OPINION | US Heath Care System : Time to Think About New Realities

OPINION | US Heath Care System : Time to Think About New Realities

By Ajit Kumar and Sanjeev Maskara
Goa Institute of Management, Ribandar, India


OPINION | US Heath Care System : Time to Think About New Realities

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The historical facts reveal that the USA has gone through a massive health care reform in the last five decades. The initial emphasis was on the coverage of healthcare risks, high-quality services, and easy accessibility. Various healthcare reforms, such as Medicare and Medicaid (1965), Consolidated Omnibus Budget Reconciliation Act (COBRA, 1985), State Children’s Health Insurance Program (SCHIP, 1997), and Affordable Care Act (2010), were made at the Federal and State level, which could not bring much success towards the original goals. The healthcare cost kept escalating. Today, more than 45 million Americans are uninsured. Many people have to face bankruptcies because of illnesses. The health insurance companies spend 20 to 30 percent of their expenditure to meet the administrative cost. The USA kept reforming their healthcare system in a piecemeal manner. The initial focal point was to cover health risks of the individual.

When healthcare costs escalated due to the longevity of human life, technological advancement, and demand for quality care; various management principles based health care plans, such as Preferred Provider Organizations (PPO), Points of Service (POS), Health Maintenance Organizations (HMO), and Consumer-Driven Healthcare (CDH) mushroomed all over the United States. These plans were framed in such a way that they should control the cost and keep transferring “healthcare risk” among all―patient, providers, employers, government, and insurance companies (Figure 1). This tendency of risk transfer has distorted the original concept, meaning, and purpose of the health insurance.

Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care and health system expenses, among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is available to pay for the healthcare benefits specified in the insurance agreement. The benefit is administered by a central organization, such as a government agency, private business, or not-for-profit entity (Wikipedia).

However, private health insurance players in the US tried to control the cost of making their profits and avoiding the potential misuse of the health insurance by other stakeholders, such as overbilling by healthcare providers, excessive use of healthcare facilities by patients and so on. This motivated them to transfer a part of their risk to other stakeholders. As insurance companies are collecting the premium, ideally, they are supposed to cover the entire risk.

In addition, the healthcare stakeholders in the USA were somewhat focused in fine-tuning the big coefficients A, B, and so on, which are evinced in the following equation and explained in the next paragraph.


Equation 1
Equation 1








The stakeholders have often controlled the healthcare cost by optimizing the coefficients (A, B…) using various managerial and technical skills. In addition, various healthcare reforms, such as Medicare, Medicaid, COBRA, SCHIP, HMO Act, HIPAA, and Affordable Care Act, exerted pressure on tweaking the coefficients A, B, and so on (Equation (1)). 


Figure 1: Transferring “healthcare risk” among all―patient, providers, employers, government, and insurance companies.


Figure 1: Transferring “healthcare risk” among all―patient, providers, employers, government, and insurance companies.

For example, government-sponsored programs, such as Medicare, Medicaid, SCHIP, and COBRA, were implemented to provide increased and continued accessibility to older adults, poor, children, and employees. Managed care (HMO, POS, and PPO) and consumer-driven healthcare tried to optimize the cost of care by sharing healthcare risks among various stakeholders. Likewise, HIPAA and Affordable Care Act emphasized deploying information and communication technologies to the maximum. All these efforts kept tweaking the coefficients and unintentionally forgot an important basic fact―as tweaking coefficients have limitations; it is a time to think about new realities.

Statistic: Distribution of U.S. health care expenditure from 2011 to 2015, by payer | Statista
Find more statistics at Statista

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This work is licensed under the Creative Commons Attribution International License (CC BY).http://creativecommons.org/licenses/by/4.0/

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