A 360 Perspective on Health-care

What is health insurance, and how do Americans get it?

Most Americans have some form of health insurance. The details of these policies (whether private or government-provided, what treatments are covered or not, which doctors and facilities can be accessed, how much they cost, and who pays) shape the quality of care an individual receives.

Health insurance operates like other kinds of insurance. Individuals pay a monthly fee or premium. In exchange, insurance providers pay the individuals’ medical costs. Policies generally limit the total amount a provider will pay, require recipients to pay a share of costs (a co-pay), and limit the treatments they will pay for. To make health insurance a sustainable for-profit industry, healthy and less-healthy individuals must subscribe and pay premiums. That way, premiums from healthy people to some degree help offset the health care of sick people.

While over 90 percent of Americans have health insurance, the way they receive coverage varies, as shown in the figure below.

Over the last century, employment-based coverage (insurance provided to employees as part of compensation) has become the most common form of coverage in the U.S.. However, most retired Americans receive health insurance through Medicare. Medicare is funded by premiums from recipients, payroll deductions from employed Americans, and federal and state subsidies. A second government program, Medicaid, pays for health care for poor Americans, long-term care for seniors, and kidney dialysis. A third government program, the Child Health Insurance Program (CHIP), covers health care for children in low-income families whose incomes do not qualify for Medicaid.

Finally, individuals who do not have employer-provided insurance and who do not qualify for one of the federal programs can purchase health insurance either directly from an insurance company or through federal exchanges created by the Affordable Care Act (“Obamacare”).

American health-care outcomes

Americans spend a great deal of money on health care. In 2023, about one of every five dollars spent in America goes to pay for some form of health care. In 1960, the figure was one out of every twenty dollars. The average cost of employer-provided health insurance for the average-sized American family is about $26,600 annually. Of this sum, about $6,600 is paid by the family in the form of insurance premiums and co-pays, and the employer pays the rest.

The United States spends about twice as much per person on health care compared to countries like France, Sweden, Canada, and the United Kingdom. Despite this high level of spending, the U.S. ranks last in overall health outcomes among peer countries, with the lowest life expectancy and high disease rates. Moreover, the U.S. spends over 3.75 times as much on health-care administration as peer countries. Administrative costs have been the single largest growth sector in rising health-care costs in the last decade, with these costs now accounting for more than 40% of the total expenses of patient care in U.S. hospitals.

Why is health-care so hard to reform?

America spends more on health care than other developed countries yet lags behind these nations on several important indicators. This section begins to unpack the factors driving this outcome.

Demographics

As the U.S. population gets older and sicker, care costs have risen, especially the federally funded Medicare program, which has seen substantial growth in enrollments and costs in the last twenty years. In addition, most Medicaid funds are used to pay for long-term care for senior citizens. Any changes to these programs will affect the lives of nearly 40 million citizens, most of whom are retired with limited assets.

Fragmentation

U.S. states are the primary level of government that regulates insurance. This structure is due to anti-monopoly regulations written in the 1950’s. This system, where states become individual health-care markets, means each state has its own requirements, regulations, and costs. Large insurance companies like Blue Cross/Blue Shield also run state-by-state. This setup ensures that private insurers cannot become monopolies but also makes the landscape of health insurance much more complex. Coverage, costs, and other factors vary greatly across states.

Urban-Rural Disparities

The relative decline in the rural population has led to many hospital and medical center closures over the last 30 years. As a result, rural Americans have higher travel times to access medical care than their suburban and urban counterparts. They access health-care providers less frequently, which has led to measurable declines in health outcomes in rural districts in the U.S..

Economic Inequality

Rising economic inequality has also made the provision of health care more challenging, in part because chronic disease is associated with poverty. On average, the wealthiest Americans live 10-15 years longer than their poorest counterparts. Chronic disease is both an outcome and a cause of economic hardship.

Personal Circumstances

Individual choices, such as decisions about exercise, smoking, nutrition, supplements, illegal drugs, and regular checkups, also affect healthcare outcomes to some extent. For example, efforts to improve preventative care by reducing the cost of actual checkups will only change outcomes if people take advantage of this opportunity.

Making Decisions About Care

The central question behind almost any public spending is, who deserves what? Is access to health care a right? And if so, how much health care is anyone entitled to? These questions often raise conflict because they address our philosophies of what the government should be doing.

When surveyed, most Americans agree some restrictions should be considered. For example, people over the age of 75 generally cannot easily obtain organ transplants, even if they can pay out-of-pocket. However, Americans disagree on many questions, from whether insurance should cover expensive, experimental treatments to whether insurance should be provided to the unemployed.

The fragmented nature of America’s health-care system (including private insurers and the various federal programs) means there is no uniform standard for determining who has access to which treatments. Treatment options vary across communities and even from case to case. The care someone receives in Michigan may differ greatly from what they would receive in Mississippi. Two people living in Michigan may receive very different care because their employers purchased policies from different insurers or because one has a private policy while the other relies on Medicaid.

Moreover, because the health-care system is fragmented, there is limited opportunity if any to make trade-offs between different kinds of health care – for example, should America invest in making treatments available for some advanced cancers or use the same money to improve care for pregnant mothers or newborns? There is currently no central platform to have a national conversation to determine how much we should spend on health care and how these funds should be spent.

The Take-Away

Americans pay substantially more for health care than individuals in other developed countries. However, Americans have lower life expectancies and higher disease rates than in other developed countries.  

Reforming America’s health-care system is not easy. Changes need to address the medical complexities of treating illnesses and keeping people healthy while simultaneously addressing health-related implications of an aging population, a fragmented insurance market, regional gaps in care availability, and economic inequality. The impact of reforms also depend on how individuals adapt to these changes.