Socializing American Healthcare

Socializing American Healthcare

"The entitled rich kid who keeps failing in class"

America is a country with enormous wealth, military power, and cultural influence. But at the same time, it's no surprise that there are some big-time issues this nation does wrong. From the Social Progress Index rankings, the United States is ranked in the 24th, together with many developing countries (which is sad). If this trend were to continue, the US would be with those African nations one day.

Health Insurance in America

"Overall in 2016, the score for the USA's healthcare access and quality was 88.7 points, placing it 29th out of 195 countries." Over years, America has been heavily criticized for its unequal access to healthcare; inefficiency of the system, and inequity across different income groups. Despite being a leading nation of the world's medical technology, America has similar health statistics to countries such as Chile, Albania, and Jordan. Among all developed nations, the US spends far more on healthcare (almost doubled), but the outcome comes last.

https://www.pgpf.org/blog/2020/07/how-does-the-us-healthcare-system-compare-to-other-countries


The Affordable Care Act (ACA ) introduced in 2010 sought to bring the millions of uninsured (30 million people been uninsured in 2019) into the pool by expanding Medicaid coverage and providing subsidies to those left behind. This scheme was supposed to relieve costs and improve access issues. But sadly, it's been statistically proven that countries with nationalized medical systems (such as China, the UK, and Switzerland) outperform all aspects of the American health insurance system.

  • What is healthcare designed for?

The purpose for people to get insurance is to absorb risks in a way that allows them to make a profit out of it. In other words, it's called optimizing across states, paying insurers when things go good (not getting hit by a car), and getting from them when things go wrong (if you do get hit).

  • Statistics

According to research, around 55% of the country's total population is covered by employer-sponsored health insurance. About 13% of the non-elderly population have non-group/individual insurance. Those people don't get to access the employer coverage mainly pre-existing conditionspartial insurance that doesn't include any previous issues such as knee surgery and cancer) and medical underwriting – exclusion test for those with health issues; they are either kicked out or charged higher). For these two groups of people, their choices are either to get insurance through the Affordable Care Act (ACA) or in the non-group insurance market (those private insurers charge ridiculously high because they worry about the sick).

Approximately 9% of people are uninsured, who do not have health insurance at any point during the year. The uninsured are mostly poor working-class families, just above the poverty line to get sponsored by the government (not qualified to get a Medicaid). They are unwilling to spend their limited disposable income on healthcare. "In 2019, 73.7% of uninsured adults said that they were uninsured because the cost of coverage was too high."

Then just more than 37% of people are provided with government-sponsored insurance, primarily Medicare (universal, for the elderly) or Medicaid (tested, categorical, free for the poor), and taxpayers will be paying for them. What's worth mentioning here is that some qualified people for Medicaid don't take the welfare. It might be due to several reasons:

  1. Embarrassment – some are afraid to be looked down on by others.
  2. The 'wholesome' – Some simply don't think they'll ever be sick.
  3. Immigrants – Some who immigrated to America have language barriers to claim the benefit.

Other subtypes of health insurance are like:

  • Disability insurance – for those with career-ending injuries, unable to work for the rest of their lives.
  • Workers' compensation – against injuries on the job (cover the medical cost + lost wages)
  • Unemployment insurance – people who lost their jobs due to the pandemic, lack of available work, or personal reasons. (not those who get fired because they're crappy workers).

Notes: the percentage does not add to the total. Individuals may have more than one type of coverage at a time (e.g., Medicare and Medicaid). Therefore, estimates by type of coverage are not mutually exclusive.

  • Moral Hazard

With more generous programs, there are three classic social insurance trade-offs:

1. More injuries

One problem with this is that it is hard to verify, 'does your back hurt or not?' It's easier to observe if someone's blind or not than checking if he has a bad back.

Of course, people value insurance in case accidents happen. But a more generous program encourages abnormal behaviors of people not acting optimally: empirical research has shown that with an increase in the welfare of workers' compensation, suddenly more people report injuries on the job.

2. People stay out of work longer

Some people value leisure more than work. Now, with the support by the government, the substitution effect dominates the income effect; they'd choose to sit home and watch opera instead because that's more attractive to them. As a result, People won't be engaging in productive trades.

We compromise to deal with such issues; the government can provide social insurance without making it so generous. For those who sit at home and wait to collect unemployment insurance checks, we give half of what they'd earn at work; it leads to less distortion, and people don't starve in the first place.

3. People use more healthcare – over-utilization of resources

With the government's provision, there are suddenly more doctor visits. The unexpected result is that the doctors get rich. They can give you extra CT (computed tomography) scans that don't cost you as a patient, but they get to make money out of it (people's health were totally unaffected, and we're spending more).

Prospective payments are needed; give doctors a fixed amount in the check and let them bear the risk of providing the extra; the government will only pay for particular diagnoses.

Healthcare Reform

  • Failed plans

The American government has tried to reform the system, making it more accessible and fair, but the problem is – it fails every time. Here are a few solutions it has tried:

1. Subsidization – to provide the poor & outsiders (people who are not in the coverage) the money to buy insurance.

The problem is that private insurance companies are too good at shedding the sick. Therefore, there will always be people outside of the system, even when they have the money.

2. Single-payer insurance – letting the government does all the job, nationalizing the system (like Canada).

The first political issue is paying for it. If all insurance is provided by the government, the government will bear a massive expenditure. It comes with more tax collection (x2), and taxing progressively from the rich upsets them, further causing political conflict. Although taxation creates deadweight loss, on the other hand, the good thing is that having a unified insurance provider lowers the administration cost of insurance by at least 10%.

However, status quo bias is another constraint when reforming a better system; people value the insurance plan they have now more, unwilling to give up what they had for something new. It's not a nice thing to say, but sometimes, people are just not smart enough to make the best decisions for them. In this case, American citizens don't get the trade-off between removing the hidden tax (when the employers pay the insurance for their employees, they pass the cost partially onto their employees' wages) and paying an additional tax to the government. People prefer the old plan for several reasons: brand allegiance, fear of the unknown, and inertia.

3. Insurance companies – they are unwilling to give up such a profitable business; government coercing them shutting down could potentially cause opposition and rebellion.

The three-legged stool

Economists in America have figured out a new scheme to offer a comprehensive solution, gathering the traditional insurance system's advantages and mixing it with new strategies.

1. Ban insurer discrimination – exclude pre-existing condition test; can't drop people when they get sick; set an average price only.

But here's a conflict of interest raised. The purpose of pre-existing condition test was supposed to get rid of the imperfect information of buyers knowing themselves more than the seller; people buying insurance plans know how healthy they are, but the insurers don't. This is also known as the Lemons Problem by George Akerlof. Another example of asymmetric information (but as a flipped story) would be in the second-hand car market; the seller knows the car has got something wrong with its quality, that's why he chooses to sell that poorly performing car. It is the buyers who should be suspicious – "why are you selling it to me if its functions perfectly?" In similar cases, transections cannot make both parties better off. It leads to a cost of moral hazard because the insurers don't know enough about you; therefore, they will under-insure you.

The insurers need a distribution of sick & healthy to make money. To set an average fair price, they have to raise the price because more sick will now join in the coverage. Consequently, more healthy people will drop, knowing that they won't be sick until the insurers can't make any profit out of their business. Now, you're not getting rid of the adverse selection (one party has more information than the other), and you are making insurance companies go bankrupt!

2. Individual mandate – set a law to bring in the entire pool of people to buy the insurance, and set a fair price for them all.

The Affordable Care Act (known as Obamacare) encountered the same issue. Aiming to provide health insurance for all Americans and setting an average price means that the vast majority of people will need to pay more just for those bottom-class people who can't afford to pay. The worst case would be that those low-income families (who do not get any subsidy as they are just above the poverty line) suffer; they could just pay the insurance, and now they can't.

To solve this dilemma, we have to make the scheme more feasible and humane. That's precisely what the US government did shortly. For any households, if 8% (or below) of their income is less than the insurance fee, they won't be subjected to the system; the government will treat them separately with special care. Nonetheless, that's not the end of the story; there's an efficiency cost as the government does it all. Meanwhile, some healthy people will get upset; they will be forced to buy something they don't want ("you have to!") with a sky-rocketed tax bill.
For some who just don't want to get bothered to join the 'big family,' they'd rather pay the tax penalty and get their own health insurance instead. By the way, there's a notion of fairness; you can't just take money from the rich just because they're rich...

3. Subsidy

To lift up the vulnerable groups, as the government, we can provide them insurance for free, absorbing the cost of the insurers (market failure solved! Healthy people will stay in the market). Or, we can help those who couldn't afford the insurance access to the labor market, so they could be sponsored by their employers (bear in mind that the States has huge immigration issues, and the system does not cover undocumented immigrants coming from Mexico).

Mental Healthcare

Anxiety disorders are the most common mental health concern in the United States. Over 40 million adults in the U.S. (19.1%) have an anxiety disorder. Meanwhile, approximately 7% of children aged 3-17 experience issues with anxiety each year. Most people develop symptoms before age 21.

Mental health has always been a huge issue, but it’s finally starting to get the attention it deserves (because it matters!!!). Nearly one in five adults in America every year suffers from anxiety disorders (most common mental illness: depression, bipolar disorder...). Yet only 36.9% of those suffering receive treatment, even though anxiety disorders are highly treatable, which at the same time means that more than half never get help, even people who have health insurance. This is a crisis.

In one decade, teen depression rates are up 60%. The overall suicide rates have gone up almost 20%, especially in the Asian community. I used to not take my mental health seriously. I pushed it to the side for years because I was so focused on thriving. I thought anxiety and panic attacks were totally normal. “If my heart feels like it’s exploding, that’s how I know I’m alive.”

  • Who Should We Blame?

Insurers being the bad guy isn't surprising. The disparity between regular healthcare and mental healthcare is illegal. To present that, the Law of Mental Health Parity and Addiction Equity Act was introduced in 2008 – insurers can't charge you higher co-pays for mental health care.

However, this didn't prevent insurers from screwing us. When they can't put stricter numeric or quantitative limits on mental health than physical health, they still found a way out through non-quantitative limits; they made it harder to find a psychiatrist; their lists even include providers who are dead - "ghost networks":

While seeking help for her teenage daughter's anxiety, Barbara Griswold says she called 73 doctors listed in her insurance plan's network. Not one was available for an appointment within two months. Many never called back. Some had retired. Others weren't taking insurance. Several weren't seeing adolescents. Still others had disconnected numbers. And some had died.
  • Conflict of Interest

Even if you do somehow find a mental health provider who takes your insurance, there's a good chance your insurance company will stiff you by exploiting a concept known as "medical necessity"health care services that a physician, exercising prudent clinical judgment, would provide to a patient. When your doctor recommends treatment for you, your insurance doesn't just approve it; they hire their own doctor to review your doctor's recommendation to judge if it's "medically necessary."

Of course, appeals are highly recommended, but this review process is highly subjective: depression isn't always as apparent as tearing your achilles tendon; anxiety doesn't show up on an x-ray. Ultimately, the bar for treatment can be ridiculously high compared to physical health care. And "medical necessity" is simply a perfect excuse for insurance companies to deny claims; the more claims that they deny, the more profitable they are, which is why you can see sky-high denial rates of claims with mental health:

https://www.communitysolutions.com/research/pursuit-parity-ohio-stands-insurance-coverage-mental-illness-substance-use-disorders/

  • "We can fix this!"

Insurance companies are clearly in violation of the Parity Law. "Patients were illegally denied benefits based on United Behavioral Health's internal guidelines. The federal court called the guidelines' flawed, unreasonable, and more restrictive than generally accepted standards of care." But let's not forget that there's something we can all do to fight back – complain. Complain when your mental health coverage is denied because when patients challenge denials, the cases often get reversed. "A recent study found that when patients appeal, insurers end up reimbursing them, on average, 39% of the time."

As mentioned before, the two main problems are people's accessibility to the coverage and the cost for the government. The US's spending on insurance is the 1st across all nations, reaching an all-time high in 2020 of 19.7% of its GPA. However, 1/3 of all expenditure is wasteful on administrative costs. And the real difficulty is that you can't just cut it because of uncertainty; you don't know the 'solution' is going to work or not; trying to cut the budget may cause unknown issues.

Reference:

Key Facts about the Uninsured Population
This issue brief describes trends in health coverage prior to the pandemic, examines the characteristics of the uninsured population in 2019, and summarizes the access and financial implications of…
Facts & Statistics | Anxiety and Depression Association of America, ADAA
Did You Know? Anxiety disorders are the most common mental illness in the U.S., affecting 40 million adults in the United States age 18 and older, or 18.1% of the population every year. Anxiety disorders are highly treatable, yet only 36.9% of those suffering receive treatment. People with an a…

https://www.census.gov/library/publications/2021/demo/p60-274.html

https://sgp.fas.org/crs/misc/IF10830.pdf

https://www.washingtonpost.com/health/2022/02/19/mental-health-ghost-network/