax revenues, state and local governments have
to either raise taxes or divert funds away from other programs such as education. This is why many states,
facing an increasing crisis in their attempts to keep up with health care spending, are instead considering
reducing the amount of care they pay for. Because those who receive the care paid for by state and local
governments are typically the least well-off members of our society, this means that any cuts in state and local
spending on health care will be felt disproportionately by those who can least afford to pay for care on their
own.
What’s Causing the Rising Cost of Health Care?
To fully appreciate the implications of the rising cost of health care in this country, we need to have a
better grasp of its causes. Simple inflation is, of course, one reason—both prices in general and medical prices
in particular tend to rise with time. Typically, the price of medical care will rise faster than prices in general,
contributing to the rising share of GDP devoted to care. Even when one adjusts for price inflation, however,
the cost of health care measured in constant dollars continues to go up at a rapid rate.
Three general forces contribute to this increase in the cost of care:
1. The US population increases over time.
2. The number of people receiving treatment for a specific illness may go up for reasons not associated with
increases in the population. (This is referred to as the “treated prevalence.”) Either the illness is
becoming more common or more people with the condition may seek treatment (e.g., mental illness).
3. The cost of treating a specific illness may go up independently of the number of people who have that
illness. This will typically be due to new, more advanced (and more high-tech) treatments becoming
available, replacing older, less expensive (and more low-tech) treatments.
A study published by researchers at Emory University differentiated between these three causes of rising
costs in health care (Thorpe et al. 2004). They looked at the increase in the cost of care for the
noninstitutionalized US population between 1987 and 2000. Controlling for inflation, health care costs
increased about 3 percent per year during this period. As a proportion of GDP, health care rose from 10.5
percent to 13.3 percent during this period.
The researchers found that ten specific illnesses accounted for nearly half of this rise in the cost of care; five
of these conditions accounted for more than 30 percent of the rise. The same five conditions that accounted
for the highest expenditures in 2002—heart condition, trauma, cancer, mental disorders, and asthma—were
also the most costly conditions in 2012 (Soni 2015).
Thorpe and colleagues then estimated how much of the rise in the cost of care attributable to these five
conditions could be assigned to each of the three possible forces descr...
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