[Economic Report of the President (2009)]
[Administration of Barack H. Obama]
[Online through the Government Printing Office, www.gpo.gov]

 
CHAPTER 7
Balancing Private and Public Roles in Health Care

Health care is one of the largest and fastest growing sectors of the
U.S. economy, employing millions of individuals in hospitals,
physician offices, home health agencies, long-term care facilities,
insurance, and pharmaceutical and medical device companies. Today,
Americans are living longer as a result of public health improvements
and advances in medical treatment. While modern health care provides
substantial benefits, there are growing concerns about its rising
cost. In 2008, the United States is projected to spend approximately
$2.4 trillion, or almost $8,000 per person, on health care, and
forecasts indicate that spending will continue to grow at a rate
faster than the gross domestic product (GDP). Recognizing that rising
costs pose a threat to Americans' access to health insurance
and medical care, the Administration has pursued several initiatives
to encourage the efficient provision of health care through private
markets and to improve access to affordable health care for
individuals in the United States.
This chapter begins with a brief overview of U.S. performance with
respect to the population's health status and spending on
health care.  This is followed by a discussion of key efforts by the
Administration to address issues of health care quality, cost, and
access. The key points of this chapter are:
 Health care spending is expected to grow rapidly over
the next several decades, a trend that is driven by the increased use
of high-technology medical procedures, comprehensive health insurance
that decreases consumer incentives to shop for cost-effective care,
rising rates of chronic disease, and the aging of the population in
the United States.
 Markets for health care services can function more
efficiently when payers, providers, and consumers have more complete
information as well as incentives to use medical care that is
clinically effective and of high value.
 Health insurance improves individuals' well-being by
providing finan-cial protection against uncertain medical costs and
by improving access to care. Market-based approaches and innovative
benefit designs can enable people to select coverage that best fits
their preferences and to more actively participate in their own
health care decision making.
 The Federal Government has an	important role in investing
in public health infrastructure, particularly with respect to
improving the availability of community-based health care for the
underserved, preparing for possible public health crises, supporting
health-related research and development, and promoting global health
improvement.

The Health of the U.S. Population

Health can be defined as a state of complete physical, mental, and
social well-being. Individuals who are healthy are more productive
and happier. Genetic factors; the environment; lifestyle behaviors
such as smoking, eating healthy foods, and exercise; and medical care
consumption are all factors that have been shown to affect an
individual's health.
There are several different ways to measure health outcomes for a
population. One consistent and reliable measure is life expectancy,
defined as the average number of years of life remaining to a person
at a particular age. Chart 7-1 shows how U.S. life expectancy at
birth has changed over the past century. In the early part of the
20th century, life expectancy averaged 51 years until an influenza
pandemic in 1918 resulted in a significant drop, to 39 years.
Following that crisis, there have been steady increases in life
expectancy over time. This positive trend can be explained by several
factors, most notably, public health improvements such as cleaner
water, improved sanitation, and vaccinations, as well as medical
innovation.
A second way to measure population health is by examining disease
prevalence. Rising rates of age-adjusted chronic diseases, which are
conditions



expected to last at least 1 year, are particularly
concerning to the medical, public health, and health policy
communities. Heart disease and diabetes are two examples of chronic
diseases that afflict millions of Americans each year. Heart disease,
which affects 7.3 percent of adults 20 years of age and older, has
been the leading cause of death for the past 90 years, as well as a
major cause of disability. Diabetes affects 7.8 percent of the
population, or roughly
23.6 million children and adults, and has numerous costly
complications, including kidney damage, eye problems, nerve damage,
foot problems, and depression.
In 2005, approximately 60 percent of people 18 years of age and
older in the United States had at least one chronic condition, and
older adults were considerably more likely to have multiple chronic
conditions (Chart 7-2). Managing many chronic diseases can be quite
costly. More than 50 percent of total medical care expenditures
generated by the adult U.S. population (excluding expenditures for
dental care and medical equipment and services) is for the treatment
of chronic conditions. However, with medical management and lifestyle
changes, people can remain productive and lower their risk of
disability from these conditions.



The good news is that many chronic diseases are preventable.
Healthy lifestyle decisions, such as being a nonsmoker, eating
nutritious foods, and getting regular physical activity, can
significantly lower the likelihood of developing a wide variety of
serious medical conditions. In the United States, the rate of smoking
has fallen during the past several decades, a trend partially
explained by better information about the associated health risks, as
well as public policies that deter smoking behavior. However, a major
health concern remains in that about 20 percent of adults still
report being current smokers. Another major public health concern is
the rapid rise in obesity rates among adults and children. Currently,
more than 72 million people ages 20 and older are obese, which is
defined as having a body mass index (a measure using information on a
person's weight and height to indicate body fat) greater than
or equal to 30. Obesity is a known risk factor for several costly
medical conditions, including heart disease, diabetes, stroke, and
some forms of cancer. Continued efforts to promote healthy eating and
regular physical activity are critical for reversing this rising
trend.

U.S. Health Care Spending

Health-related goods and services include hospital care, physician
and clinical services, nursing home care, prescription drugs, and
more. Over time, there have been large spending increases across all
of these major categories. Chart 7-3 shows the distribution of
national health expenditures by type of service in 2006, the most
recent year of data available. Hospital care represents the largest
segment, at 31 percent of total expenditures, followed by physician
and clinical services (21 percent), other types of health spending
(which include administration, the net cost of health insurance,
public health activity, and research (16 percent)), other personal
health care costs such as dental care and medical equipment (13
percent), and prescription drugs (10 percent).
U.S. health care expenditures have grown rapidly during the past
several decades. In 2008, the United States is projected to spend
approximately $2.4 trillion, or 16.6 percent of GDP, on health care.
Based on actuarial estimates from the Centers for Medicare and
Medicaid Services, forecasts indicate that by 2017, the United States
will spend approximately $10,592 per person (in 2008 dollars), which
corresponds to 19.5 percent of GDP. Spending a larger share of GDP on
health care costs is not necessarily bad; it is to be expected as a
nation's wealth rises. In addition to income effects, there are
several other factors that drive up the cost of health care in the
United States, including population aging, increases in input prices
that are greater than inflation, technological advances, and third-
party payment.



Researchers who have investigated the catalysts of health care
spending growth suggest that third-party payment and advances in
medical technology can account for a significant proportion of the
long-term, historical spending trends. Although health insurance
provides valuable financial protection, benefit designs that have low
out-of-pocket costs at the point of use (such as doctor or hospital
visits) greatly inhibit consumers' incentives to search for the
lowest-priced providers or to engage providers in discussion about
alternative treatment options and their respective costs. Health
insurance that has low out-of-pocket cost-sharing can also create
distorted incentives regarding the development and diffusion of new
medical technologies. Of course, many advances in medicine have been
instrumental in helping Americans live longer and healthier lives.
For example, providers now have more advanced technologies to
diagnose specific problems (such as MRI or CT scanners), treat
existing ailments (such as using minimally invasive surgical
procedures), and prevent the onset and spread of new diseases or
illnesses (such as use of vaccinations or screening procedures).
However, when providers and consumers lack strong incentives to
control spending, one potential result is that new, more expensive
technologies may be prescribed and received, even if they are only
slightly more effective than existing therapies. As the amount of
financial resources allocated to health care rises, it is important
to consider the role that incentives play in determining the quantity
and types of medical care that consumers receive. Additionally, it
will be important to continue evaluating the extent to which greater
utilization of medical services, including high-technology
treatments, translates into better health outcomes.

Improving the Effectiveness and
Efficiency of Health Care

The terms ``effectiveness'' and ``efficiency'' are
frequently used in the context of discussions about improving
health system performance. But what do these terms actually mean?
Effective care includes services that are of proven clinical value.
It is medical care for which the benefits to patients far outweigh
the risks, such that all patients with specific medical needs should
receive it. Efficient care includes medical services that maximize
quality and health outcomes, given the resources committed, while
ensuring that additional investments yield net value over time.
In the United States, there is clear empirical evidence that many
patients do not receive the highest quality of care possible. That
is, patients do not receive care that fully complies with current
clinical guidelines. In one well-respected study, researchers found
that only 54 percent of acute care and 56 percent of chronic care
provided by physicians conformed to clinical recommendations in the
medical literature. Receiving better quality care, particularly for
those with chronic conditions, has the potential to reduce the
adverse impacts of existing illnesses and prolong life.
There are large differences in the levels of effective care provided
in the United States, a result that reflects differences both in
provider practice styles and in patient preferences. Researchers
associated with the Dartmouth Atlas of Health Care have reported
extensive geographic variation in medical care spending and in the
use of medical care across a wide range of services such as
preventive screenings, diabetes management, joint replacement
surgeries, and end-of-life care. Differences across regions of the
United States cannot be fully explained by differences in illness
rates or well-informed patient preferences. In fact, this research
finds that higher rates of utilization reported across the United
States do not appear to be correlated with better health outcomes,
and that nearly 30 percent of Medicare's costs could be saved
without adverse health consequences if spending in high- and medium-
cost areas of the country was reduced to levels in low-cost areas.
The Administration has strongly advocated, in its policies, using
information and better incentives to improve the effectiveness and
the efficiency of health care delivery, including hospital care,
physician services, and long-term care.

Health Information Technology

There is optimism among policymakers about the ability of health
information technology (IT) to generate significant production
efficiencies in the delivery of health care. This is because health
IT permits the management of medical information and the secure
exchange of information among consumers, providers, and payers. Using
IT in health care may help reduce medical errors, provide physicians
with information on best practices for diagnosis and treatment,
improve care coordination, and reduce duplication of services. The
most comprehensive form of health IT is an electronic health record,
which is a longitudinal record of patient information that typically
includes the patient's demographic characteristics, past
medical history, medication use, vital signs, laboratory data, and
radiology reports.
One goal of the Administration is for most Americans to have an
electronic health record by 2014. While providers have expressed
interest in the potential benefits of IT for workflow improvement,
adoption has been somewhat slower than anticipated. Results from a
survey conducted by the Office of the National Coordinator for Health
IT indicate that 14 percent of outpatient doctors currently use an
electronic health record, and a study sponsored by the American
Hospital Association finds that 68 percent of hospitals have or are
in the process of implementing an electronic health record. key
barriers to adoption of health IT include lack of a business case to
support adoption; privacy and security concerns; technical issues
that make exchanging information difficult; and organizational
culture issues, including providers' resistance to changing
business processes.
In response to these concerns, the Administration formed the
American Health Information Community, a Federal advisory body that
includes experts from the public and private sectors, to make
recommendations to the Secretary of Health and Human Services about
how to accelerate the development and adoption of health IT. Over
the past few years, this advisory body has also provided
recommendations on how to make records digital and available for
providers to share easily, as well as how to assure the privacy and
security of those records.

Comparative Effectiveness

For many types of medical conditions, a patient may have a choice
between at least two diagnostic methods and/or treatments that have
different benefits and risks. Selecting the most appropriate course
of care relies on having current information about the effectiveness
of each option, given a patient's characteristics. Comparative
effectiveness research studies are rigorous evaluations that compare
the performance of various diagnostic and treatment options for
specific medical conditions and sets of patients. By using
comparative effectiveness research findings, providers can help
patients select the most clinically appropriate course of treatment.
Advocates of comparative effectiveness research also suggest that
widespread use of research findings may help to reduce some of the
geographic variation in utilization and spending that exists in the
United States.
The number of comparative effectiveness studies has increased in
recent decades, and provides the potential to improve the quality of
care delivered to patients. A recent Federally-sponsored comparative
effectiveness initiative is the Agency for Healthcare Research and
Quality's Effective Health Care Program. Created as part of the
Medicare Prescription Drug, Improvement, and Modernization Act of
2003, this program funds the creation of new research, synthesizes
current research on the benefits and risks of alternative medical
interventions, and translates these findings into useful formats that
can be easily accessed by health care providers and patients.

Price and Quality Information Transparency

When individuals shop for many goods or services, often they can
access information on prices and quality using readily available
sources. With this information, they can compare alternatives and
then select the one of highest value. Unfortunately, the same
information is not readily available for health-related goods and
services. Having information on prices and provider quality may be
important as people consider which physicians or hospitals to select
for care and what impact this might have on their out-of-pocket costs
(such as copayments or coinsurance) and their potential health
outcomes.
To illustrate, suppose a couple learns that they are expecting their
first child and that their physician has admitting privileges at the
two hospitals in their community. Wanting to make an informed
decision about which hospital they should use for the birth, this
couple would benefit from being able to look on their insurer's
web site to find information about the price that each hospital
charges for different types of deliveries. With this information,
they could assess how much it will likely cost them out of pocket for
a normal delivery, given their insurance coverage. Additionally, the
couple would be able to find information on each hospital's web
site about the quality of its maternity services, including the
volume of deliveries during the past year, the proportion of
deliveries that were performed by Cesarean section, and whether there
is a neonatal intensive care unit at the facility.
One challenge in health care is that there are actually two types of
prices: list prices and transaction prices. List prices, which are
also called charges, are well-documented and are found in all
standardized information that hospitals and physicians submit when
seeking payment for services. However, list prices are often not
relevant because most payers, whether private insurers, Medicare, or
Medicaid, pay much less than the list price. The payment that is
actually made by the insurer to the provider is called a transaction
price. Unfortunately, this information is more difficult to access
because it is insurer-specific and providers may be sensitive about
having negotiated rates available in the public domain.
In the past 20 years there have been tremendous advances in the
development of objective measures of clinical quality for chronic
diseases, acute care, preventive care, and long-term care.
Improvements in health care quality measurement as well as better
information systems are making it easier to evaluate provider
performance and generate information that is relevant and timely for
providers and individuals. Increasing the transparency of information
about health care quality can motivate providers to improve the care
that they deliver, and it can help consumers to make more informed
decisions regarding their provider choices. A key priority for the
Administration has been public reporting of price and quality
information. In addition to advocating for greater transparency
across the entire health care system, the Federal Government and the
Centers for Medicare and Medicaid Services, in particular, have
developed Hospital Compare, Nursing Home Compare, and the Medicare
Prescription Drug Plan Finder, which are comprehensive, web-based
resources providing quality and pricing information.

Pay-for-Performance

Pay-for-performance refers to purchasing practices aimed at
improving the value of health care services that are provided to
patients, where value depends on both quality and cost. Private
insurers, as well as Medicare and Medicaid, are using
pay-for-performance programs that provide doctors and hospitals
with financial incentives to meet certain performance measures for
quality and efficiency or to show quality improvement. Researchers
in the private and public sectors are conducting numerous evaluations
of pay-for-performance programs to assess whether these programs
affect provider behavior and improve the quality of care that patients receive.
One such evaluation includes the Premier Hospital Quality Incentive
Demonstration Project, which started in 2003. In this Medicare
demonstration, hospitals receive bonus payments based on their
performance on five medical conditions, including acute myocardial
infarction (heart attack), coronary artery bypass graft, pneumonia,
heart failure, and hip/knee replacement. Improvements in quality of
care during the first 3 years of the demonstration have saved the
lives of an estimated 2,500 acute myocardial infarction patients,
based on an analysis of mortality rates at participating hospitals.
Additionally, more than 1.1 million patients treated in the five
clinical areas at participating hospitals have received approximately
300,000 additional services or recommendations that align with
evidence-based clinical quality measures, such as smoking cessation
advice, discharge instructions, and pneumococcal vaccination.

Using Market-Based Approaches to Improve
Access to Health Insurance

The financial burden of health care costs can be extensive,
particularly for those who have a serious health episode, such as
cancer or a trauma-related injury. In the United States, about 80
percent of medical care expenditures each year are generated by about
20 percent of the population. Health insurance provides individuals
with financial protection against costs associated with medical
treatment, giving them access to needed and valuable care that
otherwise might not be affordable. This section provides an overview
of current health insurance coverage patterns and discusses key
Administration initiatives to promote market-based approaches and new
types of insurance benefit designs to provide individuals with
greater flexibility as they choose coverage that best meets their
needs.

Private Health Insurance

The private market for health insurance is really two
markets--one for employer groups and another for individuals.
Currently, 165 million Americans under 65 years of age obtain their
coverage through an employer source, either as a worker or a
dependent of a worker, and approximately 17 million non-elderly
individuals purchase coverage in the individual market.
In the United States, employer provision of health insurance is
voluntary, and while 99 percent of large firms (those with 200 or
more workers) offer coverage to their workers as a benefit, a smaller
percentage of small firms do. In 2008, 62 percent of small firms
(those with 3-199 workers) offered their workers health
insurance, down from 68 percent in 2000. Two main factors cause small
firms to be less likely to offer health insurance as a fringe benefit
relative to large firms. First, small firms may have difficulty
pooling risk effectively. Very small groups, in particular, may be
less able to absorb the financial shock of a high-cost, low-
probability medical problem by one or more of their employees, which
may result in higher premiums for a specific amount of coverage, as
well as larger rate increases over time. Second, there are human
resources costs for firms when they shop for insurance, coordinate
enrollment with employees, and integrate employee contributions
toward the premium with payroll. If the per-worker administrative
costs of insurance are higher for small firms, they may be less
likely to offer coverage.
For individuals who are not offered health insurance through an
employer, the individual market is an alternative way to acquire
coverage. Many who purchase insurance in this market use it as a
bridge between jobs that provide employer-sponsored insurance or
between employer-sponsored coverage and Medicare. For others,
including the self-employed, coverage purchased in the individual
market may need to serve their needs over the long term.
There are several different types of health insurance plans
available in the private market, including health maintenance
organizations, preferred provider organizations, and point-of-service
plans. In addition to traditional managed care plans, a new
generation of insurance benefit designs, called consumer-directed
health plans, is emerging. Consumer-directed health plans typically
have three basic features: a high deductible, which is the dollar
amount that has to be paid before an insurer covers any medical
expenses; an associated account that can be funded with pre-tax
dollars and can be used to pay for out-of-pocket medical expenses;
and tools to help enrollees make decisions about their medical care
treatment options. The two most prevalent forms of consumer-directed
health plans are Health Reimbursement Arrangements, which are
offered by employers, and Health Savings Accounts, which are offered
in both the employer group and individual markets. See Box 7-1 for
information about Health Savings Accounts.

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Box 7-1: Health Savings Accounts: Innovation in Benefit Design

Health Savings Accounts (HSAs) were signed into law by the
President in 2003 as part of the Medicare Prescription Drug,
Improvement, and Modernization Act.  HSAs are tax-advantaged
savings accounts to which individuals can contribute funds that
they can then use to pay for qualified medical expenses.  HSAs are
used in conjunction with High-Deductible Health Plans that meet
specific criteria.  In particular, these plans must have a minimum
deductible of $1,150 for single coverage and $2,300 for family
coverage in 2009, an annual out-of-pocket limit of no more than
$5,800 for individuals and $11,600 for families in 2009, and
catastrophic coverage in case an individual or family exceeds the
out-of-pocket limit as a result of a serious medical episode.
Health plans that meet these criteria are referred to as HSA-
compatible or HSA-eligible plans. HSAs are available in both the
employer group and individual markets.  When offered in an employer
setting, both an employer and employee can contribute money to the
account, up to specific limits ($3,000 for individuals and $5,950
for families in 2009).  Also, employees whose health plans meet the
deductible and out-of-pocket limit criteria described above can
open an HSA on their own if their employer does not open an account
for them.  Unused balances may be rolled over from year to year and
accumulate interest, thus allowing individuals to build up savings
that can be used to cover future medical expenses.  Additionally,
HSAs are portable, which means that individuals are able to keep
any unspent funds in the account when they change employment or
exit the labor force. Enrollment in HSA-compatible health plans has
been growing steadily each year.  In 2006, over 6.8 million
employees and dependents were enrolled in High-Deductible Health
Plans, and over 30 percent of these enrollees were in small firms.
As of January 2008, approximately 1.5 million consumers had
purchased HSA-compatible plans in the individual market.  HSAs in
combination with a High-Deductible Health Plan are playing an
increasingly important role in the individual market, providing an
option that is more affordable, on average, than other traditional
types of health plans.HSAs and High-Deductible Health Plans are
designed to encourage more consumer control over health care
decision making, but concerns have arisen about the impact that
these plans may have on policyholdersï¿½ care-seeking behavior.  In
particular, some believe that the deductible may lead individuals
to forgo or delay getting care such as preventive screenings (for
example, mammograms).  To mitigate this concern, most insurers now
provide some coverage before the insured person meets his or her
deductible.  Research that analyzes the impact of HSAs and High-
Deductible Health Plans on medical care utilization and
expenditures is mixed.  In coming years, as these plans gain market
share, research may help to clarify the full effect of this type of
benefit design on care-seeking behavior and costs.

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The employer group and individual markets for health insurance have
unique advantages and disadvantages. Employer groups are generally
able to pool risk, as individuals within an employer group initially
come together for a purpose other than buying health insurance and
because larger numbers of covered people makes it easier to predict
the average expenditure of the group. Effective risk pooling is often
more challenging in the individual market, given the potential for
adverse selection, whereby individuals who expect high health care
costs are more likely to buy coverage, while those who expect to have
low costs may be less likely to do so. If insurers are not able to
fully identify the risk of individuals seeking coverage and premiums
are set according to the average risk in the population, then there
will be insufficient funds to cover the claims that are generated. In
most States, health insurers use medical underwriting to assess
individuals' risk for generating medical expenditures based on
their demographics, health status, and past utilization.
Another important distinction between the employer group and
individual markets is the tax treatment of premiums. For employer-
sponsored insurance, premiums that are paid by employers are exempt
from the Federal income tax, State income taxes in 43 States, and
Social Security and Medicare taxes. In addition, many employees can
pay their share of the insurance premium with pre-tax dollars if
their firm offers a ``Section 125'' plan. The amount of
forgone revenue associated with excluding tax on premiums is often
referred to as the ``tax subsidy'' for employer-sponsored
health insurance. The tax exclusion encourages employers to provide a
larger share of workers' total compensation in the form of
health insurance benefits, leading employers to offer generous
coverage with low levels of coinsurance and deductibles. In turn,
these low levels of cost-sharing can encourage moral hazard, whereby
individuals use more medical care than they would if they were
responsible for the full price of that care.
For self-employed workers and their families, there is a partial tax
subsidy of health insurance, which allows them to deduct health
insurance for themselves and their families from the Federal income
tax (up to the net profit of their business) but not from the self-
employment tax (equivalent to the combined tax that they would pay
for Social Security and Medicare). For those who neither are self-
employed nor have an offer of employer group insurance, medical care
expenses, including the premiums for coverage purchased in the
individual market, are tax deductible only when these expenses exceed
7.5 percent of adjusted gross income.
As discussed before, not all workers have access to employer-
sponsored insurance; those who do may have limited choices,
particularly if they are employed at a small firm. While the
individual market provides an alternative way to acquire health
insurance, for many it is not perceived to be as attractive as
employer-sponsored insurance. One way to move toward balancing the
attractiveness of the employer group and individual markets is to
alter the current tax treatment of premiums. Removing the tax
exclusion for employer premiums has the potential to eliminate many
of the inefficiencies and equity issues associated with the current
system; it would also increase Federal Government income tax revenues
by up to $168 billion in FY 2009.
The President has proposed replacing the current tax exclusion with
a flat $15,000 standard deduction for health insurance for families or
$7,500 for individuals. The amount of the standard deduction would be
independent of the actual amount spent on a health insurance policy,
which would need to meet a set of minimum requirements for
catastrophic coverage. Thus, individuals and families would still be
able to take the full amount of the deduction from income and payroll
taxes, even if their health insurance premium cost less than that
amount. Although individuals with small tax liabilities would not
stand to gain as much from a tax deduction as individuals with higher
tax liabilities, this approach would make health insurance more
affordable, particularly for those who do not have access to
employer-sponsored coverage.

Public Insurance

Several programs funded by the Federal Government exist to provide
health care to specific populations. These programs include the
Federal Employees Health Benefits Program (FEHBP), TRICARE, the
Veterans Health Administration (VHA), the Indian Health Service
(IHS), Medicaid, the State Children's Health Insurance Program
(SCHIP), and Medicare. The FEHBP and TRICARE are health insurance
programs for Federal employees and active duty personnel,
respectively. The Federal Government also provides medical care to
veterans through the Veterans Health Administration. Run by the
Department of Veterans Affairs, the VHA provided services to
5.5 million patients in 2007, up from 3.8 million in 2000. The Indian
Health Service provides health care to members of Federally-
recognized tribes and their descendants. This too is a public health
care system in the sense that the Federal Government operates the IHS
hospitals and employs the program's health care providers. In
2007, the IHS provided services to
1.5 million American Indians and Alaska Natives.
Established in 1965, Medicaid provides medical assistance for
certain children, families, and elderly and disabled individuals with
low incomes and low resources. Medicaid is administered by the States
and is jointly funded by the Federal Government and States. In 2007,
there were approximately 48 million Medicaid enrollees. Another
public insurance program is the State Children's Health
Insurance Program (SCHIP), which was created in 1997. SCHIP enables
States to provide health insurance coverage for low-income children
who do not qualify for Medicaid. SCHIP is also administered by the
States and jointly funded by the Federal Government and the States.
States receive an enhanced Federal matching rate for SCHIP that is
higher than their Medicaid matching rate but capped at a fixed level.
During fiscal year 2007, more than seven million children were
enrolled in SCHIP.
Medicare, also begun in 1965, provides health insurance to nearly
all individuals aged 65 and older, as well as some younger individuals
with permanent disabilities or those who have been diagnosed with
end-stage renal disease. Today, there are approximately 44.6 million
Medicare beneficiaries. As discussed in Chapter 6, Medicare consists
of four parts: Part A provides coverage for inpatient hospital
services, some home health care, and up to 100 days in a skilled
nursing facility. Part B provides coverage for outpatient services,
including outpatient provider visits and certain preventive screening
measures. Part C, also known as Medicare Advantage, provides
beneficiaries with the option of enrolling in one of several types of
private health plans rather than traditional, fee-for-service
Medicare. Finally, Part D provides coverage for outpatient
prescription drugs.
Revitalizing and strengthening Medicare Advantage has been a key
priority for the Administration. As an alternative to traditional
Medicare, beneficiaries may enroll in one of several types of private
health plans, including health maintenance organizations (HMOs),
preferred provider organizations (PPOs), and private fee-for-service
(PFFS) plans. For the past 3 years, 100 percent of Medicare
beneficiaries have had at least one Medicare Advantage plan available
in their local geographic market, up from 75 percent in 2004.
Currently, nearly 10 million people, or over 20 percent of all
Medicare beneficiaries, are enrolled in Medicare Advantage plans.
Many beneficiaries are attracted to Medicare Advantage plans because
these plans typically cover services that are not covered under
traditional Medicare, such as dental care, certain preventive
services, and care management for those with chronic conditions.
Additionally, Medicare Advantage enrollees may have lower out-of-
pocket costs. For 2008, Medicare Advantage plans offered an average
of approximately $1,100 in additional annual value to enrollees in
terms of cost savings and added benefits. Of course, it is important
to acknowledge that beneficiaries who enroll in Medicare Advantage
plans must comply with the particular policies of those plans when
using services. In some cases, this may include using only providers
in the plan's network.
One of the most significant changes in Medicare during this
Administration was the creation of Part D, a voluntary program in
which beneficiaries are able to purchase prescription drug coverage
from private health plans that contract with Medicare. On average,
beneficiaries pay 25.5 percent of the cost for standard drug
coverage, while the Federal Government subsidizes the remaining 74.5
percent. Each year, beneficiaries can choose a drug benefit plan from
a large number of diverse plan offerings. This variety ensures that
beneficiaries are able to select the insurance policy that best meets
their preferences.
Before Part D was created, beneficiaries could obtain drug coverage
by using an employer retiree plan, if they had one; purchasing a
private Medigap plan; enrolling in a Medicare managed care plan; or
using Medicaid coverage if they were dually eligible. Chart 7-4
illustrates the change in prescription drug coverage among
beneficiaries between 2004 and 2006, the year that Part D was fully
implemented. In 2004, 24 percent of Medicare beneficiaries lacked
prescription drug coverage. By 2006, many of these Medicare
beneficiaries obtained prescription drug coverage by choosing a
stand-alone drug plan or a Medicare Advantage (MA) plan.
Part D has had important effects on beneficiaries' out-of-
pocket spending and their adherence to the medication protocols they
have been prescribed. Recent analyses from the Health and Retirement
Study data found that the introduction of Part D has been associated
with a median decrease of



$30 per month in out-of-pocket spending
among the newly insured population, compared to median baseline
spending of $100 per month. When prescription drugs are not
affordable, individuals may not adhere to their prescribed regimes.
They may skip doses, reduce doses, or let prescriptions go unfilled.
Recent work finds a small but significant overall decrease in cost-
related medication non-adherence following the implementation of Part
D. Both the revitalization of Medicare Advantage and the creation of
Medicare Part D represent important steps for ensuring that
beneficiaries have affordable choices for their health insurance.

The Uninsured

An important issue facing policymakers today is that a large number
of individuals lack health insurance in the United States. In
addition to providing important financial protection, health
insurance can help people obtain timely access to medical care.
Research has shown that having health insurance is positively related
to having a usual source of medical care, receiving preventive
services, and getting recommended tests or prescriptions. Based on
U.S. Census data, the current number of individuals who lacked
insurance during the calendar year is estimated to be 45.7 million
people, or roughly 15.3 percent of the population. It is important
to note that some people in Federal survey-based counts of the
uninsured actually may have access to public insurance, but do not
wish to report their program enrollment due to the possible stigma,
or have not yet enrolled despite their eligibility. Also, others in
Federal survey-based counts of the uninsured may have access to
private insurance but have chosen not to purchase it.
The uninsured are diverse in terms of their employment and
demographic characteristics. Individuals in households that have a
full-time, full-year worker make up about 62 percent of the non-
elderly uninsured population. Even with strong ties to the labor
force, many people may not be offered employer-sponsored coverage.
Even if such coverage is available to them, many people may choose
not to buy insurance because it is not affordable or they do not
place much value on having insurance. Individuals who lack insurance
also tend to be younger.
In 2007, roughly 58 percent of the uninsured were under the age of
35. Finally, the uninsured are more likely to be from lower-income
households, although a significant proportion of the uninsured
population is made up of people in higher-income households. As shown
in Table 7-1, among households earning less than $50,000 per year,
more than 20 percent of those households are uninsured. This
contrasts with the highest household income category, where only 7.8
percent of individuals lack insurance.
Going forward, it is important that as the Federal Government
continues to work on increasing the number of Americans who have
health insurance, it uses approaches that effectively target those
who are the greatest risk for being uninsured.



Investing in Public Health

The Federal Government plays an important role in identifying and
addressing public health issues. This Administration has pursued
several public health investment areas, including building a stronger
safety net for the medically underserved, preparing for disease
outbreaks and bioterrorism threats, supporting health-related
research, and taking a leadership role in global health-improvement
activities focused on HIV/AIDS and malaria.

Strengthening Community-Based Health Care

The Health Center Program is a Federal grant program that offers
funding to local communities for providing family-oriented primary
and preventive health care services. Health centers serve as an
important safety net for people who need medical care but are
underserved, including those without health insurance. Health centers
provided care to more than 16 million individuals in 2006, and they
are located in all 50 States and the District of Columbia. In 2002,
the President made a commitment to create 1,200 new or expanded
sites--a goal that was attained in 2007. Additionally, Federal
funding for health centers has increased to $2 billion annually.

Preparing for Public Health Emergencies

The Federal Government plays an important role in ensuring a timely
and appropriate response in the event of a public health emergency,
such as an influenza pandemic or a bioterrorism threat. These types
of situations could potentially lead to high levels of illness,
social disruption, and economic loss, and therefore it is important
for the Federal Government to invest resources in developing
strategies to prepare for them. Working in collaboration with the
States, the Federal Government has provided funding, advice, and
other assistance to State and local planning efforts.

Supporting Research

Health-related research is multidisciplinary. It includes biomedical
and epidemiological work that can reduce a population's
mortality and morbidity risks from disease; economic analyses that
investigate consumer and provider decision making; and health
services research that examines issues such as medical care
utilization, quality, and access to services. Americans rate health
research as a high national priority. For fiscal year 2009, Federal
funding for the National Institutes of Health is $29.5 billion. These
resources will be used predominantly for supporting more than 38,000
research grant awards. It is beneficial to have a balance between
investments that support biomedical research and those that address
critical issues pertaining to the delivery and financing of health
care, particularly given the substantial amount of resources that are
going to be required to meet the medical care needs of the population
in future decades.

Promoting Global Health Improvement

Many nations across the world are developing strategies to deal with
consequences from the broad transmission of serious diseases,
including HIV/ AIDS, malaria, and tuberculosis, among others. In less
developed parts of the world, people who contract these diseases face
a much higher risk of mortality than do people in more developed
parts of the world. There is also a significant economic impact from
disease. In addition to the direct costs of medical treatment, high
rates of serious disease within a population can hinder economic
development. For example, HIV/AIDS may lead to large-scale losses in
work productivity as the disease progresses and leaves those who are
infected and their caregivers unable to work. Studies suggest that
the high rate of HIV/AIDS has reduced the average national growth
rates in African countries by 2 to 4 percent per year. Over the long
term, high levels of disease also may inhibit educational investment,
as shorter life expectancy diminishes incentives for human capital
investment.
In 2003, the United States took a leadership role in supporting
HIV/AIDS treatment, care, and prevention programs around the world,
including in 15 countries that together have half of the
world's HIV infections: Botswana, Cocirc d'Ivoire,
Ethiopia, Guyana, Haiti, kenya, Mozambique, Namibia, Nigeria, Rwanda,
South Africa, Tanzania, Uganda, Vietnam, and Zambia. known as the
President's Emergency Plan for AIDS Relief (PEPFAR), this
program has supported more than 57 million HIV counseling and testing
sessions and has supported care for more than 10.1 million people
infected or affected by HIV/AIDS, including more than 4 million
orphans and vulnerable children worldwide. Additionally, through
September 30, 2008, PEPFAR supported antiretroviral treatment for
approximately 2.1 million people and prevention of mother-to-child
transmission interventions during more than 16 million pregnancies.
In 2008, Congress extended this program for an additional 5 years and
significantly increased its authorized funding level.
A second global health initiative pursued by the Administration has
been prevention and treatment of malaria. Each year, more than 1
million people die of malaria, most of them young children in Sub-
Saharan Africa. It also causes serious morbidity, as those who are
infected tend to lose, on average, 6 weeks from school or work due to
the illness. Spending related to the disease can account for as much
as 40 percent of public health expenditures, as well as high levels
of household out-of-pocket expenditures. Beyond imposing high medical
costs and lower incomes due to absenteeism, malaria is likely to
impose indirect costs through broader macroeconomic channels,
including underdeveloped tourism industries and lower levels of
foreign direct investment.
In June 2005, the President's Malaria Initiative was
announced. This initiative represents a public-private
partnership among the U.S. Government, nongovernmental organizations,
corporations, foundations, and faith-based service organizations,
with the goal of reducing the mortality rate from malaria in 15
African countries by 50 percent. In 2007, the initiative's
second year, 25 million people in Sub-Saharan Africa are estimated to
have benefited from the program. More than 6 million long-lasting,
insecticide-treated mosquito nets have been purchased, with
two-thirds of those nets distributed.

Conclusion

The U.S. health care system is at a critical juncture. While
advances in medical technology help millions of Americans lead longer
and healthier lives, the rising cost of health care is both
threatening the ability of Americans to access care that is affordable
and is increasing the strain on Federal and State budgets. There are
several opportunities to increase the value of health care and improve
health insurance coverage. This Administration has pursued policies to
improve the efficiency of health care markets through increased
consumer involvement, improved choices, information transparency, and
incentives to providers for delivering high-quality, efficient care.
This Administration has also pursued policies to improve the health
insurance options of Americans. With the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, Medicare was expanded to
provide beneficiaries with improved access to affordable prescription
drugs. Additionally, this legislation created Health Savings
Accounts, which, in combination with High Deductible Health Plans,
give individuals the incentive to become more active decision makers
regarding their health care and health investments. Finally, this
Administration has held to its commitment to make important
investments in public health, including the expansion of Health
Centers, collaboration with States and local governments to prepare
for potential crises or threats, support of health-related research
and development, and promotion of global health-improvement
initiatives.