The American healthcare crisis: Examining a manufactured fallacy

¶ … reputed "health crisis" currently facing Americans. The author explores several aspects of the health care crisis and analyzes the validity of those claims. The author presents an argument that there really is not a health care crisis and it is a fallacy. There were six sources used to complete this paper.

Why do People Believe the Crisis is Real?

What Evidence is There That it is Not Real?

What are some of the things giving the appearance it is...shortage of students etc.

What are some of the ideas that can help the problem?

For several years now Americans have been inundated with information about the health care crisis. News channels cover the crisis and pipe it into living rooms. Magazines publish articles about the causes and history of the health care crisis and politicians use the health care crisis to sell their platform and garner votes. It seems that everywhere one turns one can hear, see or read information about the health care crisis in America. It has become such a part of the fabric of American life that it is accepted as fact. There are several schools of thought about how it started and what keeps it going. Many people believe it is being caused and perpetuated by rising insurance costs. Others think it is the rising cost of health care itself while still others believe it is politically motivated and a way to keep the rich and the poor separated. The health care crisis has been talked about, and tossed around so often over the past two decades that it is now an accepted fact and used as a springboard for heated debates nationwide, with little thought to the validity of its existence. When one peels off the initial onslaught of information however and examines the foundational basis and workings of the American health care system one will see that the health care crisis is a fallacy perpetuated by politicians and media.

There are many people, experts included who believe that there is indeed a national health care crisis going on in the United States. One only has to look at the number of uninsured, underinsured and uninsurable to buy into the belief that the crisis is real. On any given night one can tune into a news show and see information that will lead the viewer to believe there is a national crisis in the health care system. People and experts a like blame higher cost of care, politicians and other factors to keep what they believe to be a true national health care crisis going.

It is vital to the study of the problem to separate true causes and effects from assumptions about the crisis. It is also important to develop solutions to the things that actually are contributing factors to the perception that there is a serious health care crisis going on in America.

Why do People Believe the Crisis is Real?

The last time anyone in American politics spoke seriously of a health care "crisis" was during the recession of the early 1990s. At the time, unemployment was rising just as high medical costs were driving insurance premiums to unprecedented levels. As a result, millions of people lost their coverage and millions more worried they might be next (Cohn, 2001).

Newspapers captured the situation: "hard times leave more uninsured" (The Hartford Courant); "possibility of losing coverage worries caregivers, parents" (Houston Chronicle); "need health insurance? good luck" (USA Today). So too did the stories of people like Megan Janes-Smith, a recently unemployed 31-year-old living in Kalamazoo, Michigan. As she explained to a reporter, her husband's employer didn't offer coverage and her three-person family didn't have the $900 a month to buy coverage on their own. So she put off the x-rays recommended to treat her chronic shoulder condition, put up with the pain from her recurring sinus infections, and put out of her mind worries about the hospital bills she'd face in a medical emergency. "I'm trying not to lose my sanity," she said (Cohn, 2001)."

Stories such as the above have provided the foundation for believing there is a real and serious health care crisis in the United States. Washington began to put out the message that the nation was facing a health care crisis as well. Politicians began to make it a main focus of their campaign platforms in the early 1990's. Politicians began to get their speech writers to focus on the health care issues of America and when they gave those speeches the voters began to believe it existed.

Many people began to worry about the ability to pay for health care or insurance and at the same time insurance rates began to rise dramatically.

In theory, these people could go out and buy insurance on their own. In practice, that's simply not financially possible for most of the newly unemployed. Insurers generally charge individuals buying insurance more than they charge businesses buying coverage for their employees, in part because their actuarial tables show that individual buyers are less healthy on average. And if an insurance company decides you have a particular propensity for running up medical bills -- and you can be sure it will try to find out -- it will adjust its rates accordingly. Consider what happened earlier this year when the Kaiser Foundation created seven hypothetical consumers, each with past or present medical problems, and had them apply for coverage from 19 companies in eight markets across the country. The average premium was about $4,000 a year, often for reduced benefits. And those who got coverage offers -- however expensive -- were the lucky ones. Insurers rejected outright nearly half of the applications from a hypothetical 48-year-old woman who'd beaten breast cancer seven years before -- and all the applications from a hypothetical 36-year-old man with HIV (Cohn, 2001)."

Other reasons that have been presented as evidence that the nation is in the midst of a severe health care crisis include:

The inordinately high costs of the present system. Health care costs now represent one-seventh of our economy and are projected to rise to $1 trillion next year.

The large number of adults and children with no medical insurance or with inadequate coverage.

The need for more family practice physicians who can provide preventive care, particularly immunizations for children and prenatal care for pregnant women.

There are now more working poor than there were 20 years ago, and the kinds of jobs welfare recipients, even after training, are likely to find will be in this category."

Our system requires a reservoir of unemployed for times when there is an economic boom. Since the cry is that we can't afford a humane welfare system, here are a few proposals for funding such a system (Blumenthal, 1994)":

Health insurance premiums are rising at double- digit rates," writes Henry Aaron of the Brookings Institution in The Washington Post. "Drug prices are skyrocketing. Employers are curtailing health insurance benefits and boosting the share of cost employees must shoulder. "Stunned by rising premiums, employees are foregoing coverage for themselves, their spouses and their children. As a result, the ranks of the uninsured rose to more than 41 million, a jump of 1.4 million in 2001 alone, and appear likely to continue expanding as rising costs hammer employers whose profits are depressed by a weak economy. No one should be surprised if 50 million people are uninsured by 2005(Reno, 2002)."

All of the above reasons lead to the conclusion by the American public that there is a national health care crisis of epic proportions going on.

What Evidence is There That it is Not Real?

Rising health care costs are indisputable. If one takes the cost of health care fifty years ago and compares it to the cost of health care today it will show positive evidence that the health care costs have skyrocketed when compared to years ago. What the people of the nation need to remember is that salaries have also risen and skyrocketed. If one takes the average mean salary of 50 years ago and compares it to today's salaries there will also be a large difference. In addition to making more money most families now have dual incomes. With both the male and female in the home working the chances of obtaining health care coverage is doubled. In addition there are many public health care programs that did not used to be available before. It was not long ago that health care insurance was not in existence. If it was available at all it was only for severe emergencies such as accidents or needed emergency surgeries. The early health care insurance did not cover things such as doctor visits and medications. These perks are relatively new. Families were expected to set aside funds for the needed prescriptions and visits to the doctors.

Hall is a business reporter for The Journal-Gazette in Fort Wayne, Indiana.

COPYRIGHT 1993 Society of Professional Journalists

TennCare: a closer look a legislative briefing paper.

Business Perspectives; 9/22/2002; Wright, Douglas

Despite ongoing concerns about TennCare's cost and success, the program has provided health care coverage to Tennesseans at a reasonable price while benefiting the overall health care economy of Tennessee. This article examines some of the questions commonly asked about the TennCare program.

Why Was TennCare Created?

TennCare was created to help solve the state's budget problems. In 1993, Tennessee faced a budget shortfall of over 250 million state dollars caused largely by increases in Medicaid spending. State officials were forced to choose between massive cuts in spending or large increases in taxes. Cutting Medicaid spending would have resulted in the loss of about two federal matching dollars for every state dollar cut, a loss of hundreds of millions of dollars. The alternative would have been massive cuts in the number of Medicaid services. (1)

That same year, toward the end of the legislative session, Governor Ned McWherter proposed a radical new plan called TennCare. The plan would cover hundreds of thousands of additional Tennesseans with health insurance for about what the state was already spending on Medicaid. It would eliminate (2) an unpopular health services tax that generated over $400 million annually. (3) To obtain additional federal matching dollars, the state would instead leverage dollars already spent on the health care system on indigent care and care to the uninsured.

Does TennCare Cost Too Much?

TennCare's cost compares favorably to that of other states' Medicaid programs. Although the current public perception of TennCare may be of a program out of financial control, this is not the case. In 1998, the latest data available from the federal government showed that Tennessee had lower spending per enrollee than any other state. (4) From 1992 to 1998, Tennessee's ranking in payment per recipient went from 14th to 16th place of 16 southern states. (5) In 1999, Tennessee had the lowest average medical services payment per recipient of 12 southern states reporting. (6)

The program's per person cost increase from 2000 to 2001 was similar to increases in private employers' insurance plans. TennCare's recent cost increases reflect the health care marketplace nationwide. TennCare's average cost per recipient increased about 10.7% from fiscal year 2000 to fiscal year 2001. (7) A nationwide survey of employers found that health care premiums increased 11.0% from spring 2000 to spring 2001. (8) Other nationwide surveys indicate an overall premium increase of 10.3% for health plans and an average 13.0% increase in large employer health benefit costs for 2001. (9)

TennCare's average costs per person are similar to those of employer health plans. According to a study of 2,734 companies released by the Henry J. Kaiser Family Foundation and the Health Research and Educational Trust, average annual premiums for employer-sponsored plans grew to $2,650 for single coverage and to $7,053 for family coverage from spring 2000 to spring 2001. (10) Estimated state and federal spending per TennCare recipient in fiscal year 2001 was about $2,986, excluding long-term care costs. (11)

Has TennCare Wasted Millions of State Tax Dollars?

In fact, when compared to what the state might have spent under its old Medicaid program, TennCare has saved significant state dollars. An analysis by the Comptroller of the Treasury found that the TennCare program cumulatively saved the state over 2 billion state tax dollars. The Comptroller compared Medicaid spending growth for TennCare to spending in Southeastern states for 1993 through 2001. This analysis compared state TennCare expenditures with what the state would have spent if TennCare expenditures had grown at the same rate as that of the Southern Legislative Conference states. The analysis compared 1993 Medicaid spending and other state dollars folded into the TennCare program to TennCare spending for 1994 through 2001. (12)

An independent report on TennCare by The Urban Institute shows that the TennCare program saved 245 million state tax dollars and 455 million federal tax dollars from 1994 through 1998. (13) The estimate does not adjust for the drastically increased enrollment in TennCare.

One spending estimate from The Urban Institute report, selectively used by some TennCare reform advocates, is not based entirely upon analysis of actual TennCare expenditures. This estimate indicates that TennCare cost $3.8 billion more between fiscal years 1994 and 1998 than would have been spent under the former Medicaid program, when all costs are included. (14) However, the estimate includes about $4.5 billion in assumed cumulative projected spending accounted for by charity care, local governments, and patient premiums. The report states: "This [estimate] assumes that the forecast provision of charity care, local government contributions, and collection of patient revenues took place. To the extent that they did not, Tennessee expenditures on TennCare were lower than these estimates." (15) Aside from premium dollars, it is virtually certain that these additional expenditures would have occurred in the health care system regardless of TennCare's existence. Unlike other states, TennCare has enabled the st ate to capture some of these costs within a managed system to receive federal matching dollars.

Because Tennessee's per capita income has increased relative to that of other states, Tennessee's portion of TennCare costs has also increased. The federal government's contribution to states' Medicaid programs is based upon each state's per capita income relative to that of other states. This matching contribution is called the federal medical assistance percentage (FMAP).Tennessee's per capita income ranking rose from 37th in 1989 to 35th in 1999. (16) As a result, Tennessee went from paying about 30.0% of total Medicaid cost in 1990 to paying about 37.0% in 2000, the largest increase in state share of any state. (17) Based upon the fiscal year 2002 TennCare budget, excluding long-term care services, Tennessee paid over 230 million more state dollars for TennCare in 2001 than it would have if the state's per capita income had not increased during the period. (18)

Does TennCare Cost Tennessee More Than the Old Medicaid Program?

TennCare's costs compare favorably to what the state might have experienced under the old Medicaid program.

To obtain a true picture of how TennCare spending compares to state dollars that might have been spent under the state's Medicaid program, several adjustments are necessary:

First, long-term care expenditures should be excluded because they are not part of the TennCare waiver.

Also, about $156 million in state spending on programs outside of TennCare was folded into the TennCare program. Because this spending occurred outside of the old Medicaid program, it should probably be excluded from TennCare as well.

Finally, from 1993 (the last year of Medicaid) to 2002, Tennessee's FMAP decreased from about 68.0% to about 64.0%, resulting in about $173 million in additional state spending not attributable to the program itself.

The federal Health Care Financing Administration approves and oversees state Medicaid waiver programs. A major requirement for approval and continuation of any waiver program such as TennCare is evidence that the program is budget neutral. This means that the program cannot cost the federal government more than it would have spent if the state had retained its original Medicaid program. (19) In Tennessee's case, the program has a global federal budget over the life of the waiver that the state cannot exceed. (20) This constraint, along with Tennessee's historically conservative fiscal management, significantly lessens the probability that the program's cost will be more expensive than the state's former Medicaid program.

Is TennCare Consuming an Increasing Share of the State's Budget?

TennCare's percentage of the state budget is only about two percentage points higher than in 1993. Based upon figures from the National Association of State Budget Officers, total Tennessee Medicaid expenditures for fiscal year 2000 were about 25.0% of the state budget. (21) This was actually less than the 27.0% of total state spending represented by the Medicaid program in 1993 before the TennCare program began. The fiscal year 2003 TennCare Bureau budget, including long-term care, is about 29.0% of the total budget, two points higher than in 1993. (22) However, this increase in TennCare's share of the total budget may also be attributable as much to continuing constraints on other areas in the state's budget as to uncontrolled growth in TennCare spending. One must also remember that Tennessee is covering over 500,000 more people than it did under the Medicaid program.

Are Too Many People on TennCare?

Tennessee has a high number of recipients compared to other states. As of June 2002, about 615,000 uninsured and uninsurable persons were on TennCare. Who are the uninsured and uninsurable on TennCare? About 69.0%, or 409,510, are in families with income below 100.0% of the federal poverty level. Another 160,567, or 27.0%, are in families with income above 100.0% but below 200.0% of the poverty level. Only about 5.0% have incomes above 200.0% of the poverty level. About 185,689, or 31.0%, of all uninsured and uninsurable TennCare recipients are children. (23)

Why Not Just Remove Uninsured and Uninsurable People from Tenncare?

Removing people from TennCare may save state tax dollars but will probably not decrease overall public health care costs. It would also result in a significant decrease in federal matching dollars. Based upon fiscal year 2002 projected medical costs per capita, removing about 353,000 uninsured and uninsurable recipients 14 years of age and over from TennCare could save about $374 million per year in state taxes. However, Tennessee would lose about $655 million in federal matching funds, resulting in a total withdrawal of over $1 billion dollars from the health care system. (24)

These persons would continue to incur health care expenses and would likely obtain services at the most expensive possible source -- emergency rooms. The public would continue to pay these expenses through an invisible tax -- higher insurance premiums or health care prices. In other words, instead of spreading $374 million in managed health care expenses explicitly across all Tennessee taxpayers, almost $1 billion dollars in unmanageable expense would be spread across all Tennessee citizens. (25)

One reason for including these persons in TennCare initially was to steer them into less expensive preventive care when possible, and to assign them a health care provider to manage their care. Removing uninsured/insurable persons could also result in removing some relatively healthy people who incur little cost. The federal matching dollars for these persons, which may actually be used for those who are disabled or less healthy, would be lost. This could result in an actual in crease in overall health care costs to the citizens of Tennessee.

The Texas Comptroller of Public Accounts calculated that in 1998 $4.7 billion per year was spent in that state on health care for about 4.9 million uninsured citizens. (26) This represents about $967 in health care per uninsured person, supplied by health care providers in Texas. As stated by a private consultant to the state, health care exists and is provided whether we acknowledge it or not. (27) TennCare has enabled the State of Tennessee to recognize some of these costs in the system, manage the costs more efficiently under a managed care system, and benefit the state health care system by receiving federal health care dollars in an almost two-to-one match.

The state's TennCare consultant from the Mercer Company separately addressed the full House and Senate membership in 2000. He has worked for numerous state Medicaid programs. According to this consultant, Tennessee has a better Medicaid waiver "deal" from the federal government than most other states. (28) Unique features include Tennessee's ability to receive federal matching dollars for spending by local public entities on TennCare patients, as well as matching dollars for premiums paid by uninsured and uninsurable recipients.

Mental Health Weekly; 12/22/2003

Without reform, TennCare, Tennessee's much-scrutinized program for Medicaid clients and the uninsured, could become so costly that in five years the state will find it difficult if not impossible to support the program and meet its obligation in other critical state programs, according to a report released this month by independent management consultants.

Pharmaceuticals, professional services, outpatient services and enrollment growth will be the key drivers of TennCare costs between the fiscal years 2004 and 2008, the report stated.

These growth factors are all influenced, although in different ways, by the same root causes: various elements of TennCare's program design, the general healthcare environment, and some aspects of program execution.

TennCare has a significant impact on the state's overall financial situation. Even with modest economic recovery, TennCare will eat up virtually all new state revenue -- 91% by 2008 -- according to the report done by independent management consultants McKinsey & Company.

Under this scenario, TennCare would jump from representing 25% of the state budget today to 36% of the state budget in 2008.

The program's budget is growing rapidly, from $6.1 billion in fiscal 2002 to $6.9 billion in fiscal 2003, with the state paying $2.1 billion of the latter amount. While this increase is not unique to Tennessee, the program's growing costs represent a very serious situation for TennCare and the 1.3 million enrollees who depend upon its services, the report stated.

The report, Achieving a Critical Mission in Difficult Times -- TennCare's Financial Viability, assessed TennCare's potential for financial viability over five years. The report is the first of a two-part analysis commissioned by Tennessee Gov. Phil Bredesen.

The second part of the report, to be released in January, will identify several strategic options for helping ensure TennCare's financial viability while still meeting the program's goals to provide quality healthcare to Tennessee's neediest citizens.

The governor's press secretary, Lydia Lenker, told MHW that the governor will take the recommendations and develop his own recommendations for the TennCare reform plan, which he will submit to the state legislature when it reconvenes next year.

The McKinsey report comes just one month after Tennessee officials awarded new TennCare contracts to Magellan Health Services Inc. And ValueOptions Inc., to run the behavioral health carve-out of its managed Medicaid program. The carve-out, called TennCare Partners, is now divided into three regions -- east, middle and west (see MHW, Dec. 8).

According to a spokesperson from the Tennessee Department of Mental Health and Developmental Disabilities (DMHDD), the governor's potential reform recommendations will not affect the initial contract period of 18 months for Magellan and ValueOptions.

The governor's reform "won't affect the initial contract period of the new [managed behavioral healthcare organizations (MBHOs)] but when those reforms do come down, it may result in contract revisions or amendments for years three to five," Tony Troiano told MHW.

The report was based on interviews with more than 150 stakeholders, including state and federal government officials, health insurance company representatives, healthcare providers, healthcare advocates, TennCare enrollees, and healthcare experts around the nation.

Launched in 1994, TennCare's medical benefits can be grouped into three categories: comprehensive medical care benefits; behavioral health benefits; and long-term care benefits.

TennCare's 1.3 million enrollees fall into two basic groups. The first and largest is the program's traditional Medicaid population, which numbers just over 1 million enrollees.

The other group, called the expansion population, is composed of Tennesseans who are not eligible for traditional Medicaid -- certain uninsured or uninsurable people and various "grandfathered" groups that continue to meet prior eligibility.

Officials react

Unless people are willing to make substantial changes -- that means beneficiaries, the advocates, providers and others -- TennCare cannot be kept afloat," Bredesen was quoted in the Tennessean as saying after a news briefing.

In the end, we can't allow TennCare to bankrupt the state. We can't let TennCare crowd out other important functions of state government," Bredesen said.

The numbers about the financial impact in five years -- those numbers are pretty sobering," Michael Drescher, TennCare director of public affairs, told MHW. "Those numbers are pretty daunting as far as what [TennCare] will mean to the state's budget." don't think you'll see any day-to-day changes on how we run the program," said Drescher. "We're continuing to try and run the program as we would with sound financial management... making sure we do what we need to do."

One statistic that stands out is the reference to the fact that 91% of all new state revenue will be absorbed by TennCare in 2008, Drescher said. Drescher added that he hopes the state plans on "working on something sooner rather than later to put reforms in place."

Key cost drivers

By fiscal 2008, TennCare is likely to incur total costs of approximately $12.2 billion, with $3.8 billion in state spending, driven largely by pharmaceutical, professional services, and outpatient services costs and enrollment growth that places demands on all parts of the program, the report stated.

Pharmaceutical costs, the single most significant source of future cost increases in the consultant's forecasts, will drive nearly 60% of total growth through fiscal 2008, contributing nearly $2.6 billion in total cost growth during that period.

This category of pharmaceutical spending includes antipsychotics, antidepressants, and other drugs used in the management of behavioral disorders.

Spending for BHO pharmaceutical drugs in this class has been rising at a very high rate, not just for TennCare, but also for payers nationwide, stated the report.

Since fiscal 2000, TennCare's annual cost increase for BHO drugs per member has been over 35%. The lack of preauthorization programs to control BHO costs and utilization has contributed to this cost growth, stated the report.

The consultants concluded that based on a defined set of economic scenarios and financial viability measures, even with current and planned improvement efforts and solid program management, TennCare as it is constructed today will not be financially viable.

Ensuring the financial viability of TennCare or any Medicaid program is going to be challenging, they concluded.

Contributors to TennCare estimated program growth -- FY '04-'08

Pharmaceuticals acute medical and behavioral)

Nonpharma BHO

Long-term care

Mental retardation

Inpatient

Outpatient

Professional

Based on a moderate recovery scenario; total estimated growth is $4.6 billion.

Source: McKinsey & Company.

Note: Table made from pie chart.COPYRIGHT 2003 Manisses Communications Group, Inc.