U.S. GOVERNMENT PUBLISHING OFFICE

29–443 PDF WASHINGTON : 2018

S. Hrg. 115–373 

THE HISTORY AND CURRENT REALITY OF THE 

U.S HEALTH CARE SYSTEM 

HEARING 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 6, 2017 

Available via the World Wide Web: http://www.Govinfo.gov/ 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

RON JOHNSON, Wisconsin, Chairman 

JOHN MCCAIN, Arizona 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JAMES LANKFORD, Oklahoma 

MICHAEL B. ENZI, Wyoming 

JOHN HOEVEN, North Dakota 

STEVE DAINES, Montana 

CLAIRE MCCASKILL, Missouri 

THOMAS R. CARPER, Delaware 

JON TESTER, Montana 

HEIDI HEITKAMP, North Dakota 

GARY C. PETERS, Michigan 

MAGGIE HASSAN, New Hampshire 

KAMALA D. HARRIS, California 

CHRISTOPHER R. HIXON, Staff Director 

GABRIELLE D’ADAMO SINGER, Chief Counsel 

KYLE P. BROSNAN, Counsel 

MARGARET E. DAUM, Minority Staff Director 

COURTNEY C. CARDIN, Minority Counsel 

LAURA W. KILBRIDE, Chief Clerk 

BONNI E. DINERSTEIN, Hearing Clerk 
(III) 

C O N T E N T S 

Opening statements: Page 

Senator Johnson ............................................................................................... 1 

Senator McCaskill ............................................................................................ 5 

Senator Tester .................................................................................................. 14 

Senator Carper ................................................................................................. 17 

Senator Peters .................................................................................................. 21 

Senator Harris .................................................................................................. 24 

Senator Daines ................................................................................................. 26 

Prepared statements: 

Senator Johnson ............................................................................................... 41 

Senator McCaskill ............................................................................................ 42 

WITNESSES 

WEDNESDAY, SEPTEMBER 6, 2017 

Melissa Thomasson, Ph.D., Professor and Director of Graduate Studies, Department of Economics, Miami University ........................................................ 9 

Katherine Baicker, Ph.D., Dean, Harris School of Public Policy, The University of Chicago ...................................................................................................... 11 

Sabrina Corlette, Research Professor, Center on Health Insurance Reforms, 

Georgetown University Health Policy Institute ................................................ 13 

ALPHABETICAL LIST OF WITNESSES

Baicker, Katherine, Ph.D.: 

Testimony .......................................................................................................... 11 

Prepared statement .......................................................................................... 54 

Corlette, Sabrina: 

Testimony .......................................................................................................... 13 

Prepared statement .......................................................................................... 64 

Thomasson, Melissa, Ph.D.: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 45 

APPENDIX 

Chart 1 ...................................................................................................................... 73 

Chart 2 ...................................................................................................................... 74 

Chart 10 .................................................................................................................... 82

Chart 11 .................................................................................................................... 83

Chart 12 .................................................................................................................... 84

Chart 24 .................................................................................................................... 96

Chart 25 .................................................................................................................... 97

Document submitted by Senator McCaskill .......................................................... 99 

Chart submitted by Senator Daines ....................................................................... 171 

Article referenced by Senator Johnson .................................................................. 173 

Responses to post-hearing questions for the Record 

Ms. Thomasson ................................................................................................. 177 

Ms. Baicker ....................................................................................................... 188 

Ms. Corlette ....................................................................................................... 228 

(1) 

THE HISTORY AND CURRENT REALITY OF 

THE U.S. HEALTH CARE SYSTEM 

WEDNESDAY, SEPTEMBER 6, 2017 

U.S. SENATE,

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:03 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Ron Johnson, Chairman of the Committee, presiding. 

Present: Senators Johnson, Daines, McCaskill, Carper, Tester, 

Heitkamp, Peters, Hassan, and Harris. 

OPENING STATEMENT OF CHAIRMAN JOHNSON 

Chairman JOHNSON. Good morning. This hearing will come to 

order. 

I want to welcome the witnesses. Thank you for your testimonies. 

I certainly enjoyed reading it, and I am looking forward to your 

oral testimonies and getting into a discussion on America’s health 

care system. 

Now, earlier this morning, I attended an open, I guess, meeting 

with Senator Alexander and Senator Murray, who with their 

Health, Education, Labor and Pension (HELP) Committee are 

going to be holding a hearing actually at this exact moment grappling with what Congress should do to basically stabilize insurance 

markets: cost sharing reduction (CSR) funding, offering States 

some flexibility, those types of things. It was noted that 25 percent 

of the Senate was in attendance at that prehearing meeting, which 

I think gives us a pretty good sign that I think there is a strong 

desire to recognize that we have some problems in our health care 

system and those problems need some fixing, and hopefully on a bipartisan basis. 

Members of my Committee have kind of asked some questions: 

‘‘You do not have jurisdiction over health care. Why would you hold 

health care hearings?’’ We do have oversight jurisdiction over certainly government health care programs, and that is certainly part 

of it. But, I come from the private sector. I have solved an awful 

lot of problems, and I know my fellow Committee Members have 

heard me say this repeatedly. There is a process you follow in 

terms of solving a problem. You define the reality. You describe the 

problem, define the problem. It starts with a lot of information. 

Then you set yourself achievable goals. Once you have gone 

through that robust process, then you start designing solutions. 
2 

1The chart referenced by Senator Johnson appears in the Appendix on page 73. 

2The chart referenced by Senator Johnson appears in the Appendix on page 74. 

3The prepared statement of Senator Johnson appears in the Appendix on page 41. 

Unfortunately, what I have witnessed here in Washington, D.C., 

is people hop right to the legislation and they start fighting over 

what their legislative solution is, and we are often void of an awful 

lot of information. I kind of witnessed that during our whole effort 

to repeal and replace Obamacare. 

So, seeing as that effort failed, we are what we are. We have certainly some real issues, and what I would like to do is use the 

hearing of this Committee to lay out that problem-solving process, 

gather the information, do it in hopefully a very thoughtful, hopefully very bipartisan fashion. Facts are facts. Hopefully we can 

agree on the reality, the fact-based definition of the problem. 

Where we do not necessarily agree, we should probably get that on 

the record as well. But, I just basically want to build up that 

record, and that is really the purpose of this hearing and hearings 

in the future. 

In preparation for this, we have been gathering an awful lot of 

information, quite honestly, over a number of months, and we have 

put together for this hearing just a group of charts that we have 

developed on the basis of that information gathering, and I would 

just kind of like to highlight a couple of them, starting with page 

number 1, because I think—and this really does not have anything 

to do with health care, but it has everything to do with health care. 

The financial condition of America. We are currently $20 trillion in 

debt. Over the next 30 years,1 according to the Congressional 

Budget Office (CBO), our accumulated deficits will exceed at least 

$100 trillion. We have taken CBO’s percentage of gross domestic 

product (GDP), and we have converted it to dollars. I have actually 

been PolitiFact’d on this. We are using a 2015 model. It is really 

whatever it is, only $107 trillion it is massive over the next 30 

years as the baby-boom generation retires and we do not have 

enough people paying into these programs. 

So, we have huge deficits, and how does this relate to health 

care? By the way, who is doing our charts here? 

OK. Put up chart 22 on page 2? 

The reason health care falls into this is, in my written testimony—which, by the way, I would ask consent to be entered into 

the record.3

Medicare, Medicaid, and Obamacare represent $87 billion out of 

a total outlay of about $328 billion. About 26.5 percent of all the 

outlays over the next 30 years are in Medicare, Medicaid, and 

Obamacare. 

If you take a look at what drives the deficit, over 30 years $129 

trillion is comprised of about $18 trillion of Social Security benefits—in other words, we are going to be paying out $18 trillion 

more in benefits to Social Security than we bring in through the 

payroll tax; Medicare, about $39 trillion. The Urban Institute did 

a study a number of years ago that said that for every $1 that is 

paid into Medicare through the payroll tax, beneficiaries get $3 in 

benefits. It is a program that is just simply not sustainable. Interest on the debt is about $65 trillion. 
3 

1The chart referenced by Senator Johnson appears in the Appendix on page 82. 

2The chart referenced by Senator Johnson appears in the Appendix on page 83. 

3The chart referenced by Senator Johnson appears in the Appendix on page 84. 

4The chart referenced by Senator Johnson appears in the Appendix on page 96. 

So, if we do not want to pay our creditors $65 trillion in interest 

payments over the next 30 years, we do need to address the deficit 

in Social Security and Medicare and just the entire Federal Government. 

If you want to hop to page 10, when the staff put together this 

chart, to me it was pretty stunning. All this shows is that health 

care spending from 1960 until 2015 has gone from $27 billion to 

$3.2 trillion.1 Now, had that spending just grown by the rate of inflation, we would be spending a little more than half a trillion dollars a year. 

So, one of the things I would like this Committee to explore—and 

I might ask witnesses whether you have seen any studies on this— 

that is a differential of $2.66 trillion. What is that comprised of? 

How much of that $2.66 trillion of increase over inflation in health 

care spending is just due to advances in medicine? Obviously, we 

can do a whole lot more today than we could in 1960. But, how 

much is that through a very inefficient financing mechanism? How 

much of that is because of all the middlemen now with a thirdparty payer system has that added to our health care expenditures? I think that is kind of a table stakes piece of information 

that we need to try and glean. 

If you turn to page 11,2 who pays? And, here you can see the progression over time. Back in the 1940s the vast majority of health 

care expenditures was paid for directly by patients. There was a lot 

of consumer payment, a lot of consumer involvement in terms of 

what they pay in health care. Of course, there was not as much 

stuff to buy, but they were really involved, and over time you can 

see that the third-party payer system has really taken over so that 

today—and this is chart 12,3 and I am going quicker than my staff 

can replace those charts. Today only 11 cents of every health care 

dollar is paid for directly by the patient; 89 percent is either paid 

by government or insurance, the third-party payer. 

So, I always look at this as one of the root causes of our problems 

is we have separated the consumer of the product from the direct 

payment of the product. We have removed the benefits of consumer-driven price competition out of health care. Not only do we 

not care what things cost; we do not even know what they cost. 

We were just in the meeting with Senator Alexander and Senator 

Murray, and a lot of people were talking about price transparency. 

Well, when people have got to pay something themselves, they are 

going to demand price transparency. Right now we do not have it. 

So, about the only people that know what something costs is the 

accounting department of the provider and the accounting departments of insurance companies. That has to change. Consumers 

really need to know what things cost. 

The last two charts I just want to highlight are on pages 24 and 

25, and this really talks about premiums.4 This is a chart I honestly developed as we went through within the Republican conference our whole effort of what we are going to do with 

Obamacare, and it was frustrating to me that CBO scores were 
4 

1The chart referenced by Senator Johnson appears in the Appendix on page 97. 

talking about premiums going up 20 percent to the baseline 10 percent, and then the third year, 30 percent below, and nobody knew 

what that actually meant in dollar terms. So, I just put this chart 

together to try and show my colleagues what that actually meant. 

But, I think this is an important chart because if you take a look 

at the bottom line, that was the baseline in terms of premiums 

prior to Obamacare. In 2013, on average—and I believe this relates 

to a 40-year-old male. On average, nationally, somebody would be 

paying $232 per month. A couple of years into Obamacare now, 

that average has increased, according to a Department of Health 

and Human Services (HHS) study, 105 percent, up to $476. And, 

if you just grow that baseline—CBO does not tell us what baseline 

they are actually comparing it to, so we had to make some assumptions, grow that based on consumer price index (CPI) medical. You 

can see really what the Republican Senate bill, what little it did 

to bring those gross premiums down. And, the reason I concentrate 

on gross premiums, by the way, is because we are talking about 

CSR payments; we are trying to stabilize the market. But so much 

of our discussion was about government funding to bring down net 

premiums, which means that for every $1 premiums have increased on a gross level, the American taxpayers are picking that 

up, or individuals, the forgotten men and women in health care 

who are not getting subsidies, do not get any cost sharing, they 

cannot afford coverage because their premiums have doubled. In 

Wisconsin, oftentimes I have heard people say premiums have tripled or more. So, I think our focus as we move forward has to be 

on gross premiums. What can we do to stabilize the markets, bring 

those down? 

And, the final chart1 is a McKinsey study commissioned by HHS, 

and this was quite disappointing to me. This information, I just 

have to say honestly, was being suppressed. A whistleblower had 

come to my office that this study was done, this information was 

available in May, and we could not get it. We finally had to write 

some letters, threaten to make those things public before I got this 

information. 

Now, it is a limited study, but it is the kind of information we 

need. This one chart only shows one State. The study had four. 

This State is Tennessee, and what it shows, again, for a male 40 

years of age, prior to Obamacare, they were paying about $104 per 

month in health care premiums. As of 2017, that insurance premium had increased 3.14 times, 314 percent, had gone up to $431. 

And, they explain what caused that, what elements of Obamacare 

caused premiums to more than triple in Tennessee for that 40- 

year-old male, and 73 to 76 percent was because of increased risk, 

which was guaranteed issue and community rating. 

Now, we ignore that basic reality at our own peril if we are actually going to try to solve the problem. Now, I realize how popular 

guaranteed issue and community rating is. I think the good news 

from my standpoint by examples in Maine—I just read an article 

in the New York Times, with Minnesota, things like invisible highrisk pools. We had a high-risk pool in Wisconsin. It was not perfect. 

But, if we start looking at those things, recognizing what has 
5 

1The prepared statement of Senator McCaskill appears in the Appendix on page 42. 

caused these premiums to double nationally, triple in many cases, 

maybe we can start finding some solutions. 

So, again, I will end my comments here, but hopefully what I 

have demonstrated is here is some information. I am not saying it 

is perfect. I want to encourage the Members of this Committee to 

provide more information focused on finding areas of agreement on 

the definition of the problem so we can actually move forward, because my belief is if we can agree on what the problem is, if we 

can really define it properly, I think it is going to be a whole lot 

easier finding common ground on a bipartisan solution, which I 

think we just realized now we are going to have to find bipartisan 

solutions, probably in multiple iterations of this thing going into 

the future. 

So, again, I want to thank the witnesses. I want to thank Committee Members for attending, and I will turn it over to our Ranking Member, Senator McCaskill. 

OPENING STATEMENT OF SENATOR MCCASKILL1

Senator MCCASKILL. Thank you, Mr. Chairman. I am glad we are 

having this hearing today. I am even more excited about the hearing going on in the HELP Committee this morning. Many of us 

have said from the beginning of the year that the way to get at this 

was an open hearing process where people can contribute and we 

can find the way—‘‘regular order’’ is short-cut for ‘‘finding the middle.’’ It is an elegant way of—‘‘regular order’’ does not mean anything to most Americans, but ‘‘finding the middle’’ means something to them. And, the way the Senate has worked over the years 

is there has been a group on the far right that has been left behind 

and a group on the far left that has been left behind, and about 

60 to 70 folks in the middle hammered out some kind of commonsense compromise that did not make everybody happy. That 

is what has been missing in this effort so far, and I am encouraged—I think we have wasted a lot of time and a lot of angst and 

uncertainty for Americans getting to this point. 

So, first, even though I think this is unusual to have this kind 

of hearing in this Committee, I want to applaud your motivation 

because I do think you understand that we are not going to get 

there just with those on the opposite ends of the spectrum. We 

have to find the middle. 

I also acknowledge that we have made some mistakes in the way 

that we passed the Affordable Care Act (ACA). It became political 

the minute the final vote was tallied and it was all one party. And, 

we are never going to have an accepted health care solution in this 

country if it is just one party or the other. It is too easy to make 

it into a political football. It is too easy to try to win or lose elections around it when it is just one party. And so, I think that we 

tried to come up with a plan that would allow people who could not 

get insurance—and make no mistake about it, the increase in premiums was going on before the ACA. It was double-digit every 

year. Every small business—you are aware of this because you 

were probably buying insurance for your company. It was going up 

every year before the ACA, and those premiums were getting hi-
6 

jacked, and in most States that were trying to do some kind of 

high-risk pool for those who were being shut out of the insurance 

market, they simply were not working. They were excessively 

unaffordable. That certainly was the case in my State. 

So, we now know that we have the uninsured rate at a historically low level. You have one chart that talks about the increase 

in insurance, but there are not really a lot of charts in here that 

say that we have a historic low uninsured level. 

Chairman JOHNSON. There is one in there. 

Senator MCCASKILL. There is one. It is kind of hard to read. 

Chairman JOHNSON. And, we will add to it. 

Senator MCCASKILL. Yes, I mean, I found it. It was bar graphs 

that are a little hard to read. 

Chairman JOHNSON. It is really not intended to be hidden, but, 

again, we will build on this. 

Senator MCCASKILL. OK. All right. And then, the other thing is, 

about your graph I wanted to ask this question: In the government 

pays part, are you including the payroll taxes that individuals are 

paying for Medicare in that figure? 

Chairman JOHNSON. First of all, understand that taxpayers pay 

all of this. I mean, individuals pay for all of this. 

Senator MCCASKILL. No, I understand. 

Chairman JOHNSON. It is just, how is it done indirectly. 

Senator MCCASKILL. Yes, I understand. I think it would be helpful for us to get a graph of how much we are paying out in Medicare is actually supported by the people that are receiving Medicare through payroll taxes, the taxes they have paid in, and how 

much of it are we actually going in the hole for. I think it would 

be really helpful for us to know how out of whack is the actuarial 

numbers in terms of what people are paying into the Medicare system and what the government is paying out. 

Chairman JOHNSON. But, again, what I am saying, Americans 

pay for 100 percent of this. It is just like we do not pay—so this 

is who pays directly for it. 

Senator MCCASKILL. Right. 

Chairman JOHNSON. Who is the payer of, let us call it, ‘‘last resort’’? 

Senator MCCASKILL. Exactly. So if, in fact, we have somebody 

who decides to buy a Harley Davidson motorcycle instead of buying 

health insurance, and we have no mandate for that man to buy 

health insurance, and he has traumatic brain injuries on that motorcycle, we all pay because it all comes through higher premiums. 

So, doing away with the individual mandate, I think it would also 

be helpful to look at what impact that has on how much more everybody is going to have to pay, because when we do away with 

that personal responsibility piece that we require with car insurance, then all we are saying is you get to choose that other people 

pay for your health care, because you know you get bankrupt in 10 

minutes with some kind of severe diagnosis. 

So, I think these are really helpful. I think there are a lot of 

other charts we need to look at if we are really going to get our 

arms around this issue. 

I do not think I can finish my opening without talking about the 

urgent concern we have immediately in front of us, which is stabi-
7 

lizing the individual market. In less than 2 months, Americans are 

scheduled to begin enrolling in 2018 plans. That is why I wish we 

would have started this much earlier, because this is really impacting people’s lives. They are going to have to sign up. And, I just 

finished 25 town halls in my State, and I can tell you people are 

very worried. And, they understand that one of the reasons these 

premiums are going up is because the cost-sharing payments are 

not being made. They understand that advertising is not going on 

for healthy people to sign up for the markets. They understand 

that they are paying a higher bill because of these things. And, it 

is inexcusable that we are tagging them with this kind of increase 

in premium when it is all avoidable in the short term if we could 

get busy in the next 30 days and do the basic step that needs to 

be done on both cost sharing and acknowledging that until we have 

some other way to get healthy people into the pool, just unilaterally 

doing away with enforcing the individual mandate just means higher costs for everybody. That is all it means. And, it allows somebody to decide not to buy it, and then they surf off of all of us, and 

that is just not fair to many Americans who are paying, especially 

those who do not qualify for subsidies that are on the individual 

markets. 

I certainly understand and agree with you that transparency is 

really important we get to work on that. You and I are in total sync 

on that. I tell this story, but it is a true one. I had my knee 

replaced as a U.S. Senator, so I thought it would be a good exercise—Americans are great shoppers. I know when an outlet mall is 

BS, when an outlet mall is really not outlet mall prices, they are 

just, kind of pretending they are, because I am a pretty good shopper. I mean, Groupon has been wildly successful because Americans love coupons. But, you cannot figure out what you pay for 

anything in health care, and so, when I had my knee replaced, I 

thought I would try. So, I did not let my staff call. I called myself, 

after my surgery was over, and I called my surgeon, I called the 

hospital, and I called the insurance company. And, I just asked a 

simple question: ‘‘What did it cost to replace my knee?’’ 

Well, you would have thought I asked them, ‘‘Where is the Holy 

Grail located? And, can I get there in a week?’’ This was a very 

stumping question for them. They were stumped. They did not 

know what to tell me. The insurance company did not know what 

to say. The doctor did not know what to say. The hospital did not 

know what to say. I kept pressing them for numbers. I finally 

ended up with some numbers, and none of them matched. 

So, if I cannot figure out what a knee replacement actually costs 

as a sitting U.S. Senator, what shot does the American consumer 

have? Why do we have apps? I can go online right now and find 

out where the best cheeseburger is within a 1-mile radius of where 

I sit. But, I cannot figure out what a knee replacement would cost. 

And, by the way, am I getting the right artificial joint or am I getting that joint because the doctor has a deal with the artificial joint 

replacement company? Why am I paying $60 for a pill in this location and paying $600 for a pill in that location? 

It is crazy the way we have made this system so secret in terms 

of what hospitals are paying, what insurance companies are paying, and what people who do not have insurance are paying. And, 
8 

I agree with you. If we could work together and at a minimum 

come up with some kind of mandatory transparency on medical 

pricing, then that is the first step in making the American shopper 

in control of health care. And, once we do that, you are right, costs 

will come down. And, I certainly agree with you on that. 

Thank you to the witnesses for being here. I look forward to your 

testimonies and questions. 

Chairman JOHNSON. So, I think right there you are seeing an 

awful lot of areas of agreement, which is what we will focus on. 

And, again, this is just the starting point. I welcome additional information, provide charts, graphs, and information. I want to build 

that into the record. 

Just so you understand, on the whole issue of CSRs, I was very 

vocal. 

Senator MCCASKILL. You were. 

Chairman JOHNSON. When we began the process, we should have 

funded those CSRs because that is hurting everybody. And let me 

make this point publicly because it is important, because there is 

pretty harmful rhetoric on my side of the aisle saying, ‘‘We are not 

going to bail out insurance companies.’’ The truth of the matter is 

we either spend money on CSRs to stabilize the market or we will 

spend money on the increased premiums the insurance companies 

will charge. And, the forgotten men and women I have spoken an 

awful lot about, the people that Bill Clinton talked about that are 

busting it, working 60 hours a week, they have seen the premiums 

doubled, tripled in some places. You have seen the coverage cut in 

half. They will not be able to afford insurance. 

So, I have been supportive of funding that, but also hopefully everybody recognizes on my side, if we do not fund that, the government through the mandatory Obamacare will fund higher premiums. I do not know the exact dollar for dollars. It is probably 

pretty close to dollar for dollar, quite honestly. 

So, anyway, this is all about finding those areas of agreement, 

and hopefully we can do it over the course of a number of hearings 

here. 

With that, again, I want to welcome the witnesses. It is the tradition of this Committee to swear in witnesses, so if you will all 

stand up and raise your right hand. Do you swear that the testimony you will give before this Committee will be the truth, the 

whole truth, and nothing but the truth, so help you, God? 

Ms. THOMASSON. I do. 

Ms. BAICKER. I do. 

Ms. CORLETTE. I do. 

Chairman JOHNSON. Please be seated. 

Our first witness is Dr. Melissa Thomasson. Dr. Thomasson is 

the Julian Lange Professor of Economics at Miami University. Her 

work on the economic history of health insurance and health care 

has been published in top journals and featured in the New York 

Times, the Financial Times, and other news outlets. 

And, just for the record, what I have asked the witnesses to do 

is lay out the history, lay out the reality, lay out facts. I have not 

asked for any solutions to this. We are a long ways from really getting solutions. And, by the way, reading their testimony, they did 

a great job of that. 
9 

1The prepared statement of Dr. Thomasson appears in the Appendix on page 45. 

So, again, Dr. Thomasson, if you will begin. 

TESTIMONY OF MELISSA THOMASSON, PH.D.,1 PROFESSOR 

AND DIRECTOR OF GRADUATE STUDIES, DEPARTMENT OF 

ECONOMICS, MIAMI UNIVERSITY 

Ms. THOMASSON. Thank you. Good morning, Chairman Johnson, 

Ranking Member McCaskill, and Members of the Committee. My 

name is Melissa Thomasson. I am the Julian Lange Professor of 

Economics at Miami University, and I want to thank you for the 

opportunity to appear here today to discuss the evolution of the 

health insurance market and its effects on health care costs in the 

United States. This is obviously a brief summary of my remarks, 

and more detailed discussion can be found in my written testimony. 

We know that over half of Americans obtain their insurance 

through their workplace. While historiography suggests that this 

development occurred as a result of a series of rulings during 

World War II, the market actually centered on employment much 

earlier, beginning in the late 1920s. At the time, medical technology was advancing, and more people started being treated in 

hospitals. As a result, their health expenditures rose, and they 

started having trouble paying their bills. 

Yet even though health expenditures were rising, traditional insurance companies refused to offer health coverage because they 

feared it would not be profitable if only sick people bought the insurance. That is, they worried about the same problem that we 

worry about today: adverse selection. 

But, consumers at the time were not the only ones struggling. 

Hospitals were struggling, too because patients were having trouble paying for their care. An enterprising hospital administrator, 

seeking to increase revenues, came up with the forebear to Blue 

Cross plans, and he offered Dallas teachers the opportunity to pay 

$6 per year and have up to 21 days in the hospital covered. The 

plan was simple. In any given year, the revenues collected from the 

premiums paid the bills of the few people likely to be hospitalized. 

The plan succeeded because most of the people who bought the coverage were healthy enough to work. By offering insurance to 

groups of healthy workers, the plan mitigated the problem of adverse selection. Soon commercial insurance companies began offering their own plans and competing with Blue Cross and Blue 

Shield (BCBS). 

Now, government policy in the 1940s did cement the employerbased system that had earlier taken root. Fringe benefit packages 

were exempted from wage and price controls enacted during World 

War II, so employers turned to them to recruit workers. The government further encouraged firms to offer health insurance by providing employer-sponsored health coverage with favorable tax 

treatment. This so-called tax subsidy introduced a number of distortions into the market. For example, it makes it difficult for people without jobs to get coverage. Moreover, it induces health insurance plans to be more generous and to offer more complete coverage. And, as we have seen, over time coverage has become much 

more comprehensive. The share of health care expenses paid by 
10 

consumers has decreased from 65 percent in 1950 to 12.4 percent 

today. And, as out-of-pocket costs have fallen, consumers have responded by increasing their use of medical care. 

This situation, that economists call ‘‘moral hazard’’, is problematic if the health care consumers purchase is not necessary or costeffective. Moral hazard is significant. Research suggests that up to 

50 percent of the increase in health expenditures between 1960 and 

1990 can be explained by the spread of health insurance. But, cost 

sharing does reduce moral hazard. For example, the RAND Health 

Insurance experiment found that people enrolled in a high-deductible health plan (HDHP) spent 30 percent less on medical care than 

those who received their care for free. 

The billing practices initially designed by Blue Cross and Blue 

Shield exacerbate moral hazard. These payment mechanisms, that 

still predominate today, reimburse physicians and hospitals for 

each service they provide. As a result, physicians and hospitals 

have incentives to perform as many services as possible. Insurance 

pays the bill, so neither consumers nor providers have incentives 

to weigh costs and benefits. The result is that consumers often receive care that is not cost-effective, may be unnecessary, and leads 

to escalating health care costs. 

Expanding insurance also creates incentives for increased technological development, and while some technologies are good, some do 

not improve outcomes compared to existing treatments, yet cost 

more. Again, since consumers are not paying the bill and providers 

are paid, these technologies end up being adopted and further drive 

up health care costs. 

History suggests that the problem of adverse selection presents 

a longstanding challenge to the effective provision of insurance in 

the non-group market. It also indicates that constraining cost 

growth will be difficult as long as health care providers profit from 

providing volume-based care. Research shows that consumers do 

respond to cost sharing by significantly reducing spending both in 

the short run and over time, but that high-deductible plans need 

to be carefully structured to motivate consumers to obtain necessary and high-value care, while at the same time minimizing the 

use of low-volume services. 

Thank you. 

Chairman JOHNSON. Thank you, Dr. Thomasson. 

Our next witness is Dr. Katherine Baicker. Dr. Baicker is the 

Dean of the University of Chicago Harris School of Public Policy. 

Her research on health care policy has been published in top journals such as the New England Journal of Medicine and the Quarterly Journal of Economics. Dr. Baicker. 
11 

1The prepared statement of Dr. Baicker appears in the Appendix on page 54. 

TESTIMONY OF KATHERINE BAICKER, PH.D.,1 DEAN, HARRIS 

SCHOOL OF PUBLIC POLICY, THE UNIVERSITY OF CHICAGO 

Ms. BAICKER. Thank you so much for the opportunity to meet 

with you today and discuss this really important issue. Dr. 

Thomasson did a wonderful job of laying out how we got to this situation where so much of our health care is insured and where 

there is a disconnect between the quality and value of the care that 

we are getting and what we are paying for it. 

There is very little debate that we spend a lot of money on health 

care, much more than our trading partners and other developed 

countries, and that we are not getting as much value out of the system as we ought to. You can do international comparisons. You can 

even look within the United States. And, for example, the parts of 

the country where we spend the most per Medicare beneficiary are 

the parts of the country where those beneficiaries are the least 

likely to get high-quality, high-value care. It is that disconnect that 

suggests that we really could do better, we could get a lot more 

health for every dollar that we spend. 

So, what is driving this inefficient use of health care resources 

that we can ill afford over the long run? Well, it is the way we finance health care. It is how we pay for it. I am an economist, so 

there are always two hands here. It can be supply and demand or 

the patient side and the provider side, maybe costs and benefits. 

It is very useful to have both hands. 

On the patient side of things, there is this a disconnect between 

the cost that the patient sees for insured care and how much resource use there really is for that care. 

Now, that seems like a problem, but it comes from a balancing 

act inherent in providing insurance value. Insurance is a really 

good thing to have. When health care is potentially catastrophically 

expensive, you need to protect yourself against financial ruin if you 

or a family member falls sick. And before we had Medicare, seniors 

who fell ill and had not been able to get insurance from their employers were likely not only to go without the care they needed but 

to be destitute and to bankrupt their families. So, the insurance 

protection that insurance provides is really valuable, but it comes 

at the cost of the moral hazard that was outlined. When you have 

insurance, you get less sensitive to the price of things. You think 

that a service is worth it if it is worth the $10 co-pay, not if it is 

worth the real resource cost, which could be hundreds of dollars. 

We are very good shoppers as Americans. But, we do not think, 

‘‘Hey, after the hearing, do you want to go get magnetic resonance 

imaging (MRIs)? I heard they are on sale.’’ No, of course, we do not 

shop for health care that way. It sounds counterintuitive that 

prices would affect how we go about buying health care. But, we 

are sensitive to prices, and the fact that we are paying a small 

fraction of the cost of the health care services that we use really 

does drive us to use more care. There are decades’ worth of evidence that that is the case, that when we pay less, we use more. 

So, there is a balancing act. You want to insure things because you 

do not want to risk financial ruin if something really expensive 

happens. You do not want to overinsure them because then you end 
12 

up using more care that is of questionable health value. That extra 

care actually drives up the cost of health care for everyone, because 

insurance premiums rise to cover all this care that is of questionable health value. 

So, the right answer is balancing those two things and designing 

nuanced cost sharing in a way that gives patients the protection 

they need, but does not encourage use particularly of low-value 

services. Moral hazard suggests that you want to have higher copayments for things that patients are more sensitive to the price 

of. 

There are psychological factors as well. When patients make decisions about health care, it is in the real world, and none of us 

is a perfectly rational economic agent. So, you may also want to 

have higher co-payments for services that are of lower value. You 

may want to subsidize preventive care or low-cost preventive care 

that is really cost-effective. You may want to have higher co-payments for that third MRI that is not really indicated medically, 

that is not improving your health, that is driving up expenses for 

everybody. 

Having more innovation in insurance coverage, having competition between insurers to drive down premiums by offering a highervalue product could help produce a better use of health care resources. 

Now, that is the patient side of things. On the provider side of 

things, it turns out that providers are human beings as well, and 

they are also sensitive to the incentives that they face. When providers are paid more for a service, they do more of it. When they 

are paid less for a service, they do less of it. So, the way we purchase health care from providers also drives utilization. For example, we could have incentives for innovative payment structures to 

providers so that the provider chose the joint for your knee replacement based on which one was the highest value, the highest quality, and the right joint for you, not the one that was most highly 

reimbursed or where they had the best deal with the manufacturer. 

That would be a better way to pay for health care than fee-for-service (FFS) that is based strictly on the quantity of care. We want 

competition to drive higher-value care by providing the right services that the patient really values. 

Now, both those mechanisms on the patient side and the provider side rely on there being real choices for people. If there are 

not choices among insurers, we are not going to get innovation. If 

there are not choices among providers, we are not going to drive 

prices down and quality up. So, how we finance the system is going 

to be a major determinant of the value and health that we get and 

the financial sustainability of the system. 

Chairman JOHNSON. Thank you, Dr. Baicker. 

Our final witness is Sabrina Corlette. Ms. Corlette is a research 

professor at the Center on Health Insurance Reforms at Georgetown University’s Health Policy Institute. She has published numerous papers relating to the regulation of private health insurance and health insurance marketplaces. Ms. Corlette. 
13 

1The prepared statement of Ms. Corlette appears in the Appendix on page 64. 

TESTIMONY OF SABRINA CORLETTE,1 RESEARCH PROFESSOR, 

CENTER ON HEALTH INSURANCE REFORMS, GEORGETOWN 

UNIVERSITY HEALTH POLICY INSTITUTE 

Ms. CORLETTE. Thank you, Mr. Chairman, and thank you, Senator McCaskill and Members of the Committee. And I particularly 

want to thank you for holding this timely hearing and your willingness to engage in a thoughtful and bipartisan effort to understand 

some of the root causes of the challenges facing our health care system. And, as I sat listening to my fellow witnesses, I think we 

probably agree on more than we disagree about some of the true 

challenges facing our health care system. 

Both critics and proponents of the Affordable Care Act can reasonably ask why it was structured the way it was, with an array 

of insurance reforms, an individual responsibility requirement, income-related subsidies for the purchase of private insurance, Medicaid expansion. Part of the reason it is such a complicated law is 

because it did not sweep away our existing system; rather, it was 

designed to fill gaps in the sort of patchwork quilt system of coverage that has evolved in our country over a century and more, and 

that Ms. Thomasson covered very well in her testimony, and she 

is absolutely right. I mean, in the early 20th Century, there was 

not much insurance as we understand it today. Most people paid 

their doctors in cash or in kind. But, remember, too, that health 

care at that time was much more primitive. You went to the hospital to die, not to get treated. 

But over time, as new treatments and technologies came online, 

these saved lives, but they also increased the costs. And, as Ms. 

Thomasson noted, most commercial insurers were not willing to 

provide insurance because of the concerns about adverse selection. 

I will not review, because she already did, some of the growth of 

the Blue Cross/Blue Shield plans and the Internal Revenue Service 

(IRS) rule that caused sort of this explosive growth of the employer-based system that we have today. But, I would note that 

just as our employer system was expanding, there were some really 

important changes taking place overall. 

First of all, the Blue Cross/Blue Shield plans were initially community rated. No matter what type of employer group you had, you 

paid the same price. But, a number of commercial insurers, mostly 

for-profit, started to come into the market, and they recognized 

that they could make more money if they deterred enrollment 

among older or sicker individuals and groups. So, the types of 

things that they engaged in were outright denials of coverage, preexisting condition benefit exclusions, and premium surcharges 

based on factors such as health status, age, and gender. 

Over the years, Congress and other policymakers recognized that 

our employer-based system left a lot of groups out, such as the elderly, disabled, and poor. So, of course, we had in 1965 major reforms with Medicare and Medicaid. But, for many decades after 

that, we really only had piecemeal changes to fill in gaps in coverage, such as Consolidated Omnibus Budget Reconciliation Act 

(COBRA), Emergency Medical Treatment and Labor Act 

(EMTALA), some Medicaid eligibility expansions, Health Insurance 
14 

Portability and Accountability Act (HIPAA), Children’s Health Insurance Program (CHIP), an alphabet soup leading up to Medicare 

Part D. But, in spite of these gap-filling efforts, on the eve of enactment of the ACA, we had 45 million Americans uninsured. An estimated 26,000 people per year died prematurely because they 

lacked insurance, and 60 percent of the uninsured reported having 

problems paying medical bills. The high and rising uninsured rate 

also led to high and rising uncompensated care costs for providers, 

estimated at $1,000 worth of services per uninsured person. 

Thanks to the ACA, an estimated 20 million people have gained 

coverage, and what does that coverage mean to those families? 

Well, the percentage of Americans reporting that they did not see 

a doctor or fill a prescription because they could not afford it has 

declined by more than one-third. More people are reporting that 

they have a primary care doctor or had a check-up in the last 12 

months. The number of families who say they are having problems 

paying medical bills has fallen dramatically since 2013, particularly among low-income families. And, we have also witnessed a 

significant reduction in uncompensated care costs borne by providers. 

Even so, the most ardent supporter of the ACA would likely 

agree that the law faces challenges, not least of which is the continued policy uncertainty created by threats to cutoff the CSR reimbursement, and concerns among insurers that the individual mandate will not be enforced. 

I believe that a bipartisan consensus on a set of policies that 

could boost and maintain enrollment in the ACA marketplaces and 

stabilize participation is not out of reach. For Federal policymakers 

who want to improve the individual markets and build on the coverage gains launched by the ACA, these fixes would include: longterm commitment to paying the cost-sharing reductions; a reinsurance program or invisible high-risk pool; higher funding for outreach and enrollment; a fix to the family glitch; and affordability 

improvements, particularly for those forgotten folks who are unsubsidized and working hard and paying into the system. 

Thank you very much, and I look forward to the discussion. 

Chairman JOHNSON. Well, thank you, Ms. Corlette. 

Listen, I appreciate Committee Members showing up, so I am 

happy to move on to—Senator McCaskill, are you ready to ask 

questions? 

Senator MCCASKILL. I am happy to defer also to Senator Tester. 

Chairman JOHNSON. Senator Tester then. It is your lucky day. 

OPENING STATEMENT OF SENATOR TESTER 

Senator TESTER. That is why we love the leadership on this Committee. Thank you very much. 

First of all, thank you for your testimony. I have a number of 

questions, and you guys kind of all hit the same thing, so I am just 

going to pick on you, Katherine. And, the question is how to finance the system. 

You have looked at the current method, and I think you have all 

spoken to the problems with the current method. My folks never 

had health insurance on the farm. They retired in 1978, never had 

health insurance ever. Their first insurance they had was Medi-
15 

care. There is a reason for that. In the mid-1960s, when that happened, it was $400. I do not know what it would be today, but it 

would be a lot more than that. 

So, the question is—there has been a lot of debate, there have 

been amendments offered on single-payer for political purposes. 

There has been—but maybe not. I mean, maybe it is something we 

should, quite frankly, take a solid look at. And, there has been the 

subsidy issue, CSR and others. So, the question is: How do we finance the system? And, ultimately, can we make the finance system control the costs? 

Ms. BAICKER. That is a great question, and, clearly, the central 

issue—— 

Senator TESTER. Yes. 

Ms. BAICKER [continuing]. Of sustainability for the system is how 

do we pay for all this care and how do we make sure that we are 

only buying care that is actually improving health sufficiently to 

warrant the expense? 

I would like to distinguish between private insurance and social 

insurance, concepts that are frequently intertwined in the debate. 

To me, private insurance is about financial risk. Insurance in other 

realms that we buy—homeowners’ insurance, auto insurance, renters’ insurance—protects against big expenses that are a surprise. 

It does not protect against routine expenses that are affordable or 

even big expenses that are known. You do not buy homebuyers’ insurance to protect you against the risk of buying a house or college 

insurance to protect you against the risk of purchasing a college 

education. It is supposed to be for unexpected expensive things. 

Similarly, we do not buy insurance for mowing the lawn of the 

house because it is a predictable and affordable expense. 

Health insurance that we buy today does not look like that at all, 

partly because of the Tax Code provisions that favor having more 

generous employer-sponsored insurance. That is something that I 

think could be improved by having insurance that is more valuebased. But, that is private insurance. That is about protecting 

yourself against future risk, pooling risk with other people who also 

have unknown expenses. 

Social insurance is about redistribution. Social insurance is about 

moving money from high-income people to low-income people, from 

healthy people to people who are known to be sick, who were born 

with disabilities, who have forecastable high health expenses. So, 

social insurance can do that kind of redistribution that private insurance can never do. When you try to design a private insurance 

market to move money from rich people to poor people, that does 

not work. That has to be a government action. 

So, it would be helpful to have a separate debate about how 

much money we want to spend on social insurance programs, and 

reasonable people can differ on that. There are opportunity costs; 

there are lots of competing public demands on resources. How 

much do you want to spend on education? How much do you want 

to spend on infrastructure? This is a real debate we need to engage 

in. 

How can we finance private insurance with higher value in a 

sustainable way? I think the improvements in design that we have 

been hinting at in terms of having better, more nuanced cost shar-
16 

ing to drive higher-value use, more competition among providers, 

and more competition among insurers. That would ensure that we 

are at least getting high value for what we are spending. 

Senator TESTER. So, you are talking about value-based versus 

fee-based? 

Ms. BAICKER. On the patient side, I would like value-based insurance to be more prominent. On the provider side, I would like 

value-based payments rather than quantity-based payments to be 

more prominent. 

Senator TESTER. And, who determines that? Who determines the 

value? 

Ms. BAICKER. It should be the patient’s valuation in terms of his 

or her own health outcomes. 

Then there is the social insurance part where I think we have 

to decide how much we want to redistribute. 

Senator TESTER. The problem is that the value may not be able 

to be determined until long after the bill is paid. 

Ms. BAICKER. There is a lot of uncertainty in this, and it is never 

going to be perfect. You do not know ‘‘I am buying one extra year 

of life with this heart procedure.’’ 

Senator TESTER. Yes. The other thing I would say is this, that 

everybody, if not for the grace of God, could be in the emergency 

room tomorrow. 

Ms. BAICKER. Which is why insurance is incredibly valuable for 

all people who want to protect against that risk. 

Senator TESTER. Yes. And, even if you have a situation where, 

say, your kid has croup and you end up with a breathing treatment, I mean, it is so much money. And so, how do we drive those 

costs down? That is one thing the ACA was starting to do, but after 

it got butchered up some, it was not very effective at it, and that 

is, helping drive the cost down. And, what do we do to do that? 

Ms. BAICKER. Well, enlisting provider—— 

Senator TESTER. And, I got what you are saying, but I really did 

not hear how we hold—because that is—and, look, I was going to 

ask you, who is driving the bus here? Is it hospitals? Is it doctors? 

Is it prescription drug companies? Who is really driving the cost of 

health care? Is it all three? And why? 

Ms. BAICKER. The bulk of our health care dollars are going to 

hospitals and physicians and related services. There are other 

parts that are perhaps growing more quickly, but if you want to 

tackle the whole health care system, you have to address hospitals 

and physicians as the lion’s share of what we are spending our 

money on. Having providers paid differently would serve a second 

function of giving them a much more active role in driving the bus. 

You want patients in consultation with their providers to drive the 

bus. You cannot expect patients to be doctors. They do not know 

whether they need that heart treatment, they need that procedure, 

which knee replacement joint is better for them. They need their 

providers to be on their side in thinking about what is right for 

them, and we need their providers to be thinking about how to do 

it most cost-effectively. Quality thresholds are vital to measure and 

incorporate to ensure getting good quality. You want the provider 

to steer patients to the hospital that is going to get them home 

healthier sooner. 
17 

Senator TESTER. You are correct, and I guess the cost issue is the 

big issue in my head, because we have seen the charts. We all 

know from personal experience how health care continues to go up. 

And, when we go in as patients, we want the best health care. We 

do not want a prescription drug that is a generic that might not 

be quite as good as the one that does not do much more but costs 

10 times more. And so, part of it is on us, and I think the co-pay 

issue is an important issue. You have to have some skin in the 

game. 

But, the problem also is that for those people that do not have 

any money to put skin in the game, it becomes a real problem. 

And, I think it is really easy to talk about undoing Medicaid expansion and those kinds of things, but the truth is it has real-world 

impacts and it is going to cost more money somewhere else if we 

do not deal with it up front. And, we have not even gotten into prevention. So, thank you all for being here. This is a very important 

issue, especially at this moment in time. 

And thank you, Mr. Chairman and Ranking Member, for your 

courtesy. 

Chairman JOHNSON. Happy to, but let me quickly chime in. I 

want to give a real-world anecdotal example of kind of how this 

could potentially work. 

In my business, as Senator McCaskill was saying, our health insurance rates were skyrocketing, and Congress did pass what I 

thought was a pretty good law, the health savings account (HSA) 

law. And so, what we did is we shifted to a higher-deductible plan. 

Now, back then I think it was $1,500 or maybe $2,500. But, that 

was considered a high-deductible plan that you had to shift to in 

order for HSAs. 

In my medium-size group, we were able to cut premiums so 

much—I did not pocket that money. I invested that money into 

HSAs, $3,000 per year per employee, which we just continued. So, 

people that work for my business now—I do not know what my 

brother is doing, but, things have probably been kicking up further, 

but just one year’s savings was $3,000 per year per employee into 

an HSA. Now they are in control of money, and the question from 

my standpoint is how much of the total $3.2 trillion can be paid 

for directly by the consumer versus what do you need in terms of 

insurance? And then, how do you control those costs? I mean, this 

is very complex. There is no doubt about it. I think you are asking 

great questions. But, I just wanted to throw out that anecdote in 

terms of starting to move us in the right direction. 

Is Senator Carper here? Oh, there. You are up to the plate. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Welcome. I am a Senator from Delaware, a recovering Governor from Delaware, who thought a lot about these 

issues. I am delighted that the Chairman and Ranking Member 

have called this hearing. We appreciate very much your being with 

us here today. 

I have a Bible study group that meets most Thursdays here. If 

you can imagine Democrats and Republicans reading the Scripture 

together, praying together, and sharing things together. We have 

a chaplain named Barry Black that my colleagues know pretty 
18 

well, and he is always reminding us of something called Matthew 

25 which talks about ‘‘the least of these.’’ ‘‘When I was hungry, did 

you feed me? When I was naked, did you clothes me? When I was 

thirsty, did you give me to drink? When I was sick or in prison, 

did you come to visit me? When I was a stranger in your land, did 

you welcome me?’’ 

It does not say one thing about when my only access to health 

care was the emergency room of a hospital or else I just did without. I think it is pretty clear the inference, though. If we are going 

to care about people having enough to eat, drink, clothing, that sort 

of thing, we probably ought to care about whether or not they have 

access to health care. I call that a moral obligation. A moral obligation. And, I think while we have that moral obligation to the least 

of these in our society, we also have a fiscal imperative to meet 

that moral obligation in a fiscally sustainable way. 

I was out at another meeting, and I apologize. I missed your testimony. But each of you, just give us one good, clear example that 

you think might be transferable either among States or a good 

thing for us to do federally through legislation that attempts to fix 

those aspects of the ACA that need to be fixed, preserve those aspects that need to be preserved, and, frankly, drop those aspects 

that ought to be dropped. So, help us with just a good example how 

we can better meet that moral imperative in fiscally sustainable 

ways. 

It is not every day we have a Sabrina Corlette come before us, 

and I am going to ask you to lead us off. 

Ms. CORLETTE. Thank you, Senator. Well, I am glad you mentioned the States because we are seeing come up from the States 

some of the more pragmatic, thoughtful, innovative ideas right now 

in terms of how to stabilize the Affordable Care Act, how to make 

it work for their citizens. So, there are many State leaders, both 

States you would consider red, States you would consider blue, sort 

of coming up, stepping up to the plate, and saying, ‘‘We are going 

to devise a solution that works and keeps people covered.’’ 

The primary example of that—and we are seeing it from States 

as diverse as Alaska, Oklahoma, Minnesota, New Hampshire—is a 

reinsurance or an invisible high-risk pool. For example, in Alaska, 

when they implemented it last year, the proposed premium increases went from 42 percent to 7 percent, and they are finding 

that that has been—it is sustainable. But, they need the Federal 

Government to partner with them on that, and I have been pleased 

to see that the Administration thus far has been willing to do it. 

Senator CARPER. Thank you. 

Katherine, how do you pronounce your last name? 

Ms. BAICKER. ‘‘Baker.’’ There are just some extra letters in there 

for no good reason. [Laughter.] 

Senator CARPER. Your parents did not even know how to pronounce their name. 

Ms. BAICKER. Ellis Island fabrication. 

Senator CARPER. Oh, OK. Thank you. 

Ms. BAICKER. So, Ms. Corlette had mentioned in her testimony 

fixing the family glitch. There are a bunch of small provisions that 

I think just do not really work as the legislation is currently written. I would also argue for giving a little bit more bite to the tax 
19 

on employer-sponsored health insurance. A lot of the reason that 

we have so much of our insurance subsidized through employers 

that might look so much more like prepaid health care than like 

true insurance is that we favor the premiums paid by employersponsored plans over out-of-pocket payments or lots of other nongroup purchases, with the exceptions of carve-outs for things like 

HSAs. 

So, I would like to see a more level playing field between employer insurance, other insurance, and out-of-pocket costs to really 

take the thumb off the scale there. 

Senator CARPER. All right. Thanks. Melissa Thomasson. 

Ms. THOMASSON. No Ellis Island glitch. 

Senator CARPER. OK, good. 

Ms. THOMASSON. I have to agree with Dr. Baicker in that the tax 

treatment of employer-provided health insurance is a problem. But, 

what we see is that adverse selection is a problem, so we are all 

brought together in employment-based groups, and that makes it 

much cheaper for those of us who are healthy in employment-based 

groups to get insurance. 

But, as Senator Johnson indicated, as Senator McCaskill indicated, there are uninsured people who have a motorcycle accident 

who really honestly get treated in this country, and that is our 

moral obligation. As a society, we have decided that is our moral 

obligation. I am in favor of expanding risk pools, either through reinsurance or by increasing the incentives for individuals to buy insurance in order to spread those costs among everybody and to 

make sure that people who need the insurance can afford it. People 

need to buy insurance so that they are paying their share of their 

costs when they are actually sick. 

But, along with that, I do think we need provider-based reform. 

We cannot continue to pay providers a fee for every service that 

they do because, otherwise, we will have more and more services 

at increasing costs. 

Senator CARPER. All right. Thank you. 

Senator Johnson and I am not sure if our colleagues were there 

as well, but we had sort of a roundtable coffee with the insurance 

commissioners from five different States. They are testifying as we 

speak before the HELP Committee. And, one of the things that I 

asked them to think out loud about was reinsurance, and they 

seemed to be suggesting that one in terms of doing is stabilizing 

the exchanges, and they suggested do that now. If you are going 

to do anything, do that now. And, they suggested among the ways 

to do it, make it clear that the cost-sharing payments will be made 

available not just for the remainder of this year but also for a full 

year beyond in order to give the insurance companies some sense 

of permanency and predictability. 

A number of them called for retaining the individual mandate. 

I think one of them said if you do not require the individual mandate, make sure it is going to be enforced, come up with something 

as good or maybe better and maybe give the States some flexibility 

on that. 

The last thing they said is reinsurance. In fact, they all said do 

reinsurance. They talked about what they are doing in Alaska. 

Senator Kaine and myself have offered legislation that does this on 
20 

reinsurance: one, it provides for the Federal Government to pay for 

the next 3 years expensive claims, cover 80 percent of the amount 

between $50,000 and $500,000; and for the years after that, the 

Federal Government would cover everything between $100,000 and 

$500,000. Everything else was on the insurance companies. Would 

you just react to that, whether that is a reasonable starting place 

on reinsurance? Go ahead. 

Ms. CORLETTE. Yes, I would agree with the insurance commissioners. I have not closely studied your bill, but, in general, I think 

it is reasonable to assume that the individual market will always 

be a somewhat sicker risk pool than the employer-based market 

simply because there are people who, because of their health, cannot work full-time. So, I think it is reasonable to subsidize the risk 

in that market. You showed that chart showing that the premium 

increases accountable for that increase in risk are pretty dramatic. 

So, it is reasonable to say that subsidization should not come on 

the backs of farmers and entrepreneurs and ranchers, but maybe 

by society as a whole. 

And so, I think a reinsurance program is the right thing to do, 

and it can be done at the State level or at the Federal level, and 

there are lots of details about how it can be done. But, I would support a Federal program. 

Ms. BAICKER. Yes, I agree that risk pooling is vital to insurance 

working at all. That is the whole point of insurance. And, the employer market is one natural place for risk pooling, although it is 

particularly regressive and inefficient given that it is based on the 

Tax Code. So, in the non-group market, you need lots of participation and you need really good risk adjustment. If you are not able 

to correctly risk-adjust, then insurers are always going to be in the 

business of trying to get healthier enrollees, and that is how they 

will make money instead of by providing higher-value services and 

lowering the premiums by being more effective. 

Now, you need a lot of enrollees, but you also then may need to 

induce insurers to participate by having some guard rails, whether 

that is risk corridors or reinsurance, which serve slightly different 

functions. I would like to think that in the long run, once the market stabilizes and insurers know what the pool looks like and risk 

adjusters catch up, insurers ought to be able to protect themselves 

against having a handful of high-risk people if the system were 

well designed and risk adjusters were working well. 

In the intermediate term, where they are not working so well, I 

think they probably do need those guard rails to feel comfortable 

participating. 

Senator CARPER. Mr. Chairman, could Ms. Thomasson respond to 

this as well, please? Thank you. 

Ms. THOMASSON. Yes, both of the witnesses are correct. Imagine, 

Senator Johnson, that you are starting a business, and you are entering a market where you know that it has been difficult for people to be profitable in the past. Then you are going to go out with 

a price that you are not sure will work and you can adjust it over 

time. In this case, there is a lot of money on the table. The mandate did not function as well as we wanted. We know that that risk 

pool ended up being sicker than we thought, and right now there 

is a lot of uncertainty introduced by political goings-on here that 
21 

makes it difficult for insurance companies to decide how to price 

insurance. Is there going to be continuation of the CSRs? Risk corridors were mitigated. The value of reinsurance has proven itself 

necessary, but it has fallen short. 

So in this case, we need to stabilize the markets for the markets 

to continue. I definitely agree with reinsurance. As far as those 

numbers, suggested by Senator Carper they are higher than they 

are today, so that is a starting point. But, hopefully over time this 

is like any experience. As we get more people to participate in the 

market, and it is a competitive market, then we will see the market mechanisms kick in, and hopefully things will be better. And 

so, the role of government will be a more short-term thing. 

Senator CARPER. Good. Thank you so much. 

Thanks, Mr. Chairman. 

Chairman JOHNSON. Well, thank you. And, by the way, just in 

the nick of time, I sent my staff out. This is from the Foundation 

for Government Accountability and really describing what happened in Maine. They instituted guaranteed issue. They did not repeal it. They just supplanted it with this invisible high-risk pool, 

a different concept than Wisconsin. Now I guess Minnesota has enacted something. I am not sure of the details. But, the results are 

pretty dramatic. Their premiums were cut by two-thirds to a half 

by putting in this reinsurance, this invisible high-risk pool. Again, 

I will not get into the details of it, but this is the kind of information that we need to bring to the table to hopefully on a bipartisan 

basis solve the problem. 

Senator CARPER. Mr. Chairman, did you say the premiums were 

cut by two-thirds to a half? 

Chairman JOHNSON. Yes—— 

Senator CARPER. Or the increases in premiums? 

Chairman JOHNSON. Take a look at this. For somebody under 19, it went from $617 to $204. For somebody 60 and above, it went 

from $1,233 per month to $645 by instituting the invisible highrisk pool. 

So, again, I think this is an accurate study. We will take a look 

at what happens in Minnesota. Those laboratories of democracy, 

the States, we need to take a look at best practice and what actually works, and I think this is hopefully some pretty solid information that will inform our future discussions. 

Senator CARPER. All right. Again, thank you all very much. 

Chairman JOHNSON. Senator Peters. 

OPENING STATEMENT OF SENATOR PETERS 

Senator PETERS. Thank you, Mr. Chairman, and thank you 

Ranking Member, for passing on your questions to allow us to have 

an opportunity to talk to this excellent panel. Thank you for being 

here today. 

There is no question this is an incredibly important topic, and 

the fact that we can discuss this on a bipartisan basis, trying to 

get to the actual facts, I think is absolutely essential. I think I am 

as frustrated as everybody in this country with the partisan bickering and entrenchment that we see on both sides. We cannot solve 

this problem unless we are doing this together, and it is certainly 

a source of frustration for me when we cannot get to those practical 
22 

solutions, when I believe that in this great country of ours that everybody, no matter who you are and no matter where you live, 

should have access to quality, affordable health care. And, that 

should not be asking too much given the fact that all of our trading 

partners, as you mentioned, do that. Other countries that we deal 

with every single day do that. They do it with less cost and, even 

more significantly, they do it with better outcomes. They are actually delivering better-quality care to their citizens, and all of their 

citizens, at a lower cost. So, we have to get to this. We are a bunch 

of smart folks here in the United States of America. We can figure 

this out. But, we have to get past the partisanship. So, thank you 

for having the hearing. Thank you for your testimony here today. 

A couple of issues. One that I hear a lot and one that I would 

like to get your sense on deals with our sensitivity to cost. And, 

there is no question that higher deductibles have an impact in lowering premiums. As the Chairman mentioned with his company, 

having co-pays is significant. But, when we are dealing with the 

health care market, it is different than going to an outlet store. We 

have a difference in opinion. When you are talking to a physician, 

it is different when you listen to his or her recommendation as to 

what you need. It is not simply a matter of cost that is involved. 

Now, I have often heard the example of laser eye surgery 

(LASIK) as an example of a surgery that has dropped in cost dramatically over the years, and it is certainly very competitive, and 

people can shop for cost for their eye care. That has not happened 

with all other surgeries that continue to go up at a rate well in excess of the rate of inflation. 

But, I would like the panelists to address how would it look to 

bring consumers involved in cost, given the asymmetrical relationship between a physician and other health care providers and the 

patient, even if they are paying out of their own pocket, it is difficult to make those decisions. So, we need an answer—my point 

is we need an answer more than just—as important as transparency is, and I believe we should know what everything costs. As 

important as transparency is and everybody having some skin in 

the game, how does it really work given the complexity of the 

health care market? We do not see that in other countries that 

have lower costs and higher outcomes. How would it work here? 

What is the practical aspect of it? We can just start with Ms. 

Thomasson and work down, if that is appropriate. 

Ms. THOMASSON. That is an excellent question because depending on the kind of procedure, it is more difficult for consumers to 

shop. If I am going to an outlet store, I typically know what I want. 

I can visit several stores. The other day I was dutifully trying to 

get some exercise, and I ran into a tree while I was hiking, and 

I was covered in blood, and I have one emergency room in my town, 

and I was thinking, ‘‘Oh, no, this is going to cost me $4,000 for two 

staples.’’ I guess that is $2,000 per staple. In that case, I could not 

really price shop. Thank goodness I have a health savings account 

with money in it, and off I went. I am still trying to get the blood 

out of my seat belt. 

But for things like LASIK, for MRIs, for drugs that are maintenance medications, consumers can and they do price shop if prices 

are transparent. For things like knee replacements and hip re-
23 

placements, our university now offers bundles where we have had 

providers on a competitive basis bid so we know exactly what a 

knee replacement would cost. It costs $28,000 at Miami University, 

and consumers pay $750 of it. 

Senator PETERS. How does that compare to other places? What 

is the range that you have seen? 

Ms. THOMASSON. That was actually lower than what we have 

paid in the past, and I do not know nationally because that is just 

data from our university. But for the other things, if I go into the 

hospital and I need a stent put in or something else, you are right, 

we do not shop as well. We do not get second opinions when we 

are having a heart attack. In that case, we do need to rely on providers, and that is why payment reform is so key here, and evidence-based medicine. We were talking about an infant who goes 

to the hospital who needs treatment for croup. Well, there is a way 

that we treat croup that doctors know works. We do not need a 

Computerized Axial Tomography (CAT) scan. We do not need an Xray. And so it is up for payment reform to incentivize providers to 

provide value-based care in those circumstances so that consumers 

do not have to shop while they are having a heart attack. 

Senator PETERS. Ms. Baicker. 

Ms. BAICKER. Yes, I very much agree that patient cost-sharing 

and transparency is necessary but far from sufficient. People also 

need to rely on their doctor’s advice, which is why the doctor’s incentives also have to be lined up with delivering high-value care. 

And, those pieces I think work much better together than in isolation. You can think of the example of accountable care organizations where doctors share in the savings if they meet quality and 

effectiveness thresholds of steering their patients to the hospital 

that is going to get them home healthy soonest, of getting to the 

right post-acute-care setting instead of staying in a more intensive 

or longer-duration place. 

The providers have to take an active role in helping their patients manage through that. If the patient incentives are operating 

at odds to that, even if you get the provider incentives right, they 

are not going to be able to steer their patients toward the right 

sites of care. If both are working in concert, then maybe the provider says, ‘‘You know what? I do not think you need this as an 

inpatient procedure. I think you can get this as an outpatient procedure.’’ And, the patient is going to be happier because of that— 

again, contingent on having good quality metrics to make sure that 

there is no incentive for stinting. 

That said, it is surprising the circumstances in which patients do 

respond to information about prices and quality. You are having a 

heart attack. You are in an ambulance. Of course, you are in no 

position to price shop or think about where you should go. Yet hospitals develop reputations for being high quality or for being very 

expensive and not being any better. Ambulance drivers know it. 

Patients have heard about it. And so, when you see quality ratings 

improve for even emergency care for some hospital systems, you 

see patient volume shifting to those higher-quality and highervalue places. So, I do think that having that information plays a 

vital role, but it has to work with both levers at the same time. 

Senator PETERS. Thank you. Ms. Corlette. 
24 

Ms. CORLETTE. I agree with my co-presenters here, but I would 

also just add one thing that we have not talked about is the issue 

of provider consolidation, which has been growing considerably. So, 

the whole issue of patients being active shoppers is dependent on 

them having choice. In a lot of communities, because of both 

vertical and horizontal integration by providers, hospitals buying 

up physician practices, hospitals merging, that choice just is not 

there. And, those providers are using their market clout to charge 

higher and higher prices. So, that is another issue that we need to 

be looking at far more aggressively than we are. 

Senator PETERS. Thank you very much. 

Chairman JOHNSON. Three quick points. 

First of all, I would love to have a hearing on other systems 

around the world, Singapore, whatever, so I would like to have you 

contribute to that. 

Walmart is actually flying their employees to Centers of Excellence for some of these major—and they have dramatically driven 

down the costs of some of these big procedures. So, again, the marketplace works there. 

And then, I hope we can get into Medicare policies driving private insurance policies, the Diagnosis Related Groups (DRGs) and 

that type of thing, what that is all resulting in as well. Senator 

Harris. 

OPENING STATEMENT OF SENATOR HARRIS 

Senator HARRIS. Thank you, and thank you for this hearing. 

I could not agree more, Senator Peters, and I know Senator 

Johnson feels the same way, which is that we need more transparency in the system. 

I would like to focus my question on asking each of you what you 

believe we in Congress can do to create policy that creates incentives, or perhaps disincentives, where appropriate, but with the 

goal of creating more transparency around pricing. What would we 

craft? What would that policy look like? And, why do we not go in 

reverse order and start with you, Professor Corlette. What do you 

believe we can do in Congress to increase transparency so that the 

consumer has a much better idea of what they are paying for? And, 

I would suggest that we obviously cannot ask or expect the consumer to shop around if they do not have metrics to then determine what exactly it is that they are being given. So, what would 

you recommend we do here? 

Ms. CORLETTE. Well, the biggest lever, I think, currently that 

Congress has is Medicare, which is the sort of 800-pound gorilla in 

any given health care market. So, using the Medicare payer as a 

lever with providers, get them to be more transparent, I think 

would be the place to start. And then, I also think that some States 

have done some very interesting work around all-payer claims 

databases. I do not know if folks are familiar with those, but essentially it is requiring payers to submit claims data into one big database so you can start to look at what providers are getting paid 

across multiple different care settings. 

Senator HARRIS. Do you know which States are doing that? 

Ms. CORLETTE. It is several at this point. There has been an 

issue with—some employer-based plans have challenged the re-
25 

quirement to submit, and so there was actually a Supreme Court 

decision that has dampened the ability of these all-payer claims 

databases to really take off, and I think that would be another 

thing for Congress to look at, is to clearly get at not just the individual insurance and Medicare payers but also what employerbased plans are paying as well. 

Senator HARRIS. And so, you are essentially talking about an 

open data system. 

Ms. CORLETTE. An open data system that anybody can access to 

see what Dr. A is charging versus Dr. B versus Hospital A versus 

Hospital B. And, I think that there is a lot that could be done 

around those claims databases, yes. 

Senator HARRIS. Please follow up with the Committee on the 

States. And any feedback you have about which among them presents best practices. 

Ms. CORLETTE. Sure. Dr. Baicker, you are nodding. Maybe you 

know at this point how many—I cannot remember, but it is over 

a dozen States that have these databases. 

Ms. BAICKER. There are differences across types of care. There 

are richer hospital databases than there are outpatient databases, 

so it is not an easy question to answer on the fly. 

I draw a distinction between price transparency to the patient 

versus revealing prices negotiated between insurers and providers. 

I think we all agree patients absolutely need complete information 

on what it costs them to get care in different settings so that they 

can make good decisions. There is a little bit of a debate about 

whether the prices that Insurer A negotiates with Hospital 1 ought 

to be public or not. I still have my two hands. On the one hand, 

you might think ‘‘why those prices should not be revealed, too, and 

help drive prices down?’’ On the other hand, there is a saying that 

in a world where everyone gets a discount, no one gets a discount. 

There is a hypothesis that if you make insurers and providers reveal the prices they have negotiated amongst themselves, then 

there is diminished incentive to give a discount to one insurer by, 

say, a prominent hospital because they know they would have to 

give that discount to everyone. So, it is a little bit ambiguous. 

Senator HARRIS. But, you would not agree that greater transparency actually encourages competition in the spirit of all that we 

want, which is that we ultimately bring the best product to the 

market for the consumer and in the interest of innovation in all of 

these areas? 

Ms. BAICKER. I would absolutely agree on the patient side. I 

think that is going to work best on the provider/insurance side 

when there is real competition—— 

Senator HARRIS. Well, are we trying to create incentives for the 

patient or the insurer? 

Ms. BAICKER. Both. I am trying to address those levers separately. I agree with you we want incentives on both sides, that we 

want full information for patients, and every incentive for competitive pricing between insurers and providers, and that requires a lot 

of insurers and a lot of providers. So, I think we are totally agreed 

on the goals, but the levers may be a little different for those two 

sides of the equation. 
26 

Senator HARRIS. What policies would you recommend we consider in terms of our legislative opportunities to create the incentives? 

Ms. BAICKER. I very much agree with whatever we can do from 

a regulatory or statutory perspective to make full information 

available to patients. I think one thing that would help with that 

is having the freedom for patients to reap as much of the benefit 

of their wise choices as possible, because that will then add patients to the mix in agitating for better information. 

I had a similar experience to Senator McCaskill when I first had 

an HSA in trying to get information about how much a shot cost. 

I had a sore elbow. I needed a shot for the elbow, apparently, and 

I said, ‘‘Oh, OK. How much does that cost?’’ And, they looked at 

me like I had just questioned their medical integrity, like, ‘‘That is 

not your business. Why are you asking me that?’’ Of course, it was 

my business. 

Senator HARRIS. Right. 

Ms. BAICKER. So having patients enlisted in that—— 

Senator HARRIS. Sure. 

Ms. BAICKER [continuing]. To have the information available and 

have patients agitating to say, ‘‘You need to be able to tell me how 

much that costs.’’ 

Senator HARRIS. So, for example, Professor Corlette mentioned 

doing that through Medicare. Do you agree with that as a recommendation? 

Ms. BAICKER. I definitely agree with having Medicare beneficiaries have all that information about all their care. 

Senator HARRIS. And in an open data type system? 

Ms. BAICKER. I am being slightly hesitant just because of patient 

confidentiality. In the aggregate, yes. We have to be very careful 

about revealing too much information about patients’ individual 

care and individual situations. So, assuming that all of that was 

taken care of, then I think that information is really valuable and 

ought to be available much more quickly than it is now. Even researchers have a many-year lag in getting information from the 

Medicare system. So, that is the least we can do, and then let patients share in the benefit of opting for cheaper, high-quality service. 

Senator HARRIS. So, would you agree, though, that the concern 

is that it is not about the information in terms of what type of illness, what type of patient demographically is being charged? The 

issue in terms of confidentiality is that we not identify the patient, 

but anything short of identifying the patient should be the subject 

of an open data system. Would you agree with that? 

Ms. BAICKER. Yes. 

Senator HARRIS. OK. Thank you. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Daines. 

OPENING STATEMENT OF SENATOR DAINES 

Senator DAINES. Thank you, Mr. Chairman and Ranking Member McCaskill. 

Dr. Thomasson and Dr. Baicker, you both stated that one of the 

major drivers in health care costs is the way we finance health care 
27 

by limiting the knowledge of the patient of what the true costs of 

health care are by financing through a number of structures that 

encourage the patient to get as much health care as possible, sometimes needed or even not needed, and for the driver to drive up the 

quantity of services they provide. In fact, I was taking my 

smartphone, used the example of LASIK eye surgery, googled 

‘‘LASIK eye surgery.’’ What do you see, the first three hits, the top 

of it? All deal with the price, incentives, $400 off per eye. Google 

‘‘knee surgery,’’ and you will see technical issues related to knee 

surgery, but there is nothing about the cost if you look at the top 

hits on Google. 

You also indicated that a major reason for this is the financial 

structure of government-funded programs that typically require 

nothing of the patient. I appreciate the line of questioning we have 

seen here around when you responded about you asked how much 

the shot was going to cost. Well, it is not that complicated why that 

information is not available and why it is not being asked, because 

the patient ultimately, it is not coming out of their pocket. And, 

that is why when it comes out of the patient’s pocket, when there 

is skin in the game for the patient, you start asking questions like, 

‘‘What will it cost?’’ It is one of the few financial transactions where 

the first thing that you do not ask is, ‘‘How much will this cost?’’ 

But, everything else we do in life, that is the first question, except 

when it relates to health care most of the time. 

As we know, health programs represent nearly half of all of our 

entitlement spending, 46 percent this year, 51 percent by 2026, and 

nearly 30 percent of our total Federal spending, and this is clearly 

unsustainable. 

So, for Drs. Thomasson and Baicker, how do you recommend restructuring our government programs to disincentivize overutilization and incentivize the patient asking the question, ‘‘How much 

will this cost?’’ 

Ms. THOMASSON. That is an excellent question. To be fair, we did 

not—I, at least, did not talk about out-of-pocket costs for government-sponsored insurance, and there are some deductibles. But, 

the truth is that high-deductible health plans, incentivizes us to 

ask questions. My insurance company does not cover LASIK. 

Senator DAINES. Right, and that is, in terms of zeroing it to—distilling this, the reason the LASIK is the number one hit, why? Because insurance companies do not pay for it. It is coming out of either the pocket directly, HSAs, or some combination of the two. 

Ms. THOMASSON. Right. And you are right, I would not show up 

to buy a car and just turn over the money. 

Senator DAINES. Right. 

Ms. THOMASSON. But, I would do that if somebody else were paying the bill. Economists are generally in agreement that cost sharing is a good thing, and the question is how you structure that. We 

have right now, for example, a Medicare deductible that is equal 

to a one day stay in the hospital. To some extent, for things that 

are not emergent, we need to structure high-deductible health 

plans, perhaps give Medicare beneficiaries the opportunity to contribute to HSAs that do put skin in the game. But, we also have 

to be aware of the fact that evidence shows that consumers cut 

down on the purchase of all kinds of spending when they have a 
28 

1The chart referenced by Senator Daines appears in the Appendix on page 171. 

high-deductible health plan. And so, the high-deductible structure 

itself may be a little bit of a blunt object. We want to encourage 

the use of high-value care. We do not want to give, in this case, 

the elderly incentives to not take their diabetes drugs so that they 

end up in the hospital later at a cost that is much greater to us. 

But, certainly, incentivizing the use of high-value care, like taking 

medicines for diabetes and hypertension, and disincentivizing the 

use of care that is not necessary nor effective, for example, MRIs 

for back pain. 

Senator DAINES. So, when you chat with, as I have had several 

discussions with, say, some of the neurosurgeons, they will tell you 

their fear of lawsuits oftentimes drives some of these additional 

tests, because the patient will say, ‘‘I want to have an MRI.’’ So 

how much do you think costs are influenced by practicing defensive 

medicine? 

Ms. THOMASSON. Well, the most recent estimates that I have 

seen suggest that up to 10 percent of costs are driven you defensive 

medicine practice. So, there is some of that, certainly. But, we have 

seen that providers can help educate consumers. For example, we 

all used to give antibiotics to every little kid with a sniffle or an 

earache, and providers who did not want to have to explain to a 

patient that that was not necessary, they just wrote a prescription. 

But, the culture is changing. Now we have kind of a discussion, a 

dialogue, so my pediatrician will say, ‘‘I do not know. Let us give 

it a few days. Let us not write a prescription.’’ Providers can have 

those conversations. 

Senator DAINES. Let me shift gears for a moment here. There is 

so much to talk about here and so little time. We have just heard 

that a significant contributor to the increasing cost of health care 

is the size of the government footprint in the health care space. 

From what we have heard, this is through incentivizing overutilization of health care. It does little in the way of recognizing that 

health care does not have an unlimited supply, as we are currently 

seeing, certainly over in Europe, particularly in England. 

In my home State of Montana, we have seen that to be true with 

the Affordable Care Act. I have spoken to many Montanans that 

are now bearing the cost of increasing expansion of government 

into health care. One small business owner had to pay $35,000 in 

premiums and deductibles for a bronze plan before anything is covered, and my Montana farmers and Montana ranchers are facing 

similar costs. 

This poverty tax has been a huge problem for Montana. In fact, 

40 percent who pay this penalty on the mandate earn less than 

$25,000. We have a chart1 here: 80 percent made less than 

$50,000. The very people that can afford it the least are getting hit 

with billions of dollars in what we call a ‘‘poverty tax.’’ 

Your recommendation is that we continue to infuse taxpayer 

cash into government programs. That seems to go against the very 

goal of decreasing health care costs and availability. How do you 

square or reconcile those two positions? 

Ms. THOMASSON. Well, with all due respect, Senator, I have also 

indicated that more people need to buy insurance—there needs to 
29 

be more teeth in the mandate. What we are seeing here—and all 

the premiums that we have talked about so far are average premiums. For these people suddenly facing higher premiums, there 

is a whole group of people who can now actually buy insurance who 

could not even get it before. In essence, the price was infinite. 

These are average premiums. When healthy people buy insurance, 

too, then that is what it does. It will lower average premiums. It 

is going to stabilize risk. We look at this with flood insurance right 

now. If you are in a flood-prone area, it is very expensive. But if 

we pool nationwide and we average the non-flood areas with the 

flood areas, the average cost goes down. 

It is my belief that premiums are rising because, one, insurance 

companies did not have any experience with the market, and that 

is why I recommended increased stabilization; and, two, that premiums are rising because they are still being selected against in 

those non-group markets. 

Senator DAINES. But, if we get back to the point around it, if the 

patient is not asking the question, ‘‘What will it cost?’’ as the first 

question—or maybe at least the first couple. Obviously, if your situation as you described there when you had your staples, the first 

thing is you want to get treated, you want to get well, you want 

help. But, if it is not part of the calculus in terms of what will it 

cost, I am just concerned that we never, ever will bend the cost 

curve. It comes back to accountability and responsibility and ensuring you are asking, ‘‘What is the price?’’ 

Ms. THOMASSON. And, you are absolutely right, and that is why 

we need more accountability, we need more skin in the game for 

consumers, and we need a health culture, frankly, where we start 

to ask questions about cost. And, I believe that will only happen 

when consumers have to pay more costs and they recognize that. 

It is not going to happen instantly, but markets can evolve over 

time with information and competition. 

Senator DAINES. Yes. Thank you. I am out of times. 

Chairman JOHNSON. Thank you, Senator Daines. 

I have always said that if there is one metric in terms of fixing 

this whole health care mess, one metric we would look at telling 

us we are moving in the right direction, it really is that. We say 

11 cents, you said 12.4 cents of every dollar paid directly by the 

patient. If we could move that up to a higher percentage where you 

actually have patients demanding the price transparency, ‘‘What 

am I going to pay for this service?’’ that really starts my—first, an 

anecdote in terms of what I had staff take a look at and then my 

question. 

I literally had my brother outside of his normal area get sick and 

have to go to a clinic and he wanted to pay cash rather than insurance. He got a 75-percent discount, which prompted me to ask my 

staff to start calling up clinics. They called up 748 different clinics 

on two different conditions—an ear infection and strep throat. Only 

about 20 percent of the clinics, 21 and 20, knew what the price 

was. In other words, 79 and 80 percent of the clinics did not know 

what the price was. The discount for cash when they asked for it 

was about 20 percent, 20 to 21 percent, which kind of shows you 

the whole middleman cost of this completely dysfunctional financing system. 
30 

Let me go to my question. Of the $2.66 trillion I was talking 

about, the difference between inflated spending from 1960 to the 

$3.2 trillion we spend, do you know of any studies that have kind 

of quantified how much of that is because of what we can do nowadays, the advances in medical technology and science, versus just 

an inefficient financing marketplace? Anybody on that? Dr. 

Baicker. 

Ms. BAICKER. It is a harder question to answer than it ought to 

be, in part because there have been studies that have shown the 

spread of insurance has very much led to higher spending on 

health care, but some of that is driving innovation in new medical 

technologies that did not exist before, building infrastructure that 

did not exist before. So then maybe even a simpler breakdown 

might be how much of it is price and how much of it is quantity. 

When you look at spending, it is number of units times price per 

unit. But, even that is harder than it ought to be because it is hard 

to define the quantity. A day in the hospital means something different now than it used to mean in terms of the intensity of services. 

So, surely it is some of both, which is a really unsatisfying answer to give, I know, but we are treating people a lot more intensively. A lot of that is flat of the curve medicine, where we are delivering more services of diminishing value, and then some of it is 

the price per service. But, I think a lot of it is technological innovation, some of which is very high value on average but very low 

value on the margin. In the MRI example for low back pain, MRIs 

are good. I am glad there exists an MRI technology. But, the marginal person on whom it is deployed is probably not getting much 

benefit from it. 

Chairman JOHNSON. So, I would ask you, after the hearing, if 

you know of studies or can search for studies or indicate to our 

staff where we could kind of look to start getting some quantification of that $2.66 trillion, where that is all broken out. 

You mentioned staying in a hospital room. A question I always have, just basic, a really nice Hampton Inn costs less than $100 a 

night versus I do not know what they are charging for hospitals 

now but it is outrageous. Now, I realize there are costs spread— 

you got nurses at stations, that type of thing. But, let us face it, 

I do not know how much you spend for an aspirin, but generally 

those hospital charges are pretty well quantified, and they are covering their costs. 

We need to explore what is the cost of the middlemen in this 

third-party payer system. I am a private sector guy. I am not going 

to beat people up and try to make a profit. But, because we have 

this third-party payer system, we have a lot of people involved in 

actually paying the bills. And, they all make a cut, and they all 

have salaries and it just continues to increase that. 

I do want to ask to what extent has the Medicare policies, DRGs, 

contributed to this process. Dr. Baicker, as long as you are—whoever wants to go, but you seem ready. 

Ms. BAICKER. I was poised, fast finger. The Medicare payment 

system I think drives a lot of the care that we get. One thing that 

you mentioned is the insurance payment versus the underlying 

cost, and it is misleading in Medicare to look at something like hos-
31 

pital margins and say, ‘‘Oh, they are not so big.’’ Well, the payment 

is actually driving a lot of the investment that is driving the costs 

up, and the reason it is so expensive to treat certain conditions is 

because we are paying so much for them. There is a chicken-andegg problem there. And, a lot of the policies in Medicare that might 

help dampen down overuse of low-return care are undermined by 

the ubiquity of Medigap policies. Senator Daines asked about 

whether there were other things, other government policies that 

could improve that allocation problem. Well, a lot of the innovation 

you might do in Medicare payments really has no bite on the patient side because more than 90 percent of Medicare beneficiaries 

have a wrap-around policy, whether it is a retiree plan or a 

Medigap plan. So, even when you try to change cost sharing, it gets 

undone by those policies. That would be one thing to potentially reform. 

Also, you see a lot of innovation on Medicare Advantage, private 

plans offered to Medicare beneficiaries that have a little more room 

to maneuver in innovative benefit design in selective contracting 

with providers to help drive down prices. But, there is a limit to 

how much Medicare beneficiaries can save in that. They cannot actually get cash back in terms of premiums if they choose the highest-value, lowest-cost policy available to them. Reforming that 

might allow them to do a little more shopping among plans that 

are delivering innovative policies. 

And, if you look at spending on health care, Medicare coverage 

decisions and Medicare payments drive a lot of what happens even 

in commercial markets. Medicare is a huge share of our health care 

system, and it has an even outsized impact because other providers 

follow the Medicare rules and coverage provisions. 

Chairman JOHNSON. Does anybody want to comment on that? 

Ms. CORLETTE. Well, the only thing I would say—and I say this 

a little bit as a former Senate staffer myself—is let us not underestimate how challenging it is for Congress to go after some of the 

historic payment methodologies that are in the Medicare program. 

I mean, history is littered with examples of efforts either by the 

Centers for Medicare and Medicaid (CMS) or by Congress, whether 

it is the sustainable growth rate (SGR) or the Part B demo—I 

mean, the list goes on and on and on—of efforts to try to rein some 

of these—— 

Senator MCCASKILL. Death squads. 

Ms. CORLETTE [continuing]. Disincentives and cost drivers out of 

the system. And, the problem is, one person’s cost is another person’s paycheck. And so, that is just a reality that you all need to 

grapple with, and it is not—— 

Chairman JOHNSON. OK. I want to keep going back to that. How 

much of health care really could be paid directly by the patient? 

I think we really underestimate that. I can just tick—whether 

LASIK—certainly what I saw in my business career because of 

HSAs we had Walgreens, Walmart, CVS, walk-in clinics, $35. 

There is a doctor in Wisconsin that just really primarily focuses on 

farmers, charges $55, cash, basically to the rural community for a 

half-hour appointment. Now, he has the infrastructure. He has hospitals with the equipment and stuff. But, there is an awful lot of 

innovation. Dermatology, there are so many things in our health 
32 

care system that I think really could be paid directly. You have the 

patients demanding the price. And, I really want to explore how 

much can be used—really use the consumer-driven free market 

competition to, as you said, agitate for better pricing, better quality, better service. I mean, it works in every other area of our economy, consumer-driven free market competition. I know there is a 

breakdown because you have the high cost, you have the catastrophic instances where you need insurance. But, I think it has 

just gotten completely out of whack. And so, again, anything you 

can do to help us, point this Committee in the direction of what 

those things could be. Go ahead. 

Ms. THOMASSON. I am trying not to appear too eager here, but 

I think—— 

Chairman JOHNSON. No, I appreciate that. Otherwise, I will just 

keep yakking. [Laughter.] 

Ms. THOMASSON. This is definitely a case—well, you were kind 

enough to say that there were no bodies littering the floor where 

politicians are concerned with trying to tackle some of these issues. 

But, I think history can be illustrative here. 

When Medicare was enacted, its chief opponents were physicians. 

They wanted nothing to do with it. They were very vocal. I have 

recently been reading Senate testimony on the Medicare hearings 

for a book I am writing, and the American Medical Association 

(AMA) came out staunchly opposed. 

Part of the way that the reimbursement structure for Medicare 

was set up was to placate physicians and get them to participate. 

And so, we set it up on this fee-for-service basis with extra costs 

for capital depreciation and replacement, which was a bonanza, 

and we saw health expenditures increased 37 percent in the first 

5 years of Medicare alone, and it was just more services being 

done. I mean, I think you could argue that in 5 years technology 

did not change significantly to lead to that kind of rise in medical 

expenditures, although, true, some patients did actually see the 

doctor for the first time, as Senator Tester was suggesting, and 

have it be paid for with insurance. 

So, I think that cost transparency is vital. I think provider payment reform is vital, and the providers are still actually opposing 

it. In Ohio, there was a State law that has been proposed—it is 

currently subject to an injunction. A State representative had suggested a bill where providers had to provide consumers with a 

good-faith estimate when they entered the hospital, like you would 

get when you repaired your car. And like I said, providers complained. They do not want to tell their prices, they said it would 

be bad for care. And, they will argue that a lot of it has to do with 

the fact that you do not know what you are going to do for that 

patient, and so you cannot really commit to an estimate. But, there 

is still opposition to transparency among the people who are providing the services, clearly. 

Chairman JOHNSON. One of you in your testimony I think said 

that costs increased 70 percent after Medicare. Did I just read that 

in something else or is that in the testimony? 

Ms. THOMASSON. Well, I said in my testimony, Medicare provides 

a good laboratory experiment for trying to gauge how much the 

spread of insurance has increased overall health expenditures, and 
33 

the best estimate is that up to 50 percent of the increase in costs 

between 1960 and 1990 are due to the spread of overall health insurance. 

Ms. BAICKER. Not just Medicare. 

Chairman JOHNSON. Not just Medicare, right. 

Chairman JOHNSON. OK. Senator McCaskill. 

Senator MCCASKILL. I want to talk about why the market is not 

working better. What are the barriers to the market working better? 

Now, the irony is, I have had a number of people say—and one 

of you mentioned it this morning—that, well, you need to ask your 

doctor and rely on your doctor’s advice; and, therefore, being able 

to shop on an app for a knew replacement or being able to shop 

on an app for a cheap MRI does take the doctor out of the equation. 

Well, then how can we explain the billions of dollars of advertising 

that are flooding television stations right now, telling consumers 

what prescription drug they need? Why do we have this breakout? 

I mean, we now know that some of these pharmaceutical companies are spending more on trying to convince me I need Humira the 

number one prescribed drug in America right now—that is abusing 

the patent process, I might add. Why are they flooding magazines 

and the air waves that I need this drug when a doctor is not driving that? And why are we not seeing the same thing from doctors 

about, ‘‘You need to come to see me for your allergies,’’ or, ‘‘You 

need to come see me, I can give you all your allergy tests for free 

if you come and see me’’? Why are we not seeing loss-leader type 

advertising from doctors? We are seeing it from hospitals, primarily 

in certain areas like for cancer or for heart or for delivering babies, 

but not at all from doctors. What is that? 

Ms. THOMASSON. There are big billboards between Oxford and 

Cincinnati that advertise various hospitals, a few doctors, mostly 

for plastic surgery and these things that are very—— 

Senator MCCASKILL. Or LASIK. 

Ms. THOMASSON. Right, or LASIK. 

Senator MCCASKILL. Where people are paying. 

Ms. THOMASSON. I mean, the thing is that this is not a competitive market, and there has been substantial provider consolidation, 

which gives them room to advertise. And, since consumers are not 

paying the bills and providers—it is much easier for a provider to 

say, ‘‘Oh, Humira, you want to try that?’’ ‘‘Sure, why not?’’ It is not 

going to cost you anything. You advertise to consumers, and then 

consumers go to physicians who are not likely to have any incentive to provide a barrier there, and, in fact, it takes some time to 

explain why that might not work. Patient satisfaction surveys: 

great idea except that now doctors have to be pleasers, too. So, 

there are not a lot of incentives for them to put the brakes on 

drugs right now. 

Senator MCCASKILL. Not only put the brakes on drugs, but also 

begin—I mean, we have to figure out something on this advertising. This is ridiculous. And, we are paying for it. They get to deduct it all, right? What is the economic rationale for being able to 

deduct the cost of prescription drug advertising? Anybody? 

Ms. THOMASSON. See, this is why I am not an accountant. 

[Laughter.] 
34 

I actually want to say that there are tradeoffs with advertising. 

Advertising can communicate differences in price or quality. In 

competitive markets, that is what its function is. But, it can also, 

like you said, kind of drive demand and drive extra use of services. 

The American Medical Association—I think actually historically— 

I do not know whether it is true now—actually prohibited members 

from advertising because they did not want prices to get lower. 

They did not want people to say, ‘‘Oh, that doctor is offering this 

service for less.’’ 

Senator MCCASKILL. I think that is something we need to look 

at. 

Ms. THOMASSON. But, I do not think it is advertising that is the 

problem. It can be beneficial. 

Senator MCCASKILL. You can be, obviously, thin, wealthy, run 

through fields with a smile on your face, play with your grandchildren, and have sex whenever you want it based on these ads. 

And, it is like so nuts that we are underwriting that; the taxpayers 

are underwriting that kind of effort. 

Let me address also end-of-life costs. You all have not discussed 

what percentage of our health care costs are attributable to the last 

6 months or year of folks’ lives. Could you address that? Because 

I think it is an important thing for us to talk about. 

Ms. BAICKER. This is a really important issue, and it is a great 

example of a place where we spend a lot of money on care that does 

not seem to make patients better off and in some cases may make 

them substantially worse off. And, when we have seen concerted efforts to implement joint decisionmaking between patients and physicians where good information is elicited about what patients and 

their families really want, you end up spending less on end-of-life 

care because patients would rather be at home. They would rather 

forgo some of the more intensive treatments. 

There is a great example from a commercial insurer that experimented with changing requiring patients who enter hospice care to 

sign something saying that they would forgo curative care. It used 

to be that to get into hospice you had to say, ‘‘I hereby give up on 

trying to be cured,’’ and then you could get hospice care, presumably to prevent people from using a lot of extra hospice care—— 

Senator MCCASKILL. That is just bizarre. 

Ms. BAICKER [continuing]. Which seems like a very low risk. But 

you can imagine saying to a patient and the patient’s family saying, ‘‘Hey, will you just sign right here saying you are definitely 

dying and you have given up on trying not to die?’’ 

Senator MCCASKILL. Right. 

Ms. BAICKER. What a terrible thing to ask someone to do. When 

you say instead, ‘‘You do not need to sign that, just let us know 

that you would like to enter hospice care,’’ patients were more likely to enter hospice care because they were not confronted with that 

horrible moment of giving up, and, in fact, they were more likely 

to forgo curative care because it was not improving their quality of 

life and hospice was making them much more comfortable. That innovation saved money for the system but, more importantly, created a better end-of-life experience for patients and their families 

and did not curtail their options at all. And, it is that kind of inno-
35 

1The article referenced by Senator Johnson appears in the Appendix on page 173. 

vation that I think could have us treating patients better, more 

kindly, more carefully in the last—— 

Senator MCCASKILL. Yes, and, this is when I knew things were 

going to go south fast, because the whole misinformation about 

death panels was just us reimbursing doctors for them taking the 

time to make end-of-life explanations about nutrition and hydration so that patients could make those decisions prior to the moment where their families are trying to make them for them. That 

is all it was. It is a really good idea. It had nothing to do with forcing anybody into any forced—you do not get care at the end. And, 

it got so misinformed, and that obviously is something—thank 

goodness my mother, let us all know that we were going to burn 

in hell if we put her on a feeding machine or artificial hydration, 

and so she was able to come home and died with us around her. 

And, I cannot imagine the costs that would have been incurred had 

she not pounded that into our heads every day. But, a lot of families do not have that. 

I know I am out of time. I have one other thing that I want to 

talk about, the poverty tax. I wish that Senator Daines was still 

here. Every person on that chart that he talked about—I do not 

know how many people were in the family, but basically you have 

to make more than $80,000 a year for a family of three to not get 

subsidies on the exchanges. So, when you choose not to take those 

subsidies on the exchanges, you are making a decision to have 

somebody else pay for your health care. You are making the decision that—now, I guarantee you those people that are paying those 

penalties are going to go to the emergency room if their child begins to turn blue or if somebody gets a broken arm or if there is 

a car accident, and then all those costs are passed on to everyone 

else. And so, the irony is that those are the people the subsidies 

are designed to help, and they are just refusing to take the help 

of the subsidies and say, ‘‘I want somebody else to pay the bill.’’ 

So, I think to call it a ‘‘poverty tax’’ is terribly unfair. It is not 

a poverty tax. It is trying to instill in people the idea that you all 

discussed very eloquently, that if you do not have responsibility to 

get insurance, then those of us who have insurance are just going 

to pay more for what we have. There is no escaping that—right?— 

in terms of the economics of this issue. There is no way to get 

around that, correct? OK. Thank you, Mr. Chairman. 

Chairman JOHNSON. Two quick comments. I was involved in a 

bipartisan group on end-of-life issues, and one of the articles I 

brought to the table—and I will try and get it for the Committee— 

was written by Dr. Murray. The title was, ‘‘How Doctors Die It’s 

Not Like the Rest of Us, But It Should Be.’’ A really thoughtful 

piece.1

In terms of advertising, the reason we allow it to be deducted is 

we let every business deduct marketing expenses. Now, from my 

standpoint, when I watch those commercials, all the caveats, all 

the disclaimers, all the warnings, I do not know why anybody 

would ever want to, first of all, take one of those drugs that is 

being advertised, because it is pretty scary. But, anyway, Senator 

Carper, do you have further questions? 
36 

Senator CARPER. I do. Thank you. Thank you again for holding 

this. I have been bouncing back and forth between this hearing and 

the HELP Committee, where several of the Nation’s insurance commissioners are testifying. And, they have it almost wrapped up, 

ready to put a bow on it, and send it our way. 

One of the great values of a hearing like this is for you to help 

us develop consensus. And, the thing that we need to develop consensus on right now, I am told, is the marketplaces, stabilizing the 

marketplaces. And, we have heard a variety of ideas suggested to 

do that. One made clear that CSRs are not going away, not just 

for the rest of this year, but for at least one more year, maybe for 

two—at least one more year, but maybe even two additional years. 

Two, reinsurance. Senator Johnson talked a little bit about the 

invisible high-risk pool and the idea of maybe working something 

like that into this. Some say it is just another way to do reinsurance. 

Three, individual mandate or something as effective as the individual mandate in getting young people off the bench and into the 

game so they are part of the high-risk pools. 

Help us. Just very briefly, starting with you, Ms. Corlette, for 

consensus, what should we do right now on stabilizing the exchanges? Where do you think there is consensus among the three 

of you? Thanks. 

Ms. CORLETTE. My top three would be just that, number one, insurers need certainty that they will be reimbursed for the costs associated with the cost-sharing reduction plans that they are required by law to offer to eligible enrollees. 

Number two is they need to be confident that the individual 

mandate will be enforced. 

And, number three, I would do a little bit of reinsurance. I think 

even though now we do not have any bare counties, knock on wood, 

the States and insurers have stepped up to make sure that everybody everywhere will have some option. But, I think we do need 

to look at places where there is still only one insurer, where costs 

are rising. So, those are the three things I would do right now. 

Senator CARPER. Good. Dr. Baicker. 

Ms. BAICKER. I think we all agree that those rules also need to 

be in place for more than just 6 months or a year, that insurers 

participating in a relatively new marketplace need to know what 

the playing field looks like for a good period of time, whether rules 

that are on the books are going to be enforced, that they are competing in a fair way with each other to participate. 

Senator CARPER. All right. Dr. Thomasson, who comes from the 

real University of Miami, which has been a university for longer 

than Florida has been a State. 

Ms. THOMASSON. That is correct. 

Senator CARPER. I went to Ohio State. I have heard this often. 

Ms. THOMASSON. I will send you the T-shirt. 

Senator CARPER. There you go. [Laughter.] 

All right. What is the consensus here on stabilizing the exchanges? 

Ms. THOMASSON. I agree with everything that has been said so 

far, and I would actually add, too, that insurance companies entered this market because they were incentivized with the CSRs, 
37 

the cost-sharing reductions, the risk corridors, and reinsurance. To 

the extent that government does not fulfill its end of the bargain, 

it is going to be difficult not only in this endeavor but in future endeavors to come up with private market-based solutions to some 

very thorny issues. And so, I agree that we need to fulfill our terms 

of the agreement, and we probably need to do it for more than a 

year to allow them to have experience. 

Senator CARPER. I was on the phone with some folks from 

Highmark, which runs Blue Cross/Blue Shield programs in Delaware, Pennsylvania, I think West Virginia, maybe another State or 

two, and talked with them and with other folks, folks at the America’s Health Insurance Plans (AHIP), the health insurance coalition. Most of them said, ‘‘We could reduce our premiums if you basically will do these three things that you are talking about.’’ If we 

could do this, they could reduce premiums by as much as 35 percent. And, the great thing about that is it is not just to save some 

money for people who are getting health insurance within the exchanges. It is Uncle Sam. In some ways, Uncle Sam is actually the 

biggest beneficiary of all. Is that correct? 

Ms. CORLETTE. That is right because as premiums go up in the 

markets, the tax credit subsidy has to go up dollar for dollar with 

it. 

Senator CARPER. Do you all agree with this? OK. Let the record 

show heads nodding from Oxford, Ohio, and other places. 

Chairman JOHNSON. Can I just interject? 

Senator CARPER. Please. 

Chairman JOHNSON. That was the point I made in our pre-meeting, that whether we fund the CSRs—if we do not fund the CSRs, 

premiums will go up, and we will fund the premium tax credit. So, 

either way, the American taxpayer is going to pay for this. The 

problem with allowing premiums to increase, the forgotten men 

and women who do not qualify for the subsidies, whatever that 

level is, they are going to—insurance is going to be even more 

unaffordable. 

So, this is, from my standpoint, some very unhelpful demagoguery on our side of the aisle, ‘‘We are not going to bail out the 

insurance companies.’’ Well, the insurance companies are going to 

get the money one way or the other. The American taxpayers are 

going to pay for it, so let us be honest. Again, let us take a look 

at the reality of the situation, which is why I was supportive of 

funding the CSRs a number of months ago to stabilize those markets before it is too late. 

But, anyway, sorry for interjecting. 

Senator CARPER. That is OK. If I could, one last question on 

HSAs. I share the interest of some of our Republican colleagues in 

looking for ways to improve and possibly expand health savings accounts. At the same time, one of my constituent’s main complaint 

is about high deductibles and cost sharing with their health plan. 

Last year, Senator John Thune from South Dakota and I sent a 

letter to the Treasury Department. We asked that high-deductible 

plans with HSAs be permitted to cover health care services to treat 

chronic conditions before the deductible. And, I would just ask each 

of you just to briefly let us know what do you think this time of 

would reform to improve the value of high-deductible insurance 
38 

plans make sense? And, what other reforms to HSAs should we 

consider? Dr. Thomasson? 

Ms. THOMASSON. But, do not ask me to do CPR. 

Senator CARPER. OK. 

Ms. THOMASSON. Well, I think that—— 

Senator CARPER. Looking for some consensus on HSAs to add 

more value. 

Ms. THOMASSON. Yes. Well, I do think that research has shown 

that just a simple high-deductible health plan with a one-size-fitsall deductible is a blunt instrument. And so, there is evidence that 

high-deductible health plans could be structured in such a way to 

encourage, for example, adhering to diabetic medication or hypertensive drugs, treating some of these chronic conditions, while 

minimizing your use of low-value services. So, I think there is certainly room for improvement. But, I would actually say that Dr. 

Baicker has actually done research on this. 

Senator CARPER. Dr. Baicker, is that true? 

Ms. BAICKER. I will not deny it. There is, I think, a huge potential gain from more value-based insurance design, taking the principle behind HSAs that patients ought to be more price-sensitive 

and have an incentive to choose the care that is right for them, not 

just more care. But, an HSA is fairly blunt. And what you would 

really like to see is not just co-payments that vary for different 

treatments, but co-payments that vary for different patient circumstances. An example is a statin to lower cholesterol. For a diabetic patient, a statin is incredibly valuable. In fact, lots of providers, even though I am not a real doctor either, recommend using 

statins for diabetics even before their cholesterol is elevated because it is such good prevention for adverse cardiovascular events. 

So, maybe diabetics ought to have a negative $5 co-pay. Maybe we 

ought to pay them $5 to take their statins. Whereas for somebody 

with mildly elevated cholesterol and no other risk factors, the 

statins may not be really doing much good, maybe that person 

ought to have a $50 co-pay. And so, you could have something that 

is actuarially equivalent that is actually increasing or rationalizing 

patient cost sharing. Things that are high value could have and 

has very low cost sharing, and I might add cost sharing that varies 

based on income, because $5 means something different to lowerincome people than to higher-income people. With that kind of insurance you can push people toward high-value care and not subsidizing low-value care. 

Senator CARPER. Ms. Corlette, the last word. 

Ms. CORLETTE. I would agree that we should creative incentives 

to push toward value-based insurance design. It is a terrific concept. I think the challenge becomes who decides what is high value, 

who decides what is low value. And, while there are services on 

both ends that I think there is broad consensus around, there is 

a lot in the middle around which there is no consensus, and it becomes very challenging very quickly. 

With respect to HSAs and high-deductible plans, I think it is important to keep in mind that close to half of the American public 

reports that they could not afford to pay $400 for an unanticipated 

emergency medical expense. Four hundred dollars. They could not 

afford it. So, we need to bear in mind—— 
39 

Senator CARPER. Say that again. How many? What percent? 

Ms. CORLETTE. Almost half of Americans surveyed say they could not afford even a $400 bill for an unexpected medical expense. So, 

it is important to know that most people do not have the kind of 

disposable income you would need to adequately fund an HSA to 

pay for the kinds of deductibles that we see, for example, in a 

bronze level plan. 

Senator CARPER. Colleagues, I think Dr. Baicker has done some 

research on this in terms of affordability, and your research has 

suggested some possible solutions to address what Ms. Corlette has 

just talked about. Is that correct? 

Ms. BAICKER. Tangentially. 

Senator CARPER. OK. 

Ms. BAICKER. Less in my wheelhouse, but I would like to follow 

up on something that Senator Johnson said about pre-funding the 

HSAs. A limited view of cost sharing is it is just a way of making 

patients pay more for a fixed bundle of care, that it is shifting costs 

from insurers to patients. But, really what cost sharing ought to be 

doing is incentivizing use of high-value care and disincentivizing 

use of low-value care. It should change the bundle of care that you 

consume, not just change who pays for a given bundle. If you can 

actually save money in the overall spend by shifting people away 

from low-value care, that leftover money can be used, for example, 

to fund HSAs I very much agree that especially low-income Americans do not have enough money to cover the typical deductible in 

a high-deductible plan, but it does not have to be coming out of resources they already have. You can share back the savings from reducing overall health spending with them in a way that is incentive-compatible, and I think that kind of change could be sustainable and affordable across the income spectrum. 

Senator CARPER. Great. Thank you so much. 

Thanks, Mr. Chairman. 

Chairman JOHNSON. Just quickly chiming in here, that, by the 

way, is kind of a depressing statistic right there, 50 percent cannot—I think part of that is attributed to the fact that we have conditioned Americans to the point that they do not have to pay 

for their health care because of zero-deductible plans, because of— 

again, so nobody plans on it. It is just that has become the culture, 

that we really do not have to pay for our own health care. We have 

to buy our own food. We have to pay for our own shelter. We have 

to buy our own cars. But, health care? Do not have to pay a buck 

for it, or a $10 deductible. So, it is going to be a cultural shift that 

is going to be required here. 

Again, I just want to kind of end, I guess, on that statement but 

to thank you for I think just really good testimony. The fact that 

you had Senator Carper, who was actually involved in the higherprofile health care here, the fact that he got back here I am assuming means we had a pretty good set of witnesses here. And, hopefully this hearing had some real value. It had a great deal of value 

to me. I want to thank my colleagues for attending. 

I really do want to hold more of these. I want to work with all 

of my colleagues to provide the information. We will beef up this 

with your charts and graphs as well. Again, I do not want this onesided. I want this completely bipartisan. Again, that problem-solv-
40 

ing process, describe the reality, define the problem, get the information, set achievable goals. Then we will design the solutions 

hopefully in a bipartisan fashion to address—again, we all share 

the same goal. We want our fellow citizens to have access to highquality health care at an affordable cost. So, again, thank you very 

much. 

With that, the hearing record will remain open for 15 days until 

September 21st, at 5 p.m. for the submission of statements and 

questions for the record. This hearing is adjourned. 

[Whereupon, at 12:01 p.m., the Committee was adjourned.] 
(41) 

A P P E N D I X 
42 

U.S. Senate Committee on Homeland Security and Governmental Affairs 

Hearing on "The History and Current Reality of the U.S. Health Care 

System" 

September 6, 2017 

Ranking Member Claire McCaskill 

Opening Statement 

Thank you, Mr. Chairman. 

During a Finance Committee hearing back in June, l called for bipartisan 

hearings on healthcare retorm. Unfortunately, there >vas never an opportunity to 

participate in hearings in the Senate on the Better Care Reconciliation Act or on any 

other Republican health care repeal or replacement plan before they were brought to 

the tloor, in July. I appreciate that several committees are now holding open, 

bipartisan hearings addressing health care. This is a huge step forward. I hope that 

today marks the beginning of a return to regular order in the Senate and kicks off a 

new era in which we work to seek bipartisan solutions to the health care system and 

the many other challenges facing our nation. 

In June, I also acknowledged that Democrats made mistakes when we passed 

the Affordable Care Act, and I value the opportunity to address some of those 

shortcomings. The ACA was a complicated piece of legislation that was designed 

to fill gaps and provide coverage to individuals that did not have access to affordable 
43 

health care coverage. Although the ACA is far from perfect, it succeeded in 

providing health care coverage to more than 20 million Americans. In August, the 

Centers for Disease Control and Prevention reported that the uninsured rate remains 

at historically low levels only 8.8 percent of Americans are uninsured. But there 

is still much work to do we need to build on these gains and ensure that more 

people have access to affordable health care coverage. 

l \Vould be remiss if I did not mention the giant elephant in the room the 

immediate concerns affecting the individual market. In less than two months, 

Americans are scheduled to begin enrolling in 2018 plans on the individual market. 

And in order for that to successfully happen, we need to act today. First and 

foremost, we must take steps to stabilize the individual market. I held over 25 town 

halls in Missouri in August, and I heard from my fellow· Missourians that they are 

extremely concerned about what will happen to their healthcare next year and want 

to know what can be done about rising health care costs. 

Fortunately, for those in the individual market, there is an easy answer on how 

to help address concerns over uncertainty in the market and rising premiums, and 

that is for the Administration to commit to making cost sharing reduction (CSR) 

payments. Experts on both sides of the aisle agree that the unce1iainty surrounding 

the future of CSR payments is causing instability in the individual market. The 

individual market depends on the voluntary participation of health insurance 
44 

providers. If the insurance companies that do participate in the exchanges do not 

receive CSR payments, they will find a way to offset the increased costs. For many 

of these companies, that will mean increasing premiums by an additional20% in the 

individual market, or simply declining to participate in the exchanges at all. 

We should not miss the opportunity to address the immediate problem before 

us-we must stabilize the individual marketplace and incentivize providers' 

participation in the exchanges by making the CSR payments permanent. 

Even so, stabilization of the individual market is only one piece of the puzzle. 

The fact remains that health care costs are rising, and more and more Americans are 

concerned about access to affordable, quality health care. We all know that high 

drug prices and the lack of price transparency for health care services are significant 

cost drivers. Americans struggle to get answers to a relatively simple question: How 

much does this cost? We should make it easier for folks to get answers to that 

question. We also have to address high drug prices, which are driving up health 

insurance premiums and forcing too many people to choose between buying their 

medication and paying their bills. 

l look forward to hearing the testimony from our witnesses who spend every 

day working to understand the complex nature of our health care system. 

Thank you, Mr. Chairman. 
45 

FARMER ScHOOL OP BusiNEss 

MIAMI UNIVERSITY 

September 6, 2017 

0..'1ELJSSA A. Tl!O~vlASSO~ 

JLrU,\N LANGE PROFFSSCJR OF ECO!'O:Vl!C~ 

Dr:i-'AR T\1E\'T OF EC0h.'Cllv1JCS 

2054 F <\!Uv!ER SCHOOL OF B11SJ~ESS 

OXFORD, OHIO 45056 

j 13.529.2836 

Good morning Chairman Johnson, Ranking Member McCaskill, and Members of the 

Committee. I am Melissa Thomasson, the Julian Lange Professor of Economics at Miami 

University. Thank you for the opportunity to appear before you today to discuss the economic 

development of the health insurance system in the United States and its effect on health care 

costs. In an environment where the overall share of health care spending as a percent of GDP has 

more than tripled, from tlve percent in 1960 to roughly 18 percent today, understanding the 

evolution of health insurance is crucial to developing effective policies that improve health care 

access and quality, and that constrain cost growth. 1 

\Vhy the United States has an employment based system of health insurance 

The li.mdamental function of any kind of insurance is to reduce tlnancial uncertainty by 

pooling risks. Consider homeowners insurance. On average, if a large number of people pay a 

premium in advance, a relatively small number will have their houses burn down. Because not 

everyone has their homes burn, there is sufficient money in the pool to replace the homes of 

those \\hO suffer the loss. This system works because both higher-risk and lower-risk people pay 

money into the pooL not just the people who face a high risk of loss. 

At the turn of the 20th century, medical care was largely ineffective and medical costs 

were low. People rarely entered the hospitaL did not face unexpectedly high health care costs, 

and did not need hcallh insurance. 2 For example, only tlvc percent of infants were born in 

hospitals in 1900. As medical technology advanced in the early 20'h century and more people 

sought treatment in hospitals. health care costs began to rise. The costs of hospitalization also 

introduced wide variation in health care expenses for American families, so that middle class 

families that could previously pay bills might not be able to pay a large hospital bill. 3 

Even though the need for health insurance had grown, the market did not develop 

because insurance companies were concerned that "health" was uninsurable for two reasons. 

First they feared a prohlcm known as ·'moral hazard," which occurs when an insurance changes 

the behavior of the insured person. In health insurance. moral hazard occurs because health 

Thomasson, 1 
46 

insurance increases the amount of medical care people consume by lowering the cost of care. 

Moral hazard ailects all types of insurance. but is less of a problem in some areas; f()f example, 

few people begin driving recklessly simply because they have insurance to repair their car in the 

eYcnt of an accident. A second reason insurance companies were reluctant to enter the health 

business was because they recognized that people who knew they might be more likely need 

medical care would be more likely to seck out insurance. This problem known as adverse 

selection was as big as a problem for insurance markets in the 1920s and 1930s as it is today in 

the non-group market. For insurance to be ctTcctivc and aiTordablc, both healthy people and 

people more likely to become ill must buy insurance. 

The problem of adverse selection was solved in 1929 when Justin Ford Kimball. an 

administrator at Baylor University Hospital, devised a means to alleviate the financial pressure 

the hospital faced from unpaid hospital bills. A former superintendent of schools, Kimball 

worked with Dallas teachers to develop a plan to help them pay their bills and improve the 

financial position of the hospital. They came up with a simple plan based on the principles of 

insurance to help teachers pay: Baylor would provide each teacher with 21 days of hospital care 

for an annual fee of $6.00. These hospital-based plans- which later became known as Blue 

Cross had unwittingly solved the problem of adverse selection. By selling health insurance to a 

group of employed teachers who were healthy enough to work, the plan ensured that the risk 

pool would not be overwhelmed by people who were likely to be sick. The problem of moral 

hazard was also mitigated because the Blue Cross plans reimbursed hospitals directly and 

patients generally could not admit themselves to hospitals. 

The Blue Cross plans became enormously popular, both among members and hospitals. 

They enabled hospitals to receive a constant stream ofrcvcnue and otlcred financial protection 

for Blue Cross members. By 1940, roughly nine percent of Americans had insurance against 

hospital cxpenses.'1 Several factors combined to lead to rapid growth in the number of people 

with health insurance coverage. Medical technology advanced, and discoveries such as sulfa in 

193 7 and penicillin during WW!l increased the demand for medical care. 5 Commercial insurance 

companies, which had initially been reluctant to offer health insurance, witnessed the success of 

the Blues in conquering adverse selection, and soon began to compete with the Blue Cross plans 

by offering insurance to employee groups. 6 

In the 1940s. a series of events ensured the exp::msion of the health insurance market and 

its employment-based nature. The tremendous mobilization of troops and resources during 

World Vv'ar Illed to a huge decline in unemployment, which fell to a low of 1.2 percent in !945. 7 

Beginning in 1942. the National War Labor Board limited the ability of llrms to raise wages to 

attract increasingly scarce labor. Health insurance (and other fringe beneJits) were exempted 

!!·om this ruling. As a result, firms began to oJTer health benefit packages to secure \vorkers. 

71wmasson, 2 
47 

Unions worked to negotiate lor health insurance on behalf of workers, a right that was assured in 

1949 when the National Labor Relations Board ruled in a dispute between the Inland Steel Co. 

and the t'nited Steelworkers Union that the term '"wages" included pension and insurance 

benefits. Therefore, when negotiating for wages. unions were also allowed to negotiate for 

benefit packages on behalf of workers. This ruling, later affirmed by the U.S. Supreme Court, 

fm1hcr rcinf(Jrccd the employment-based systcm8 

Perhaps the most intluential aspect of government intervention that shaped the employerbased system of health insurance is the tax treatment of employer-provided contributions to 

employee health insurance plans. Employers arc permitted to deduct health insurance 

contributions (like wages) from their taxes as a cost of doing business. But unlike wages, 

employer contributions to employee health insurance premiums arc exempt from employee 

taxable income. This "tax subsidy" of employer contributions to employee health insurance 

premiums first occurred in 1943 with an administrative tax court ruling and was later codified 

under the 1954 Internal Revenue Code 9 The tax treatment of employer provided health 

insurance provided an additional incentive for its expansion; research shows that the 1954 statute 

increased the generosity of existing plans and the number of firms that offered coverage. 10 The 

tax treatment cemented the institution of employment-based health insurance in the United States 

and introduced a number of distortions into the system. First. workers whose employers pay lor 

their health insurance recciYc lower wages (since employers look at total compensation when 

making hiring decisions). Workers may also be reluctant to leave their job if they fear their 

health insurance may be less comprehensive elsewhere. 11 The tax subsidy of premiums provides 

greater value to higher income individuals with higher marginal tax rates, and today results in an 

estimated revenue loss to government of $266 billion which is 4.5 times greater in magnitude 

than the $59 billion revenue loss resulting from the home mortgage interest deduction. 12 Finally. 

the tax treatment of employer-provided health insurance prevents non-employment based groups 

from providing coverage, and leaves anyone who is unable to work at risk of not having health 

insurance. 

How our health insurance system leads to rising health care costs 

Policies that encourage the development of very generous health insurance plans, such as 

the favorable tax treatment of employer sponsored health insurance coverage, contribute to rising 

health care costs because they increase moral hazard. To the extent that the additional health care 

purchased by consumers is necessary and cost-c!Tective, this increase in utilization is not 

problematic. But if the care consumers are purchasing is of low value, the extra utilization does 

not improve health and adds to rising expenditures. In the early days of health insurance, the risk 

oC consumers receiving low-value care was small, since health insurance plans were much less 

generous. Blue Cross initially covered only hospital bills. since physicians were slower in 

Thomasson, 3 
48 

developing the Blue Shield plans that offered financial protection for their bills. In !940, when 

most Americans only had hospital coverage, Blue Cross directly paid hospitals a set rate tor a 

finite number of covered days. Moral hazard was small because patients did not admit 

themselves to hospitals, and patients did not receive indemnity (cash) benefits. 13 In this regard, 

benefits vvcrc not open-ended. Even as Blue Shield developed, it initially only covered physician 

visits while a patient was in the hospitaL 

This changed rapidly. Health insurance became more generous in the 1940s and 1 950s. 

Consumers could purchase not only hospital insurance, but also coverage for medical expenses 

both inside and outside of the hospital, so benefits became less limited and defined. At the same 

time. the charge and cost-based reimbursement systems developed by Blue Cross ensured that 

hospital costs would be covered. By paying for whatever costs hospitals incuned, the structure of 

Blue Cross did not emphasize eJliciency and economy, and there was little incentive to weigh 

costs and benefits. During the post-WWII period when the economy was strong and medical 

developments such as penicillin were seemingly miraculous, hospitals placed an emphasis on 

expansion and investment. The federal government endorsed and funded this expansion. with the 

passage of The Hospital Survey and Construction Act (the Hill-Burton Act) in 1946. Between 

194 7 and 1971, the federal government disbursed $29.3 billion (inflation,adjustcd 2016 dollars) 

to construct replace, and renovate hcallh care n\Cilities. Analysis suggests that the Hili-Bmion 

program accounted tor 17 percent of the growth in hospital beds between 1948 and 1975, and 

resulted in a net increase of70.000 beds nationwide, while smoothing disparities in hospital 

access between high- and low-income counties and rural and urban areas. 14 These new hospitals 

had new and improved laboratories, operating suites. and equipment- and they were expensive. 

ln 1963, a task f(Jrce set up by the American Hospital Association (AHA) and the Blue Cross 

Association affirmed the cost-plus reimbursement system, where hospitals were reimbursed for 

the cost of treating patients, with futihcr allowances for capital depreciation and replacement 15 

As time has passed, insurance coverage has become more generous and the share of 

health care expenses paid by consumers has decreased. ln 1950, when approximately 50 percent 

of the population had hospital coverage, consumers paid 64.9 percent of health care expenditures 

out of pocket. Only 10 years later, this number had fallen to 55 percent, and to 40.8 percent in 

1968, just a few years a tier the implementation of Medicare. 16 Today, consumers pay only about 

12.4 percent of their health cnrc bills. 17 Given that the function of insurance is to provide 

financial protection against large, unexpected losses, reducing consumer out of pocket payments 

so they can afford care is not necessarily a bad thing, but it is important that the care consumers 

receive is necessary and cost-c!Tective so that health care expenditures do not rise unnecessarily. 

The problem is that as insurance has become more generous, our system has tended to 

reward providers on a fcc-for-service basis. Under the fee-for-service system, providers are 

Thomasson) 4 
49 

reimbursed for every service they provide. This system incentivizcs volume-based care. 

Providers do not have a financial interest in limiting services; in fact many have a ilnancial 

incentive to perform more services. 10 Patients rely on physicians to determine the services they 

need, since medical decisions arc complex. 19 When patients pay little for their cm·e, they 

consume more; the RAND Health Insurance experiment showed that people with who paid for 

25 percent of their care spent 20 percent less than participants with "fi·ee" care. Patients enrolled 

in a plan where they paid 95 percent of their care (similar to what we would consider a high 

deductible plan today) spent 30 percent less than participants with no cost sharing. 20 

The implementation of Medicare in 1966 provides an excellent example of how costbased reimbmsement coupled with insurance coverage can lead to high utilization and rising 

expenses. From 1966 until 1983, hospitals were reimbursed on a cost-plus basis. Research shows 

that within four years of its implementation. Medicare resulted in a 3 7 percent increase in real 

health expenditures, with about half of that increase coming from the entry of new hospitals into 

the market and the other half coming from expansion of services. 21 Even after 1983, when 

Medicare switched to a system oftixcd prospective payment based on Diagnosis Related Groups 

(DRGs), a hospital's rcv·enue is still a function of patient admissions, thus incentives for volume 

based care still exist. The response ofhcalth care expenditures to the introduction of Medicare 

suggests that up to 50 percent of the rise in real health care costs between 1960 and 1990 may be 

due to the overall spread of health insurance. 22 Moreover. evidence suggests that as inwrance 

expands the market for health care, it generates incentives for increased development of 

technology. While some of this new technology represents a significant improvement over 

current treatments. other imtovations do not improve outcomes compared to existing procedures, 

yet cost more. 

lt is worth emphasizing that at least some of the increase in expenditures was probably 

"worth it" in the sense that the benefit to patients outweighed the costs. Moreover. there is 

evidence that Iv!edicarc significantly reduces financial risk for elderly people vvith the highest 

health care expenditures, which is one of its goals as a social insurance program. The 

development of cost-ellectivc technologies that help patients is also worthwhile. What i:; not 

wmihwhilc is incmcient, low-value care that emerges when providers are incentivizcd to deliver 

high-volume care regardless of cost that patients with generous health insurance coverage are 

willing to pay lor. 

How can the past inform present health care policy? 

History can guide po licymakers seeking to improve health care delivery and constrain 

health care cost growih. but it does not offer a simple solution. Rather, it suggests that the 

problem of adverse selection presents a long-standing challenge to the effective provision of 

insurance in the non-group mm-kct. History also suggests that constraining cost growth will be 

Thomasson, 5 
50 

di!Ticult as long as health care providers protit ti·om providing Yolume-based care. Movements to 

shift payment to reward value-based care that emphasizes quality and cost-effectiveness will be 

key to any policy seeking to limit the growth of health care expenditures. Finally, research shows 

that consumers respond to cost sharing such as high-deductible health plans (HDHPs) by 

significantly reducing spending both in the short run and over time. Studies show that 

consumers with high-deductible health plans engage in cost-conscious medical decision making, 

such as increasing usc of generic drugs. but it also suggests that they reduce spending on both 

low-value care as well as necessary care 26 ln addition, at least one study finds no evidence of 

consumers learning to price shop, even after two years in a high deductible plan, although this 

may be related to the fact that employer contributions to employee health sa,·ings accounts may 

engender moral hazard. 27 Combined, these studies suggest high-deductible health plans arc 

effective at reducing costs, but need to be carefully structured to motivate consumers to obtain 

necessary and high-value care while minimizing the usc of low-value services. 28 

Thomasson, 6 
51 

Notes 

L Centers for Medicare and Medicald Services, ··National Health Expenditures 20 l5 Highlights.'' ;\ vailable from: 

3. 

4. 

6. adverse selection death spiral'? The case of Blue 

41, 3! 3-32R. Commercial insurance plans were 

selection to be a severe problem. They 

as non-profi.ts, did not. 

may have ultimately led them 

8. Health Insurance:' Month~).' 

2d 247 (7th Cir. 1948), and Robert D. 

Eilers, Regulation Cross and Blue Shield Pfans. Homewood, lL: Richard D. lrwin~ Inc., 1963, p. 19. 

9. The first such exclusion occurred under an administrative ruling handed down in 1943 which stated that 

medical and 

income Law Journal, 1954, 

restrictive and limited in applicability since it only affected direct 

issued by c~.)mmercial insurance companies. Private programs of 

were not covered under the ruling, nor \vcrc employer contributions to 

In addition, there \vas confusion as to what actually constituted 

that meet the criteria of insurance such as contractual enforceabilitv, 

limits of liability were otlen not covered under the 1943 ruling (Yale Lmr J;urna/, 1954, 

10. Melissa A. (200.1). "'The Importance of Group Coverage: How Tax Policy Shaped U.S. Health 

Insurance. American Economit' Ren'nr, 93(4), 1373-84. 

II. Madrian, llrigitte (1994). 

Lock?" Quartcr(1-·Journa! 

12. Congress of the United States. Cone1rcssional 

f(Jr People Under Age 65: 2016 to 

fl·om Joint Committee on Ta:'\ation" ''Estimates 

2020,"' January 30.2017, JCX-3-17. 

13. plans in the late 1940s found that of215 

care, while 69 percent paid $5.00 

Washington. D.C: Bureau 

v. 

Thoma5;son, 7 
52 

14. 

February 

on 

and Seth R ichards-Shubik. ·'Subsidies and Structure: ·rhc Lasting Irnpact 

Hospital Industry." National Bureau of Economic Research Working Paper 

15. American Hospital Association ( 163). Report r?(Task Force on Principles ofP{_~vmentf(Jt Hospital Care, pp. l6L 

16. Rice. P. and Barbara S. Cooper ( 1970). "National Health Expenditures, 1929-68.'' Social Sccurit_v 

Bulletin p. 17. 

17. Calculated trom Centers for Medicare and Medicaid Services, National Health Expenditures Accounts, Table 4, 

2015. ;\vailable from: 

L 

share of total personal health care expenditures. 

18. Severa! studies that respond to financial incentives 

a 20 II ti.nmd that after Medicare imrolementc:d 

the rate of chemotherapy 

I 0 percent within the 

Sec Jacobson, M., Earle, l). "Geographic variation in 

responses to a reimbursement 365( 18), 1653-55. 

19, can shop for some types of care as MRis, non-emergent surgeries certain 

drugs), but are often at the mercy who recommend imaging. or surgery in the first 

These may have tlnanciJ.l 1hat intluence their behavior. example, a 20 l2 

U.S. Oft"ice examined the mnnbcr of imaging services referred 

the number of self-referred inuging studies (in which a 

imaging tl1cility in which the physician has a tlnancial interest) increased 80 percent over the 

to an increase of l2 percent for non-se!f-refcned services. Use of Advanced 

by Providers who Self-Refer Costing Medicare Millions.'· U.S. (inw,·nn·,pnt 

GA0-12-966. September 2012. 

20. Newhouse, Joseph P. and the Insurance Experiment Group ( 1993). Free for AIJ? Lessons from the RAND 

Health MA: Harvard 

21. Effects Evidence ti·om the Introduction of 

22. Finkelstein, Evidence From the Introduction of 

Medicare." Quant?.rZ;' Journal 

2J. For example, a 20U study that proton beam therapy offers no long-term benefit over traditional radiation 

for prostale cancer, yet Medicare pays $32,000 rer patient for proton beam therapy compared to under $19,000 

for radiation. Se-e Yu. Jarncs B., Pamela R. Soulos, Jcph Herrin, Luura D. Cr~uner, Arnold L Potosky, Kenneth 

B. Robc1is and Cary P. Gross. (2013). ''Proton Versus intensity-Modulated Radiotherapy for Prostate Cancer: 

Patterns of Care and Early Toxicity." Jo11rnal (/the Sational Cancer Institute, 105(1), 25~32, 

doi: I 0.1 093;jnci.'djs41>3. 

2~. Finkelstein. Amy and Robin (2008). "What did Medicare do'> The initial imract of Medicare on 

mortality and out of pocket "Journal ofPuhlic Economrcs, 92, pp. ! 644-1668. 

25. Haviland, Arnelia M., Susan McDevitt, and Nccraj Sood. (2012). ''Gn.nvth of Consumer 

Direct Health Plans to Insurance Could Save 57 Billion 

3L pp. 1009-1015; and M., Susan Marquis. Roland McDevitt. and 

Sood. "Grov .. th of Consumer Direct Health Plans to One-Half of All Employer Sponsored Insurance 

Could Save 57 Billion "Health Affitirs, 31. pp. 1009-1015. 

26, affect generic choice. see Waters, Teresa M., F. Chang, William T. 

Kastcridis, and David Mirvis. I). ''Impact of High-Deductible Plans on Health 

Care and Costs." 1/ea/th Services Research. 46 (I Pt 1), pp. 155-172. For discussions of how 

to high-deductible health plans, see: Baicker. Katherine, Sendhil Mullainathan, 

:Sclhwart:stem. (20 15). "Behavioral Hazard in Health Insurance." Quarter(r Journal ofEconomics, 

77wmasson, 8 
53 

1623-1667; Haviland, Amelia M .. Matthew D. Atecv Mehrotra, Peter J. Huckfeldt and 

(2016). '"Do Consumer-Directed hcalfh cost curve over timeT' Journal 

l'conomics, -!6, pp, 33-51; Brot-Goldberg, Zarek C, Chandra, Benjamin R. flnadel and 

Kolstad "What does a Deductible Do0 The Impact of Cost-Sharing on Health Care Prices, Quantities, 

Dynamics." Quarterlv Journal !32(3), pp. 1261-131 8. 

27. Zarek C, Amitabh Chandra, R. Hnadel and Jonathan T. Kolstad "What does a 

The Impact of Cost-Sharing on Care Prices, Quantities, and 

Quarterly Journal 132(3 ), 126!-13 18. For research on how 

savings accounts to plans, sec Anthony T. LoSasso, 

Robert Kaestner. (20 I 0). Effects of Consumer-Directed Health Plans on Health Care Spending." Journal 

and Insurance, 77, pp. 85-103. 

28. Michael, Allison B. Rosen, and Mark Fendrick "Value-Based Insurance 

pp, 195-203: Baicker, Katherine, Sendhil and Joshua Schwartstein. 

Hazard in Health Insurance:.'' Quarter(vJounh11 of Economics, 130, pp. 1623-l667. 

Thomasson, 9 
54 

September 5, 20 !7 

Katherine Baickt'l" 

Dean, Harris School of Public 1\Jllcy 

kbaickcr@uchicago.edu 

1 J 55 E. 60th Street 

Chicago, IL 60fi3 7 

My name is Katherine Baicker, and I am Dean of the Harris School of Public Policy at the 

University of Chicago and a health economics researcher. l would like to thank Senator 

Johnson, Senator McCaskill, and the Distinguished Members ofthe Committee for giving me the 

oppmiunity to speak today about the current landscape oft he U.S. health care system. 

We devote $3.2 trillion to health care annually. 1 We spend substantially more per capita than 

other countries and substantially more in some parts of our country than others without 

commensurate improvements in health outcomes. For example, areas of the country whore we 

spend the most on Medicare beneficiaries' care are areas where they are less likely to get some 

types of high-quality, high-value care.2 

Fundamentally, the key challenge in our health care system is not how much we spend per se, 

but that we are not getting the valuable health improvements that we should for each dollar that 

we do spend. The quantity and value of the care that we get is driven by the way that we pay for 

it both the cost-sharing that patients face and the payment system that reimburses providers. 

Where Does the Money Come From'? 

The way that we purchase health care, as patients and insurance enrollees, has changed 

dramatically in the last 50 years -and in some surprising ways. Through the advent and 

expansion of Medicare and Medicaid, the rise of employer-sponsored insurance, and the 

introduction of subsidized non-group insurance plans, the number of uninsured Americans has 

dropped substantially. The share of Americans who are uninsured declined from about 15% in 

1994 to about 9% in 2015 (see Figure 1). Insurance provides vital benefits for enrollees, but also 

affects the quantity and value of the care we use. 
55 

Beyond access to care, insurance coverage provides crucial financial protection against the 

unfortun3te circumstance of falling ill- the key characteristic of insurance (regardless of how it 

is financed). Subsidized "social insurance" can also redistribute resources from rich to poor, or 

from those who are healthy to those who are known to be sick. Private insurance can spread the 

risk of uncertain future needs, but fundamentally does not redistribute resources in the way that 

social insurance can3 

People are markedly better off being insured than being uninsured: they have better health 

outcomes and more financial security 4 '

6 But insurance changes the quantity and nature of care 

that patients consume, and how that insurance is designed can determine whether health and 

financial benefits are gained efficiently or at a cost that is too high. This is because patients' 

cost-sharing bas a marked effect on the care they use. 

There bas been a notable, consistent decline in the share of health care that is purchased "out of 

pocket," versus through a public or private insurance plan (see Figure 2). Health insurance does 

not look like most other kinds of insurance we buy like renter's, homeowner's, or car 

insurance, which typically have substantial deductibles and do not cover routine expenses- but 

rather includes a subst<mtial "prepaid health care" component, covering routine care that does not 

can)' the kind of financial risk that insurance is nonnally designed to address. This is in large 

part because of the tax preference for employer-sponsored insurance (versus out-of~pocket 

purchases), alongside the stmctnre of our public insurance programs. Insurance has also evolved 

as the main channel for patients to get discounted prices from providers, 

The broad decline seen in aggregate cost-sharing mns counter to public discourse about the rise 

in high-deductible plans and increases in cost-sharing. This disconnect may arise from the fact 

that a greater share of the population is now covered by plans with very limited cost-sharing (e.g. 

Medicaid, ubiquitous supplemental Medicare coverage), while there has been a rise in costsharing in many commercial plans. For example, the share of employees in plans with 

dcductibles of$l,OOO or more has increased from about 10% in 2006 to 51% in 2016, at the 

same time that the share covered by Medicaid has risen from about !3% to 20%7 '

8 

1 !55 East 60th Street, Chicago, lL 60637 T 773~702~071 J hanis.uchicago.cclu 
56 

What is the "right" level of cost-sharing? At tirst blush, it might seem that cost-sharing is just a 

way of dividing up whether insurers or enrollees pay the bills, but decades of evidence shows 

that lower cost-sharing leads patients to consume more care of limited health benefit-- such as 

unnecessary tests and that this inefficient use leads to higher premiums9 -

11 Insurance that 

covers too much care with too little cost-sharing can lead beneficiaries to consume care of 

diminishing value, which raises costs overalL The idea that someone could have "too much 

insurance" may not be intuitive, but there is a fundamental trade-off between the financial 

protection afforded by insurance and the cost of the higher utilization that insurance induces: too 

little cost-sharing means patients have no incentive to spend health care dollars wisely; too much 

cost-sharing means that a policy fails to pcrfonn its insurance function. 12 

Many criticisms of higher cost-sharing in employer plans are based on the presumption that it is 

possible to have high wages, lower premiums, and lower cost-sharing, but the three are 

intertwined. The employee share of premiums has been fairly stable between 25 and 30 percent 

for the last two decades 7 This is difficult to observe for most employees. More important- but 

even less transparent - is the fact that employees ultimately pay both the employee and the 

employer shares, because when the cost of health insurance rises, less money is available for 

wages.3

•

13 -

14 This wage-fringe trade-off does not occur instantaneously for each individual, but 

in the long-run employees pay for the full cost of health insurance premiums through lower 

wages or lower employment The tax preference for employer health insurance also pushes 

people into more expensive plans with lower copays ---which is both regressive (the biggest 

benefits go to those with the highest income) and inefficient (artificially low cost-sharing leads to 

greater use of care with questionable benefit, driving premiums up and wages down). There is 

also very little cost-sharing in many public policies. 

There has been some experimentation with innovative insurance coverage, basing cost-sharing 

on the value of care in improving health. 15'

17 Some experiments involve sharing the savings with 

patients who choose lower cost, high-quality options. 18 -

2

° For such measnrcs to be effective, 

patients need transparent information about the price of the care they are using- although 

transparency alone may not be sufficient if information does not reach patients at the right time 

and from by a trusted sourcc. 21 Of course, patients need choices among competing insurers (as 

1155 East 60th Street, Chicago, IL 606J7 T 773-702-07! I harris.u~hicago.cdu 
57 

well as providers) to spur innovation and lower costs. In areas where there are fewer insurers, 

premiums tend to be higher22•

23 

Where Does the Money Go'! 

Alongside how patients pay for care, health care spending is driven by the way that providers arc 

reimbursed for the care they deliver. The categories of care on which we spend by far the most 

are hospitals and physician services (see Figure 3). Although some other categories of spending 

are rising more rapidly, these still comprise the lion's share of health care spending both 

overall and within dilTerent insurance market segments. This highlights the centrality of these 

particular services to health care spending overall. 

Like patients, providers also respond to the payment system24'

25 We get more of the services 

that are generously reimbursed, and fewer of the services that are paid less well. The traditional 

fee-for-service reimbursement system still covers the mt~ority of Medicare enrollees, basing 

payments on the quantity of care delivered rather than the quality or value of that care. 

Furthermore, Medicare's payment structure and utilization patterns can drive spending 

throughout the health care system.26•

27 

There has been experimentation by private insurers with "value-based" payments and 

accountable care organizations, along with altemative payment models introduced in Medicare's 

payment schedule for physicians and other services. 15•

28."0 These alternative payment systems 

aim to generate an incentive for physicians to play an active role in managing the cost of their 

patients' care vital given the central role that physicians and other health care providers play in 

helping their patients make infonned decisions. Having adequate risk adjustment and quality 

monitoring are crucial to such systems working effectively to improve both value and quality. 

Financial incentives for providers to increase valne delivered to patients rather than just 

quantity-- are also more likely to be effective when there is robust competition among providers. 

Analogous to insurer competition, in areas where there are fewer providers for patients to choose 

among, provider prices tend to be higher.3

u 2 

1155 East 60th Street, Chicago, IL 60637 T 773-702-0711 harris.nchkago.cdu 
58 

The Central Role of Health Care Financing 

The way that we finance health care is a key determinant of the current landscape of health care 

spending. With about 18% of GDP devoted to health care spending, it is crucial that we get as 

much health as we can in the most efficient way possible !rom our health care system. Health 

insurance provides vital financial protection and access to care, but can also lead to inefficient 

use of health care resources. A close examination of the way that health care financing drives 

both spending and how the burden of that spending is shared can lay the foundation tor a highvalue, sustainable health care system. 

1155 East 60th Street, Chicago. IL 60637 T 773-702-071 I harris,uchicago,cdu 
59 

FIGURES 

Figure l 

lnsurancc from Different Sources, 1994-2015 

100% 

90% 

80% 

70% 

40% 

30% 

Not Covered 

Note: The types of insurance are not mutually exclusive; people may be covered by more than one during the year. 

Source: U.S. Census Bureau, Current Population Survey, 1995 to 2016Annual Social and Economic Supplements 

} 155 Ea-;t60!h Street, Chirago, 60637 T 773-702-071 J il<HTis.uchicago.cdu 
60 

Figure 2 

Health Outut' 1960-20 I 5 

20% 

15% 

0% 

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61 

Figure 3 

t\illionOollars P.enona!Hea!th Care Spending blfTypeof Service, 196G-21llS 

3,000 

1015 2D15£ly!n<;urarxf.'Type 

1155 East 60th Street, Chicago, tL 60637 T 773-702~0711 harris.uchicago,cdu 
62 

REFERENCES 

!. Centers for Medicare & Medicaid Services OotA, National Health Statistics Group. National 

Health Expcndih1res by type of service and source offunds, CY 1960-2015. Baltimore, MD20 15. 

2. Baicker K, Chandra A. Medicare spending, the physician workforce, and beneficiaries' quality of 

care. Hcalih Affairs 2004;23:W4184-W97. 

3. Baicker K, Chandra A. Myths And Misconceptions About US Health Insurance. Health Affairs 

2008;27:W533-W43. 

4. Finkelstein A, Taubman S, Wright B, et al. The Oregon Health Insurance Experiment: Evidence 

from the First Year. Quarterly Journal of Economics 2012;127:1057-!06. 

5. Baickcr K, Taubman S, Allen H, et al. The Oregon Experiment- Effects of Medicaid on Clinical 

Outcomes. New England Journal of Medicine 20!3;368: 17!3-22. 

6. Sommers BD, Gawandc AA, Baickcr K. Health Insurance and Health What the Recent 

Evidence Tells Us. New England Journal of Medicine 2017;377:586-93. 

7. Kaiser Family Foundation, Health Research and Education Trust. Employer Health Benefits 20!4 

Survey. Menlo Park, CA2014. 

8. U.S. Census Bureau. Cuncnt Population Survey, Annual Social and Economic Supplement !995-

20!6. 

9. Chandra A, Gruber J, McKnight R. Patient Cost-Sharing and Hospitalization Offsets in the 

Elderly. American Economic Review 201 0; 100:193-213. 

10. Baickcr K, Goldman DP. Patient Cost-Sharing and Health care Spending Growth. Journal of 

Economic Perspectives 2011;25:47-68. 

II. Baicker K, Chandra A. The Veiled Economics of Employee Cost Sharing. JAMA internal 

medicine 2015. 

12. Baickcr K, Levy H. The Insurance Value of Medicare. N Eng! J Med 2012;367:1773-5. 

13. Baicker K, Chandra A. The labor market effects of rising health insurance premiums. Journal of 

Labor Economics 2006;24:609-34. 

14. Currie J, Madrian B. Health, Health Insurance and the Labor Market. In: Ashenfelter 0, Carel D, 

eds. Handbook of Labor Economics. Amsterdam: Elsevier Science; 2000: 3309-416. 

15. Baicker K, Mul!ainathan S, Schwartzstcin J. Behavioral Hazard in Health Insurance. The 

Quarterly Journal of Economics 2015. 

16. Chernew ME, Juster !A, Shah M, ct a!. Evidence That Value-Based Insurance Can Be Effective. 

Health Aff(Millwoocl) 20!0;29. 

! 7. Chemcw ME, Rosen AB, Fendrick AM. Value-based insurance design. Health Aff (Millwood) 

2007;26:wl95-203. 

I 8. Robinson JC, MacPherson K. Payers Test Reference Pricing And Centers Of Excellence To Steer 

Patients To Low-Price Ancllligh-Quality Providers. Health Affairs 20 12;31 :2028-36. 

19. Robinson JC, Whaley C, Brown TT. Reference Pricing, Consumer Cost-Sharing, and Insurer 

Spending for Advanced Imaging Tests. Medical Care 2016;00:1-6. 

20. Kutscher B. Paying patients for saving money. Modem Healthcarc 2016 April9, 20!6. 

2!. Desai S, Hatfield LA, Hicks AL, eta!. Offering A Price Transparency Tool Did Not Reduce 

Overall Spending Among California Public Employees And Retirees. Health Affairs 

2017;36:1401-7. 

22. Dafny LS. Are Health Insurance Markets Competitive? The American Economic Review 

2010:1399-431. 

23. Dafuy L, Gruber J, Ody C. More Insurers Lower Premiums: Evidence from Initial Pricing in the 

Health Insurance Marketplaces. American Journal of Health Economics 2015;1:53-8!. 

24. McClellan M. Reforming payments to healthcare providers: The key to slowing healthcare cost 

growth while improving quality? Joumal of Economic Perspectives 2011;25:6992. 

25. Chandra A, Cutler D, Song Z. Who Ordered That? The Economics of Treatment Choices in 

Medical Care. Handbook of Health Economics20 12. 

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26, Baicker K, Chernew ME, Robbins J, The Spillover Effects of Medicare Managed Care: Medicare 

Advantage and Hospital Utilization, Journal of Health Economics 20!3;32:1289-300, 

27, Baker L Managed Care Spillover Effects, Annu Rev Public Health 2003;24:435-56, 

28, Baicker K, Chemew ME. Altemative Alternative Payment Models, JAMA Internal Medicine 

2017;!77:222-3, 

29, MedPAC. Report to Congress: Medicare and the Health Care Delivery System2017 June, 

30, Muhlestein D, Saunders R, McClellan M. Growth Of A COs And Alternative Payment Models In 

2017, Health Affairs Blog2017, 

3 L Baker LC, DundorfM, Royalty AB, Levin Z, Physician practice competition and prices paid by 

private insurers for office visits, JAMA 2014;312: 1653-62, 

32, Austin DR, Baker LC Less Physician Practice Competition Is Associated With Higher Prices 

Paid For Common Procedures, Health Affairs 2015;34: 1753-60, 

33, Keehan SP, Stone DA, Paisa! JA, et aL National Health Expenditure Projections, 2016-25; Price 

Increases, Aging Push Sector To 20 Percent Of Economy, Health Affairs 2017. 

1155 East 60th Street, Chicago, lL 60637 T 773-702~0711 harris.uchicago.cdu 10 
64 

STATEMENT OF 

SABRINA CORLETTE, SENIOR RESEARCH FEllOW 

GEORGETOWN UNIVERSITY HEALTH POLICY INSTITUTE 

CENTER ON HEALTH INSURANCE REFORMS 

BEFORE THE 

U.S. SENATE HOMELAND SECURITY AND GOVERNMENTAl AFFAIRS COMMITTEE 

HEARING 

"THE HISTORY AND CURRENT REALITY OF THE U.S. HEAlTH CARE SYSTEM" 

SEPTEMBER 6, 2017 

1 
65 

Good morning Mr. Chairman, Ranking Member McCaskill, Members of the Committee. I am 

Sabrina Corlette, a Senior Research Fellow and Project Director at Georgetown University's 

Center on Health Insurance Reforms (CHIR). CHIR has a team of faculty and staff devoted to 

studying private health insurance and insurance markets. We are based at Georgetown 

University's McCourt School of Public Policy. Please note that I am here in my individual 

capacity and that my views do not necessarily represent the views of Georgetown University. 

I want to thank this Committee for holding this timely and important hearing. We have had 

over the last several months- over the last several years in fact- an extended and rancorous 

debate about the future of health care reform. I appreciate this Committee's willingness to 

engage in a thoughtful, bipartisan effort to understand the root causes of some of the 

challenges facing our health care system. It is only with that understanding that policymakers 

can effectively tackle the necessary solutions. 

Know Your History: Understanding Health System Challenges Requires Understanding How 

We Got Here 

Both critics and proponents of the Affordable Care Act (ACA) can reasonably ask why it was 

structured the way it was, with an array of insurance reforms, an individual responsibility 

requirement (known as the individual mandate), and income-related subsidies for the purchase 

of private insurance alongside Medicaid expansion for low-income families. Part of the reason it 

is a complicated law is because it did not sweep away our existing system; rather, the ACA was 

designed to fill gaps in a patchwork quilt system of coverage that has evolved over a century 

and more. 

How did we arrive at the patchwork quilt health care system we have today? By the middle of 

the last century, the United States was the only country in the developed world without some 

sort of system to provide health care for all its citizens. Instead, we have developed an array of 

disparate programs to provide coverage to specific, politically favored groups of people. 

In the early decades of the 20th century, there wasn't much "insurance" as we'd understand it 

today. Most people paid their doctors in cash or in kind. But health care was also much more 

primitive- it was not the technology-driven, extraordinarily expensive enterprise it is today. 

Over time, however, new treatments, drugs, and technologies advanced the practice of 

medicine, saving lives but also increasing the costs of medical care. As people were less able to 

afford the rising cost of care, it created a financing problem for hospitals and other providers. 

Some of the more entrepreneurial hospital providers decided to create the first plans for 

groups of employees to buy insurance for hospital expenses. These plans evolved into the "Blue 

Cross" system, founded in 1929. "Blue Shield" plans to help finance physician care followed a 

decade later, in 1939. 

The Rise of an Employer-based System of Coverage 

2 
66 

Before the advent of the Blue Cross/Blue Shield plans, traditional commercial insurers had not 

been in health insurance business because of their concerns about adverse selection. In 

general, the only people willing to pay for such insurance were those with high health care 

costs. Also, the administrative costs of selling insurance directly to individuals was very high. 

But the Blue Cross plans demonstrated that if you could target the coverage to employer 

groups, you could make health insurance a viable business enterprise. Targeting large employer 

groups meant creating a naturally balanced risk pool- an individual's coverage was tied to their 

employment, not their need for health care services. It also came with lower marketing costs. 

Even so, our current system of employer-sponsored coverage didn't really take off until around 

World War II. 

During the war, the government imposed wage and price controls, which led employers to offer 

generous health benefits in lieu of wages. Additionally, the post-war era was a golden age for 

labor unions, and millions of workers gained insurance through collective bargaining 

agreements. 

Then, a_key federal policy caused employer-based insurance to expand exponentially. In 1953, 

the Internal Revenue Service (IRS) ruled that a contribution to a group health insurance policy 

was not taxable (even though a contribution to an individual health insurance policy was 

deemed taxable). The Eisenhower administration then adopted a blanket exclusion for all 

employer contributions to an employee health plan. At the time, there was no Congressional 

Budget Office, meaning that policymakers had no estimates of how much the IRS rule would 

cost. We now know that it is one of the most expensive federal policies ever adopted. Today, 

with approximately 150 million Americans covered through their employer, that subsidy costs 

the federal government about $250 billion per year in lost income and payroll taxes. 

The Rise of Risk Segmentation in Commercial insurance 

As employer-sponsored coverage expanded, other important insurance market changes were 

also taking place. The early Blue Cross Blue Shield plans were non-profit organizations and in 

general offered coverage at a "community rate," meaning that all employer groups paid the 

same price, regardless of the age or health status of their employees. 

But soon, for-profit commercial insurers entered the market and realized they could make 

more money if they cherry picked: They would offer certain employers a lower rate if they had 

younger, healthier workers. This is called "experience rating." Blue Cross Blue Shield was left 

with sicker employee groups and ultimately adopted their competitors' rating practices in order 

to survive. 

Similarly, before the ACA, insurers found they could make money in the individual market if 

they engaged in health status "underwriting," or the practice of deterring the enrollment of 

individuals considered to pose a health risk. These tactics included outright denials of coverage, 

3 
67 

pre-existing condition benefit exclusions, and premium surcharges based on factors such as 

health status, age, and gender. 

Medicare and Medicaid 

Just as employer coverage became widespread, many policymakers in the middle of the last 

century recognized that an employer-based market alone wouldn't deliver health coverage to 

certain vulnerable groups, such as the poor, elderly and disabled. Although many in the 

progressive community at the time pushed for government-sponsored, universal coverage, 

ultimately Congress enacted in 1965 a "three layer cake" of reforms: Medicare Part A for 

hospital bills, Part B for physicians, and Medicaid for welfare recipients (Medicaid was later delinked from welfare under the 1996 "Personal Responsibility and Work Opportunity 

Reconciliation Act"). 

Incremental Reforms: More Gap-filling 

For many decades after passage of Medicare and Medicaid, efforts to enact comprehensive 

reform had little traction. Perhaps surprisingly, it was President Nixon who was the first 

president to send a legislative plan for near-universal coverage to Congress. The plan included a 

mandate that employers provide coverage and required a comprehensive benefit package. 

While President Nixon's health reform effort ultimately failed, Congress did enact a major law 

affecting health insurance that few people at the time recognized as a health law: ERISA (the 

Employee Retirement Income Security Act of 1974). While focused on pension reform, ERISA 

preempts state insurance laws that would regulate employee benefit plans, including health 

plans. 

Later incremental reforms that attempted to fill gaps in our coverage system include COBRA 

(1986), which allowed workers to buy into their employer's plan up to 36 months after being 

laid off, EMTALA (1986), which required hospital emergency departments to stabilize 

emergency patients even if they had no insurance, and limited expansions of Medicaid 

eligibility to include the disabled, people with end-stage renal disease {ESRD), and qualifying 

Medicare beneficiaries. 

In the 1990s a more sweeping effort to provide universal coverage sponsored by President 

Clinton failed. In the aftermath, Congress enacted HIPAA in 1996, which, in addition to 

providing for the privacy and security of personal health information also modestly improved 

the "portability" of health coverage by requiring insurers to "guarantee issue" an individual 

policy to a person leaving employer group coverage. In 1997, Congress enacted the Children's 

Health Insurance Program (CHIP), a joint federal-state program to extend health insurance 

coverage to eligible children. Another reform, enacted in 2003, created a prescription drug 

benefit for Medicare beneficiaries, known as "Medicare Part D." 

The Affordable Care Act -Improving Access to Affordable, Comprehensive Coverage 

4 
68 

In spite of efforts to fill gaps in our coverage system over the years, on the eve of enactment of 

the ACA, 45 million Americans were uninsured; over 80 million reported having to go without 

coverage for at least one month during the prior 12-month period. Those without insurance 

coverage have lower life expectancy than those with coverage. Before the ACA was enacted, an 

estimated 26,000 people per year died prematurely because they lacked insurance. This is likely 

because the uninsured are more than six times as likely as the privately insured to delay or 

forego needed care due to cost. Uninsured cancer patients are more than five times more likely 

than their insured counterparts to forego cancer treatment due to cost. 

Being uninsured also results in financial insecurity. In 2010, when the ACA was enacted, sixty 

percent of the uninsured reported having problems with medical bills or medical debt. 

Prior to the ACA, the high and rising uninsured rate also led to high and rising uncompensated 

care costs for providers, in 2009 estimated at $1000 worth of services per uninsured person. 

Providers ultimately pass those costs onto insured consumers and taxpayers, amounting to 

almost $700 per family per year. 

In attempting to expand coverage to the uninsured, the ACA focused largely on the failures of a 

dysfunctional individual market, which was inaccessible to those with pre-existing conditions 

and unaffordable to millions of working families who lacked job-based coverage. The ACA 

included relatively modest reforms to the employer group market, largely because the 

approximately 150 million people in that market are generally satisfied with their coverage. In 

fact, employer-sponsored health coverage was, and remains, one of the top most-valued 

benefits among employees. 

The ACA tried to address the individual market's three main problems: 

• Access. Prior to the ACA, on average 19 percent of individual market insurance 

applicants were denied due to their health risk. 

• Ajfordabifity. On the eve of the ACA's passage, the average cost of family coverage was 

$12,700- a price out of reach for most families trying to buy coverage on their own. Yet 

people buying in the individual market lacked any employer or other subsidy to pay 

their premium (although most of the uninsured work), their premium contributions 

were fully taxed, and applicants often faced premium surcharges due to their health 

status, gender, and age. 

• Adequacy. Prior to the ACA, roughly half of individual market enrollees were in plans 

that covered no more than 60 percent of their medical costs. Insurers commonly 

imposed pre-existing condition coverage exclusions, meaning that any care required to 

treat a previously existing health condition would not be covered. Further, as many as 

20 percent of individual policies didn't cover pharmacy or mental health benefits and 

only 12 percent of policies covered maternity services. These policies also often didn't 

limit the policyholder's annual out-of-pocket costs, and came with annual and/or 

lifetime limits on benefits. 

5 
69 

The ACA tried to address these problems with 3-prong strategy, or "three-legged stool": 

Insurance reforms to help people locked out of the system due to pre-existing 

conditions; 

• An individual mandate to encourage healthy people to enroll in the insurance pool and 

keep premiums stable; and 

" Subsidies to help people afford the insurance coverage (with Medicaid expansion 

available for people under 138 percent of the federal poverty line (FPL)). The subsidies 

included "advance payments of premium tax credits" (APTCs) to reduce premium costs 

for people between 100-400 percent of FPL and "cost-sharing reduction" (CSR) subsidies 

to reduce deductibles and other cost-sharing for people between 100-250 percent of 

FPL. 

The ACA also created state-based insurance marketplaces where people can apply for the 

APTCs and CSR subsidies and shop for plans. 

The ACA Today: Dramatic Improvements in Coverage but Modest, Bipartisan Fixes Needed 

The ACA has improved the lives of millions by expanding access to insurance coverage, 

improving health outcomes, and increasing financial security. Specifically, thanks to the ACA, 

the percentage of people uninsured declined from 14.5 percent in 2013 to 8.9 percent in 2016 

-an estimated 20 million people gained coverage because of the ACA. 

What does coverage mean for these individuals and families? The reforms were fully 

implemented in 2014, so it is still early to assess the impact of the ACA. But we are starting to 

get data showing that the law has succeeded in improving Americans' access to care, health 

outcomes, and financial security, as well as reduced the burden of uncompensated care for 

hospitals and other providers. 

Since the ACA, the percent of Americans reporting that they didn't see a doctor or fill a 

prescription because they couldn't afford it has declined by more than one-third. Further, more 

people are reporting that they have a primary care doctor or had a check-up in the last 12 

months. 

The research to date also strongly suggests that expanding access to coverage leads to better 

health outcomes. For example, studies of the reforms in Massachusetts, upon which the ACA 

was modeled, have found that coverage expansion in that state led to reported improvements 

in physical and mental health, as well as reductions in mortality. The early data on changes in 

health outcomes due to the ACA's coverage expansions are consistent with these findings. 

Health insurance is not just about improving access to care. It is also provides financial security, 

particularly in the event of a large, unanticipated health care expense. And make no mistake: 

health care in this country is expensive. For example, the average cost of a MRI today is $1,119. 

6 
70 

An uncomplicated hospital-based labor and delivery costs an average of $10,808, while a(-

section will average over $16,000. One course of treatment for colon cancer will cost you 

roughly between $21,000 and $52,000. Yet almost half of American families report that that 

they would not be able to afford to pay just $400 in cash for an unanticipated medical event. 

Recent research suggests that the ACA is helping to improve the financial security of the newly 

insured. Survey data show that the number of families who say they're having problems paying 

medical bills has fallen dramatically since 2013, particularly among low- and moderate-income 

families. Other studies have demonstrated that the ACA's Medicaid expansion has led to 

reductions in the amount of debt sent to collection agencies and improvements in credit scores. 

The benefits of coverage expansions do not just affect the newly insured. Thanks to the ACA, 

we've witnessed a significant reduction in uncompensated care costs borne by providers. For 

example, hospital-based uncompensated care fell by over 25 percent between 2013 and 2015, 

and in Medicaid expansion states it has fallen by closer to SO percent. 

Even so, the most ardent supporter of the ACA would likely agree that the law faces challenges, 

not least of which is the continued policy uncertainty created by congressional efforts to repeal 

the law, threats by the Trump administration to cut off the CSR reimbursements to insurers, 

and concerns among insurers that the individual mandate will not be enforced. 

Fix it, Don't End It: Common Sense Solutions for Individual Market Stability 

While CBO has concluded that the ACA's insurance markets are likely to be stable in most 

places, if left unchanged, continued policy uncertainty over the law's future could cause more 

insurers to exit the market or to increase premiums. 

A bipartisan consensus on a set of policies that would boost and maintain enrollment in the 

ACA marketplaces and stabilize insurer participation and premiums is not out of reach. For 

federal policymakers who want to improve the individual markets and build on the coverage 

gains launched by the ACA, such common sense policy fixes would include: 

• A clear and long-term commitment to paying the CSR reimbursements. The Trump 

administration has threatened to cut off CSR reimbursements, which for 2018 are 

projected to be roughly $8 billion. If these reimbursements do terminate at the end of 

this year, CBO has estimated it will result in an average 20 percent increase in 2018 

premiums and many insurers have signaled they will need to exit the market if the funds 

are cut. For insurers to commit to continued participation, they need certainty from 

Washington that they will be reimbursed for those costs. 

• A reinsurance program or similar premium stabilization fund. The individual health 

insurance market is likely always to have a somewhat sicker risk pool than the employer 

group market, if for no other reason than there are many people unable to work full 

time because of their health status. One of the primary drivers of premium increases in 

2017 was the expiration of the ACA's reinsurance program. When Alaska enacted a 

7 
71 

state-based reinsurance program in 2016, propose premaum ancreases were re uce 

from 42 percent to just 7 percent. 

o Higher funding for outreach and enrollment assistance. Robust support for outreach and 

education campaigns and one-on-one assistance with eligibility determinations and plan 

selection are critical not just to keep enrollment stable and growing, but to maintain a 

healthy risk pool. 

• A fix to the "family glitch". Under Obama administration rules, families are denied 

access to financial assistance on the marketplaces if one family member has access to 

affordable employer-based self-only coverage, even if the coverage isn't affordable for 

the family. Reversing this interpretation of the ACA would make coverage more 

affordable for significant numbers of families and boost enrollment in the marketplaces. 

o Affordability improvements. The top reason people don' t enroll in individual market 

insurance is that they don't perceive it to be affordable. One way to solve this problem 

is to improve the generosity of the subsidies to defray consumers' premium and costsharing expenses. 

• A level playing field. The continuation of health plans that do not have to comply with 

ACA rules, referred to as transitional or "grandmothered" plans, has perpetuated a 

segmented market and adverse selection against the ACA's marketplaces. This, in turn, 

has led to higher premiums for people enrolled in ACA-compliant plans. Similarly, 

federal policy should prevent insurers or other entities, such as health sharing 

ministries, from marketing "look alike" products that mimic health insurance but do not 

comply with the ACA's consumer protections. Entities selling these products siphon off 

healthy enrollees, leaving the ACA's marketplaces with a sicker, more expensive risk 

pool. 

• A simpler eligibility and enrollment process. When it takes as much as 90 minutes for a 

consumer with a relatively uncomplicated financial and health situation to apply for and 

en roll in coverage, something is wrong. An onerous and complicated process 

discourages healthy people from signing up and depresses overall enrollment. The 

federal and state marketplaces need to invest more in the design and user testing of 

their IT systems to make the sign up process as simple and quick as possible. 

• Smarter, not skimpier, benefit design. What to do about high deductibles? Every year, as 

many as 20 percent of marketplace enrollees drop out, in part because of dissatisfaction 

with high deductibles. What we need are not skimpier benefit designs but smarter 

designs. For example, policymakers could require high deductible plans to provide some 

benefits pre-deductible, such as two or three annual primary and urgent care visits and 

a prescription or two, in addition to preventive services like birth control and pediatric 

well ness visits. This could, in turn, improve the attrition rate in marketplace plans, as 

consumers receive more high-value services without having to pay the full cost. 

• A fallback plan. Under the ACA, private insurers are the sole route through which 

consumers can obtain premium tax credits and cost-sharing subsidies. But the law 

doesn't require those insurers to participate. When Congress created the Medicare Part 

D program, the authors were worried there might be some parts of the country that 

would lack a willing insurer, so they created a fallback option, to be triggered only if 

8 
72 

there weren't at least two plans available. With many parts of the country down to just 

one insurer participating in the individual market, Congress could take a page from 

Medicare Part D and create a similar fallback option for the marketplaces. 

• Flexibility to provide regulatory relief. Congress could also consider giving HHS and 

states greater flexibility to provide regulatory relief to insurers willing to compete in 

underserved markets, such as by relaxing network adequacy standards, supporting the 

use of telemedicine for some services, or offering the ability to recoup losses in future 

years if an insurer had an unexpectedly bad year. 

Are all of the above politically feasible in today's polarized climate? Probably not. Several would 

require more federal spending. But in the late 1990s, Medicare Advantage faced similar 

challenges, with many private insurers pulling out of that market. In response to that crisis, 

Congress did not repeal the program or reduce its funding. Rather, congressional leaders 

negotiated and passed bipartisan reforms that injected new financing to enhance plan 

payments. Plenty of people criticized the costs of that policy at the time, but it did result in 

dramatic enrollment growth and stable insurer participation. 

As this Congress considers potential improvements to the ACA, I encourage you to continue the 

bipartisan, civil discussions that you are engaged in today. The law is by no means perfect, but it 

has improved the health and financial well-being of millions of American families. Future efforts 

to amend the ACA must be judged by whether they build upon the ACA's coverage expansions 

and keep insurance accessible, affordable, and adequate to meet enrollees' health care needs. 

Thank you and !look forward to your questions. 

### 

9 
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Kaiser Family Foundati.on, HHS 
PREMIUMS, PAST AND FUTURE 

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Kaiser family Foundation, HHS, Congressional Budge-t Office 

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..... 

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..... 

'20 

..... 

'22 

..... 

'24 

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..... 

2026 
PREMIUMS, PAST AND FUTURE 

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Qi 

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0 

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CBO's BCRA 

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98 
99 

Fewer Americans Are Concerned About How To Pay Their Health Care Bills Under The ACA 

Cynthia Cox and Bradley Sawyer, How Does Cost Affect Access to Health Care, Kaiser Family 

Foundation {Nov. 29, 2016) 

Cynthia Cox and Bradley Sawyer, Despite Lower Rates of Access Barriers for Some Groups, Health 

Costs Remain a Concern for Many Americans, Kaiser Family Foundation (Nov. 30, 2017) 

Medicare Spending and Income 

Juliette Cubanski and Tricia Neuman, The Facts on Medicare Spending and Financing, Kaiser 

Family Foundation (July 18, 2017) 

Kaiser Family Foundation, An Estimated 52 Million Adults Have Pre-Existing Conditions That 

Would Make Them Uninsurable Pre-Obamacare (Dec. 12, 2016) uc.'.ULLD:~"!..c"'-::'.1'-'"-'0i..'.'-""'-'"-" 

Kaiser Family Foundation, Uninsured Rate Among the Nonelderly Population, 1972-2017 

Gary Claxton, Larry Levitt, and Karen Pollitz, Pre-ACA Market Practices Provide Lessons for ACA 

Replacement Approaches (Feb. 16, 2017) 

Gary Claxton, Matthew Rae, and Nirmita Panchal, Consumer Assets and Patient Cost Shoring, 

(Mar. 11, 2015} 

[ISSUE BRIEF] 

Gary Claxton, Larry Levitt, Karen Pollitz, and Anthony Damico, Why Premiums Will Change for 

People Who Now Have Nongroup Insurance {Feb. 6, 2013} ''-'-'-'.LC'-L"~'~'-'-"'-'-'=·'1'-'ci.£~= 
How does cost affect access to care? 

By Cynthia Cox and Bradley Sawyer Kaiser Family Foundation 

This collection of charts and a related brief explore trends in access to care in the U.S. The high cost of health care can be a barrier to access for bot

people (particularly those with high deductibles) and the uninsured, and costs can be particularly burdensome for people in worse health. 
About 1 in 10 adults report that they delayed or did not get care because of its cost 

Percent of adults wh.o reported delaying or going without care due to costs, 2015 

Health System 

Most Americans do not report cost-related access barriers to health care. Still, a substantial portion of the population about one in every ten adu

said that they either delayed or did not receive medical care due to cost in 2015. 
Most adults are in better health and most have health insurance 

Percent of adults who reported being in worse health or without insurance, 2015 

Source: Kaiser Family Foundation analysis of National Health Interview Survey .t. 

Health System 

In the U.S., most adults (89%) have health insurance and the majority (88% of adults) also report their health as at least good. Adults in worse healt

with low incomes, and the uninsured are much more likely than others to delay or forgo health services due to costs. 
Adults who are in worse health have more difficulty accessing care due to cost 

Percent o! -who reported delaytng or going without care due to 2.015 

Health system 

Nearly one in five adults in worse health (18%) said they delayed or did not receive medical care due to cost barriers, while 7% of respondents in 

health reported the same. 
Uninsured adults are more likely to delay or go without care due to cost 

Sout·ce; Knis<~t' Family Foundation anulyo;\s o! National HealthlnterviCw Survey .t. 

More than 1 in 4 uninsured adults (28%) said they delayed or went without healthcare because of cost reas011S. Meanwhile, 7% of adults who hav

insurance reported encountering cost-related access barriers to care, 

Low-income adults are more likely than others to have difficulty accessing medical care due to cost
rates have declined in recent years 

Percent of adults who report delaying and/or going without care due to costs, 1998- 2015 

Grey region represents periods of economic recession, 

Source: Kaiser Family Foundation analysis of National Health Interview Survey ..;t, 

From 1998- 2015, lower income adults have consistently reported more cost-related barriers to accessing medical care than higher income adults

related access problems generally rise during economic downturns. In 2015, rates of cost-related access barriers were lower than in any other yea

this period for low-income people (11%, down from a recent high of 17% in the early years of the recent economic downturn and a low of 12% in 200
Adults in worse health are more likely than others to have difficulty accessing medical care due to costs

rates have declined in recent years 

Percent of adults who report and/or going without medical care due to 1998- 2015 

Grey regions represerJt periods of economk recession 

Sourc-e: Kaiser Family Foundation analysis of National Health interview Survey..!;., 

Health System T

Adults in worse health have long reported more cost-related access problems than those in better health. Cost-related access problems generally ri

economic downturns. Rates of cost-related access barriers are at their lowest in 2015 for those in worse health (18%, down !rom a recent high of 26% 

and a low of 19% in 1998). 
Uninsured adults experienced more difficulty accessing care due to cost 

Percent of adults who report delnying and/or going without cnre due 1Dt!8 2015 

Source; Kaiser Family Fmm-dation analysis of National Health Interview Survey.!. 

Uninsured adults have consistently experienced more difficulty accessing health care due to cost. CosHelated access problems generally rise duri

economic downturns. Note that the group of people who remain uninsured in 2014 and 2015 (after the Affordable Care Act's coverage expansions) 

different demographically from the people who were uninsured prior to 2014. 
Adults are most likely to go without dental care and prescriptions because of cost reasons 

Percent of adults who report delaying and/or going without medical care due to costs, by type of care, 2015 

Source; Kaiser Family Fonndation analysis oi National Health Interview Survey J;,. 

Health System T

Of the types of care that are delayed or forgone for cost reasons, dental care, prescription drugs, and eye glasses are at the top of the list, with at lea

percent of adults reporting delaying or forgoing these types of care. 
Adults in worse health report much higher rates of delayed or forgone medical care due to cost 

Percent of adults who rcport delaying aml!or going without medical care due to costs, by type of care 2015 

Sourc:e: Kaiser Family Foundation analysis of National Health Interview Surv0y .t. 

Health System 

Adults in worse health are much more likely to delay or forgo many types of health services. 
More than a fourth of uninsured adults delayed or went without needed dental care because of the cos

Percent of adults who l'epor! delaying and/or going Vllithout medical care due to costs, by type of care, 2015 

Source: Kaiser Farnily Foundation analysis vf National Health Interview Survey,;!, 

Similarly, uninsured adults report significantly higher rates of cost-related access problems. 
Uninsured adults and those in worse health are more worried about paying bills for routine medical ca

Pcorcent of for by health insurance 2015 

Source: Kaiser Fmnily Foundation analysis of National Healthlnterview Survey .t, 

Health Syste

Nearly two thirds (63%) of uninsured adults are very or moderately worried about paying for routine medical care. Adults in worse health care a

likely to report worries about paying for care, though the disparity is not as great as with insurance status. 
Adults in worse health are less likely to worry about paying medical bills than in previous years 

Percent of adults worried about to pay medicai bills they get sick or have an accident, 2011 2015 

Source: Kaiser Family Foundation analysis of National Health Interview Survey~ 

Health System 

Adults in worse health have long reported more cost-related access problems than those in better health. 
Uninsured adults and adults in worse health report more problems paying medical bills 

difficulty paying meclical and insuranee status, 2015 

Source: KaisHr Family fotmdation analysis of National Health Interview Survey..!.. 

Health System 

About one in every three adults who reported being in worse health also reported problems paying bills for routine care as well as difficulty payi

medical bills over time (29% and 31% respectively). Uninsured adults had similar rates of medical bill problems. 
Uninsured adults are less likely to have a usual source of care 

Percent of adults without a usual source of care, by insurance and health status, 2015 

:.)ource: Kaiser Family Foundation analysis of Nationnl Health Interview Survey ,t, 

Compared to those in better health people (10%) in worse health more often report not having a usual source of care (15%). The uninsured, in contra

much less likely to report not having a usual source of care (50%) than those with insurance (10%). 
Uninsured adults who lack a usual source of care are also more likely to forgo preventive care 

Percent of adults who did not a of care, \vho reported goin,g without preventive 2015 

Soul'cc: Kaiser Family founda,tion arL:~lysis of National Health Interview Sw·vey .t.. 

Health Syste

Of uninsured adults who did not report having a usual source of care, the majority (70%) also said they went without preventive health care serv

A PARTNEflSHIP OF 
116 

Despite lower rates of access barriers for 

some groups, health costs remain a concern 

for many Americans 

By Cynthia Cox and Bradley Sawyer Kaiser Family Foundation 

SHARE 

The high cost of health care can be a barrier to access for both insured people 

(particularly those with high deductibles) and the uninsured. Today, a report from the 

National Center for Health Statistics finds that the share of adults reporting difficulty 

paying medical bills has declined in recent years. Similarly, a recent Commonwealth 

Fund survey of adults in the U.S. and 10 other countries found that fewer Americans 

report cost-related access barriers than did in 2013, though Americans still have more 

difficulty accessing care due to cost reasons than people living in the 10 other countries, 

on average. 

People in worse health are less likely to worry about medical bills 

than in past years 

In this post and continuously updated chart collection, we analyze data from the U.S. 

CDC's National Health Interview Survey to examine trends in Americans' access to 

health care from 1998 through 2015. In 2015, nearly one in 10 adults (9%) reported 

delaying or not receiving medical care due to cost. We find that in 2015, rates of costrelated access barriers were lower than in any other year during this period for lowincome people (11%, down from a recent high of 1'7% in the early years of the recent 

economic downturn and a low of 12% in 2002). 
117 

Similarly, rates of cost-related access barriers are at their lowest in 2015 for those in 

worse health (18%, down from a recent high of 26% in 2009, and a low of 19% in 

1998). Before the recent economic downturn, about 22% of adults in worse health 

reported cost-related access barriers to care. After peaking at 26% in 2009, the rate of 

cost-related access barriers for those in worse health returned to pre-recession rates by 

2013, and then continued to decline to 18% in 2015 the lowest rate since at least 1998. 

Adults in worse health are more likely than others to have 

difficulty accessing medical care due to costs, but rates have 

declined in recent years 

Percent of adults who report delaying and/or going without medical care 

due to costs, 1998 2015 

Grey regions represent periods of economic recession 
118 

Dental care (11%), prescription drugs (6%), and eye glasses (6%) top of the list of the 

types of care which were delayed or forgone because of cost in 2015. The vast majority 

of American adults are in good or excellent health (88%) and/or have medical insurancE 

(89%), and are thus less likely to encounter cost-related access barriers. Adults in worsE 

health, those with low incomes, and the uninsured are much more likely than others to 

delay or forgo health services due to costs: 

Nearly one in five adults (18%) who reported being in worse health said they 

delayed or did not receive medical care due to cost barriers, while 7% of 

respondents in better health reported the same. 

Without medical insurance, cost-related access problems are more common for 

Americans. Unaffordable medical costs caused more than 1 in 4 uninsured adults 

(28%) to delay or go without health care in 2015. Meanwhile, 7% of adults who have 

health insurance reported encountering cost-related access barriers to care. 

Lower income adults on average report more cost-related barriers to accessing 

medical care (11%) than higher income adults (5%). As mentioned above, 11% is the 

lowest rate of reported access barriers among this group since at least 1998. 

Between 2011 and 2013 (the year before the major coverage expansions of the 

Affordable Care Act went into effect), the share of adults in worse health reporting 

worry about their ability to pay for medical care increased from 59% to 61%. After the 

coverage expansions went into effect, the share dropped to 56% in 2014, and then 53% 

in 2015. 
119 

Adults in worse health are less likely to worry about paying 

medical bills than in previous years 

Percent of adults worried about their ability to pay medical bills if they get 

sick or have an accident, 2011- 2015 

The uninsured rate in the U.S. has fallen to an all-time low as a result of the Affordable 

Care Act. Still, about 28.9 million people remained uninsured in 2015. (A recent Kaiser 

Family Foundation analysis found that 43% of the remaining uninsured could qualify for 

assistance to purchase health insurance or enroll in Medicaid, but for one reason or 

another have not taken advantage of this assistance.) From our analysis of NHIS data, 

we find that half of uninsured adults (50%) report having no usual source of care, while 
120 

10% of those with insurance say the same. Similarly, of uninsured adults who did not 

report having a usual source of care, the majority (70%) also said they went without 

preventive health care services. 

Following the recent election, the future of the Affordable Care Act is uncertain. One of 

the main objectives of the recent health care reform legislation was to increase access 

to care through increased affordability. In the years since its initial implementation, 

survey data from a variety of sources suggest that rates of cost-related access barriers 

have fallen, particularly for lower-income people and those in worse health, but access 

remains a challenge for many Americans in the early years of the health reform law. 

RELATED TOPICS 

What do we know about social determinants of health in the U.S. and 

comparable countries? 

How does cost affect access to care? 

Access & Affordability 

Looking at social determinants of health in the U.S. and comparable 

countries 

A PARTNERSHIP OF 
121 

The Facts on Medicare and 

Facts 

• :tvlcdieare spending '\vas 15 percent of total federal spending in 2016, and is projected to rise to 

17.5 percent by 2027. 

• The Medicare Hospital Insurance (Part A) trust fund is projected to be depleted in 2029, one 

year later than the 2016 projection. 

• Medicare's actuaries project that the Independent Payment Advisory Board (IPAB) process 

'"ill be triggered for the first time in 2021, four years later than their 2016 forecast. 

• The share of Medicare benefit spending on hospital inpatient services fell by one-third 

between 2006 and 2016, \vhile spending on Medicare Advantage private health plans doubled. 

• Average annual growth in Medicare per capita spending grmvth \Vas 1.3 percent behveen 2010 

and 2016, do-wn from 7-4 percent behveen 2ooo and 2010. 

• l'vlE'tlicare per capita spending is projected to graw at an average annual rate of 4.5 percent 

over the next ten years, slightly lmvcr than the growth rate for prh·ate insurance. 

Overview of Medicare 

Medicare, the federal health insurance program for 57 million people ages 65 and over and younger people 1\·ith 

permanent disabilities, helps to pay for hospital and physician vrisits, prescription drugs, and other acute and postacute care sen ices. In 2016, spending on 

Medicare accounted for 15 percent of the 

federal budget (Figure 1). Medicare plays a 

major role in the health care system, 

accounting for 20 percent of total national 

health spending in 2015, 29 percent of 

spending on retail sales of prescription drugs. 

25 percent of spending on hospital care, and 23 

percent of spending on physician scniecs. 1 This 

issue brief includes the most. recent historical 

and projected Medicare spending data 

published in the of the 

Boards of l\'T edicarc Trustees from the Centers 

for Medicare & Medicaid Scrdces (Cl'VlS) Office 

of the Actuary {OACT) and the 

and pro.iections from the 

Congressional Budget Office {CBO), 

Medicare as a Share of the Federal Budget, 2016 
122 

Historical Trends in Medicare 

In 20t6, Medicare benefit pa)1nents totaled 

$675 billion, up from S375 billion in 2006. The 

distribution of lVIedicare benefit payrnent.s has 

changed in significant ways over the past ten 

years (Figure 2). 

Medicare Benefit Payments by Type of Service, 2006 and 2016 

Most notably, the share of total spending on 

hospital inpatient services declined by onethird between 2006 and 2016, from 32 percent 

to 21 percent, while payments to Medicare 

Advantage (private health plans which cover all 

Part A and Part B benefits) doubled, from 15 

percent to 30 percent, as private plan 

enrollment has grm-1.:n steadily since 2006. 

Thirt~y percenl of benefit spending was for 

Medicare Advantage plans; in 2017, ·' 

are cnrol1ed in 

f>Hospitalinpatientservice$ 

Ill Physician paymellt~ 

Other service~* 

Medicare Advantage 

IVledicnrc Advantage plans, up from 16 percent in 2006. Over these years, spending on outpatient prescription drugs 

(Part D) increased from 9 percent of total hcnefit payments to 14 percent in 2016. 

Recent years have seen a notable reduction in the growth of Medicare spending compared to prior Uecadcs 1 both 

overall and per beneficiary. 

Average annual grm"'i:h in total Medicare 

spending was 4-4 percent between 2010 and 

2016, dO\vn from g,o percent between 2000 

and 201 o, despite faster grov·.rth in 

enrollment since 2011 with the baby boom 

generation reaching Medicare eligibility age 

(Figure :~). 

Average annual growth in Medicare spending 

per beneficial}' was just L3 percent between 

2010 and 2016, down from 7-4 percent 

between :woo and 2010. 

Slower grovvth in Medicare spending in recent 

years can be attributed in part to 

adopted as part of the Affordable Care Act 

(ACA) and the Budget Control Act of 2011 

(BCA). The ACA included reductions in Medieare payments to plans and providers, increased revenues, and 

introduced delivery system reforms that aimed to improve efficiency and quality of patient care and reduce costs, 

including accountable care organizations (ACOs), medical homes, bundled payments, and value-based purchasing 

initiatives. The BCA hnvered Medicare spending thmugh sequestration that reduced pa)ments to providers and 

plans by 2 percent beginning in 2013. Medicare spending trends in recent years have also been affcctetl by changes 
123 

in prescription drug ~pending and hospital inpatit!n1 readmissions, a sharp decline in home health spending, and 

recoveries from program integrity efforts. In addition, although Medicare enrollment has been grovdng around 3 

percent annually \\ith the aging of the haby boom generation, the inf1ux of younger, healthier beneficiaries has 

contributed to slmvcr spending gnrwth. 

Over the past 25 years, Medicare spending has grown at a slightly slmver rate than private health insurance spending 

on a per enrollee basis. With the recent slmvdown in the grm,\th of Medicare spending, the difference in grcmth rates 

between Medicare and prh·atc health insurance spending per enrollee ""~dened. 

Bet.,~,-·ecn 1991 and 2016, Medicare spending per enrollee grc\v at an average annual rate of s.o percent, slmver 

than the 5.7 percent average rmnnal grov ... ih rate in private insurance spending per enrollec. 2 

Between 2000 and 2010, per enrollee spending growth rates were comparable for Medicare and private insurance 

(Figure 3). Between 2010 and 2016, hmvevcr, Medicare per capita spending grC\1/ considerably more slovvly than 

priYate insurance spending, increasing at an average annual rate of just 1.3 percent over this time period, \vhilc 

average annual private health insurance spending per capita grew at 3.5 percent. 

Medicare 

\'\'bile spending ls expected to continue to grow more slovdy in the future compared to long-term historical trends~ 

there arc signs that spending gro'wth is likely to increase at a faster rate than in recent years, in part due to grmving 

enrollment in Medicare, increased use of sen 1ccs, and rising health care prices. 3 

Looking ahead, net Medicare spending (that is, 

mandatory :V1edicare spending minus income 

from premiums and other ofL'>etting receipts) is 

projected to increase ftom S590 billion in 2017 

to $1.2 trillion in 2027, . CBO 

projects total Medicare spending to increase 

from $708 billion to $1-4 trillion over this time 

period. Net Medicare spending is projected to 

gnn'>' modestl:;,r as a share of the federal budget 

and the nation's economy over the next ten 

years. Between 2017 and 2027, Medicare's 

share of the budget is projected to increase 

from 14.7 percent to 17.5 percent, while 

Medicare spending as a share of the gross 

domestic product (GDP) is projected to 

~ncrcase from 3.1 percent to 4.1 percent 

(Figure 4), 
124 

• Average annual grm\th in total Medicare 

spending is projected to be 7.2 percent 

between 2016 and 2026 (Fib>ure 5). This is 

f~1ster than the 4-4 perccnl average annual 

grmvth rate bcti·Veen 2010 and 2016. 

• On a per capita basis, Medicare spending is 

projected to grow at a faster rate between 

2016 and 2026 (4.5 percent) than between 

2010 and 2016 (1.3 percent), and slightly 

iower than the average annual grm'vth in per 

capita private health insurance spending oYer 

this time period (4.9 percent). 

• Medicare per capila spending is not expected 

to gro\v uniforrnly across the coming ten-year 

period, huwcYer. Average annual per capita 

spending growth is expected to be slmvcr in 

lhe first Hvc years of the projection period 

than in the last tlve years: 4.0 percent 

bctvvcen 2016 and 2021, increasing to s.o 

percent hct\vcen 2021 and 2026. 

• OACT projects a comparatively higher per 

capita grmvth rate in the coming years for 

Part B than for the other parts oft he 

program. Per capita spending grO\vth is 

projected to be 5.2 percent for Part B, 

compared to 3·5 percent for Part A and 4.7 

percent for Part D (Figure 6). Among the 

reasons for the higher growth in Part B 

spending is slightly higher-than-expected 

actual spending in 2016 for outpatient 

hospital services and physician-administered 

drugs (v,rhich arc covered under Part B). 

Projected Average Annual Growth Rate in Medicare and Private 

Health Insurance Spending, 2016·2026 

Average Annual Growth in Medicare Beneficiary Costs for Part A, Part 

l B, and Part D Between 2016 and 2026 

5.2% 4.7% 

3.5% 

OACT has revised downward somewhat the projections for Part D spending compared to 2016, primarily 

attributable to significantly higher drug manufacturer rebates and lovver utilization of hepatitis C drugs, \vhich 

\Vas a signifieant driver of higher Part D spending in 2014 and 2015. 

Over the longer term (that is, heyot1d the next ten years), both CBO and OACT expect Medicare spending to rise 

more rapidly relative to GDP due to a numher of factors, including the aging of the population and faster growth in 

health care costs than growth in the economy on a per capita basis. According to CBO's most recent 

net Medicare spending vvill grmv from 3.1 percent of GDP in 2017 to 4.2 percent in 2027, 5-3 percent in 

2037, and 6,t percent in 2047. 

Over the next 30 years, CEO projects that "excess" health care cost growth-defined as the extent to \-vhich the 

g_rm,.:th of health care costs per hE'ncficiary, adjusted for demographic changes, exeeeds the grovvth of potential GDP 
125 

per person-will account for a .somc\vhat larger share of projected growth in spending on the nation's major health 

r-are programs (::vfcdicarc, :Medicaid, and subsidies for ACA Marketplace coverage) than the aging ofthc population. 

CBO cites ne\v medical technology and rising personal income as the driving factors behind projections of rising 

hca1th care costs. 

1-iow Is Financed? 

Medicare is funded primarily from three sources: general revenues (45 percent), payroll taxes (36 percent), and 

beneficiary premiums (13 percent) (Figure 7). 

• Part A is financed primarily through a :2:.9 

percent tax on earnings paid by employers 

and employees (1.45 percent each) 

(accounting for 88 percent of Part A 

revenue). Higher-income taxpayers (more 

than $2oo,ooo/indhidual and 

S25o,ooojcouple) pay a higher payroll tax 

on earnings (2.35 percent). 

Part B is financed through general renmues 

(75 percent), beneficiary premiums (23 

percent\ and interest and other sources (2. 

percent). Benet1ciaries '"·ith annual incomes 

over S8s,ooojindi,idual or $170,ooojcouple 

pay a higher, income-related Pmi B premium 

re11ecting a largel' share of total Part B 

spending, ranging from 35 percent to So 

Sources of Medicare Revenue, 2016 

percent. The ACA froze the income thresholds through 2019, and beginning in 2020, the incorne thresholds 1Arill 

once again be indexed to inflation, based on their levels in 2019 (a prmision in the Medicare Access and CHIP 

Reauthorization Act of 2015, or rviACRA4

). As a result, the number and share of beneficiaries paying incomerelated premium~ \·\'ill increase as the number of people on l'vfcdicare continues to grow in future years and as their 

incomes rise. 

Part Dis financed by general revenues (78 percent), beneficiary premiums (13 percent)1 and state payments for 

dnally eligible beneficiaries (9 percent). As for Part n, higher-income enrollees pay a larger share of the cost of 

PLu·t n coverage. 

• The Medicare AdYantage program (Part C) is not separately financed. Medicare AdYantage plans such as HMOs 

anJ. PPOs cover all Part A, Part B, and (typically) Part D benefits. Beneficiaries enrolled in l\Iedicare Advantage 

typically pay monthly premiums for additional benefits covered by their plan, in addition to the Part B premium. 

Financial Condition 

Medicare's financial C'ondition can be assessed in diffCrent '~lays, including e.:~timating the so1vency of the Medicare 

Hospital Insurance (Part A) trust fund, and comparing various measures of Medicare spending-overall or per 

capita-to other spending measures, such as Medicare spending as a share of the federal budget or as a share of 

GDP. Such measures arc aLso used in the context of broader discussions of the national budget and federal debt and 

in the Independent Payment Advisory Board (IPAB) process, described below. 
126 

The solvency of the Medicare Hospital Insurance trust fund, out of which Part A benefits arc paid, is one way of 

measuring Medicare's financial status, though because it only focuses on the status of Part A~ it docs not present a 

complete picture of program spending overalL The solvency of Medicare in this context is measured by the level of 

assets in the Part A trust fund. In years when annual income to the trnst fund exceeds benellts spending, the asset 

level increases, and v.·hcn annual spending exceeds income, the asset level decreases. ·when spending exceeds 

income and the assets are fully depleted, Medicare will not have sufficient funds to pay all Part A benefits. 

Each year, the Medicare Trustees provide an 

estimate of the year when the asset level is 

projected to be fully depleted. In their 2017 

report, the Medicare Trustees project that the 

Part A trust fund ·will be depleted in 2029, one 

year later than \Yas projected in 2016. The 

trustees attribute this to !ower-than-expected 

hospital inpatient utilization in 2016, ·which 

services in the future (Figure 8). 

Because of slmvcr gnnvth in :rviedlcare spending 

in recent years, the solvency of the Part A trust 

fund has been extended further into the future 

compared to projections before the ACA \Vas 

passed, Part A trust fund. solvency is also 

affected by the leYel of gruwlh in the economy, 

Solvency Projections of the Medicare Part A Trust Fund, 200Sw2017 

Report Year 

2005 

2009 

2020 

2018 

2019 

2017 

2029 

·which affects 'Medicare's revenue from payroll tax contributions, by overall health care spending trends, and by 

demographic trends-of note, an inereasing numbC'r of beneficiaries, especially between 2010 and 2030 vv·hen the 

baby boom generation reache,s Medicare eligibility age, and a declining ratio of workers per beneficiary rna king 

payroll tax contributions. 

Part Band Part D do not have financing challenges similar to Parl A, because both are funded hy beneficiary 

premiums and general revenues that arc set annually to match expected outlays. Expected future increases in 

spending under Part Band Part D, hO\ .. ·ever, will require increases in general reYenue funding and higher premiums 

paid hy beneficiaries. 

The Independent Payment Ad,,isor.y Board (IPAB), authorized by the ACA, is required to recommend Medicare 

spending reductions to Congress if projected spending grm ... th exceeds specified target levels. IPi\.ll is required to 

propose spending reductions if the s-ycar <:we rage gnrwth rate in Medicare per capita spending is projected to exceed 

the per capita target growth rate, based on general and medical inflation (for dctennination years 2015 to 2019) or 

grmvth in the economy {2020 and beyond). The Board is to consist of 15 fu1l-time members appointed by the 

President and confirmed by the Senate, but no individuals have been nominated to serve on IPAB by either former 

President Obama or President Trump. If there arc no Board members appointed \Vhen a proposal for spending: 

reductions is required, the Secrctai)' of the Department of Health and Human Sen ices is responsible for making 

recommendations to achieve the required spending reductions. 
127 

Bu:::.ed on its most recent Medicare spending 

gnm-th rate projections relative to the targets, 

OACT has estimated that lhe IPAB process will 

tlrst he triggered in 2021 (Figure 9). This 

1vould initiate a three-year cycle ending with 

spending reductions implemented in 2023. 

OACT aLso projects that spending growth will 

exceed the targel growth rate in 2024, 2025, 

and 2026.' that Medicare 

spending grmvth will execcd the target growth 

rate in 2019, 2023, 2025, and 2027. Based on 

its projections, CBO estimates Medicare savings 

of S2o hillion as a result of the IPAB process 

between 2019 and 2027. 

l PAR has hccn a source of controversy sin<:e 

before the enactment of the ACA, in part 

!fthe Independent Payment Advisory Board (IPAB) process is 

triggered in 2021, what happens next? 

........., Determination year Proposal year "'~"-},'Implementation year 

JUL'I2021 

15", iPAGsubmlts 

propos<!! to Pre~ide'lt 

related to concern among 1nem hers of Congress and other stakeholders about the authority granted to IPAB to make 

dC'cisions about the Medicare progrnm that are typically within the purview of Congress. There have been several 

attempts hy Congress to repeal the IPAB since 2010, and the Trump Administration's proposed 

included a provision to do the same. 

Future 

\Vhile Medicare spending is on a slower upward trajectory now than in past decades) total and per capita annual 

gnn\th rates appC'ar to be edging away from their historically low lewJs of the past few years. This raises several 

questions about recent spending trends and projections for f-uture spending growth: Can the recent slowdovm in 

Medicare spending be sustained and can this be done without adversely affecting access to or quality of care? How 

arc payment and dcliYery system reforms influencing spending levels? How will future spending he affected by 

Medicare's new approaches to physician payment thal will be established pursuant to MACHA? \'\~hat steps could he 

taken to moderate the projected growth in Medicare spendin~ due to the availability of ne\v specialty drugs and 

medical technology? 

A number of have been proposed that could help to address the health care spending challenges 

posed by the aging of the population, including: restructuring Ml'dicare benefits and cost sharing; eliminating ''firstdollar'' Mcdigap coYcragc; further increasing Medicare premiums for beneficiaries with relatively high incomes; 

raising the :r.iTecHcare eligibility age; shifting Medicare from a defined benefit structure to a "premium support" 

system; and accelerating the ACA's dcliYcry system reforms. At the same time, ehangcs have been proposed to 

improve coverage under Medicare in order to limit the financial burden of health care costs on older Americans and 

younger beneficiaries \'Vith disabilities, thou~h such changes \\'ould likely require additional spending. In addition to 

lhese potential changes, '\Vhieh would affect future spending levels, revenue options could also be considered to help 

finance care for Medicare's grovdng and aging population. 

The prospects for these and other proposals that would affect Medicare spending and finandng are unknovm, but 

fevv· would question the importance of carefully deliberating ways to bolster the Medicare program for today's 

beneficiaries and for the grmving number of people who wi11 depend on Medicare in the future. 
128 

'Sean Keeh<ln, et al. ''National Health Expenditurt' Projections. :::wt6-2,'): Pric>:. Increases. Aging Push Sector to 20 Percent of Economy,·· 

Health Aj/airs. published online February 15,2017. 

Filling the needflw !rush•d inftwmotion on mainnul health issues the Koiscr· Fwnihj Foundation is o nonpr·ofitorqanizatinn based in ."\Jcnio J'm·k. CHlijfJrnia 
129 

An Estimated 52 Million Adults Have Conditions That Would Make 

Thern Uninsurable Pre-Obamacare 

In Eleven States, 3 in10 Non-Elderly Adults Would likely Be Denied Individual 

Insurance Under Medical Underwriting Practices 

A new Kaiser Family Foundation analysis fhttp://kff.org/health-reform/issue-brief(pre-existingconditions-and-medical-underwriting-in-the-individual-insurance-market-prior-to-the-acall finds that 

52 million adults under 65- or 27 percent of that population- have pre-existing healtl 

conditions that would likely make them uninsurable if they applied for health coveragf 

under medical underwriting practices that existed in most states before insurance 

regulation changes made by the Affordable Care Act. 

In eleven states, at least three in ten non-elderly adults would have a declinable 

condition, according to the analysis: West Virginia (36%), Mississippi (34%), Kentucky 

(33%), Alabama (33%), Arkansas {32%), Tennessee (32%), Oklahoma (31 %), Louisiana 

(30%), Missouri (30%), Indiana (30%) and Kansas (30%). 

States with the most people estimated to have the conditions include: California 

(5,865,000), Texas (4,536,000), and Florida (3,116,000). 

Using data from two large government surveys, the analysis estimates the total numbe1 

of nonelderly adults in each state with a health condition that could lead to a denial of 

coverage in the individual insurance market, based on pre-ACA field underwriting 

guides for brokers and agents. The results are conservative because the data don't 

include some declinable conditions. The estimates also don't include the number of 

people with other health conditions that wouldn't necessarily cause a denial, but could 

lead to higher insurance costs based on underwriting. 

While most people with pre-existing health conditions have coverage through an 

employer or public program, such as Medicaid, they may intermittently seek insurance 

in the individual market during times when they're ineligible for other coverage, such 

as following a job loss or divorce. People who are self-employed, early retirees, or 

lower-wage workers in jobs that don't provide health benefits often are covered by 

individual plans for longer periods. 
130 

Before ACA protections took effect in 2014, private insurers in the individual health 

insurance market could use applicants' health status, health history and other risk 

factors to determine whether and under what terms to issue coverage. Some examples 

of conditions which could have led to automatic denial of coverage include cancer, 

diabetes, epilepsy, heart disease, and pregnancy. 

In the post-election health policy debate, both political parties have expressed a desire 

to continue protecting people with pre-existing conditions. 

The new analysis, Pre-Existing Conditions and Medical Underwriting in the Individual 

Insurance Market Prior to the ACA fhttp://kff.org/health-reform/issue-brieflpre-existing-conditioni 

and-medical-underwriting-in-the-individual-insurance-market-prior-to-the-aca/l, offers a detailed 

look at medical underwriting practices common in the individual market before the 

health law's prohibitions. 
131 

tlnit\sured Ri1tP tuno11g 

Uninsured Rate Among the Nonelderly Population, 

1972·2017* 

20 Share of population tJninsured: 

18 

16 

14 

u 

10 

Uninsured Rate Among the None!dcr!y Population, 1972<W17 
132 

Signii1canl changes to the Affordable Care Act (ACA) are being considered by lawmakers who have been critical 

of its general approach to providing cm·cragc and to some of its key provisions. An important area \vhere 

changes will be considered has to do with how people \\ith health proh1cms \vould he able to gain and keep 

access to coverage and how much they may have to pay for iL People's health is dynamic. At any given time, an 

estimated ha•·e health conditions that would make them ineligible for coverage under 

traditional non-group undenvriting slandards that existed prior to the A CA. OYer their lifetimes, everyone is at 

risk of having these periods, some short and some that last for the rest of their lives. 

One of the biggest changes that the ACA made to the non-group insurance market was to eliminate 

consideration by influrcrs of a person's health or health hi!:itory in enrollment and rating decisions. This 

assured that people who had or who developed health prohlems would have the same plan choices and pay the 

same premiums as others, essentially pooling their expected costs together to determine the premiums that all 

would pay. 

Proposals for replacing thC' ACA such as Rep. Tom Price's Empowering Patients First Act and Speaker Paul 

Ryan's ''A Detter V\'ay" policy paper ·would repeal these insurance market rules, moving back towards pre-ACA 

standards where insurers generally had more lce'\say to use individual health in enrollment and rating for nongroup coYcrage, 1 Under these proposals, people without pre-existing conditions would generally he ab1c to 

purchase coverage anytime from priYate insurers. For people with health problems, several approaches have 

been proposed: (1) requiring insurers to accept people transitioning from previous coverage without a gap 

("continuously coYercd"); (2) allowing insurers to charge higher premiums (within limits) to people with preexisting conditions vvho have had a gap in coverage; and (3) establishing high-risk pools, \vhich are public 

programs that pro\' ide coverage to people declined by private insurers. 

The idea of assuring access to cm·crage for people \\ith health problems is a popular one, but doing so is a 

challenge within a market framework where insurers haYc considerable flexibility over enrollment, rating and 

benefits. People with health conditions have much higher expected health costs than people ·without them 

(Table 1 illustrates average costs of individuals with and \\·ithout ",: ., health conditions). Insurers 

naturally will decline applicants \\ith health issues and will adjust rates for new and existing enrollees to retlect 

their health ·when they can. Assuring access for people \\ith pre-existing conditions with limits on their 

premiums means that someone has to pay the difference hctwccn their premiums and their costs. For people 

enrolling in high-risk pools, some ACA rcplaccmenl proposals provide for fetlcral grants to states, though the 

amounts may not he sufncicnt. For people gaining access through continuous coverage provisions, these costs 
133 

\Yould likely be paid by pooling their costs with (i.e., charging more to) other enrollees. Maintaining this 

pooling is difficult, hmvcver, when insurers haYe significant f1exibility over rates and benefits. Experience from 

the pre-ACA market shows how insurers were nble to usc a ,·aricty of strategies to charge higher premiums to 

people with health problems, C\'en when those problems began after the person enrolled in their plan, These 

practices can make getting or keeping coverage unaffordablc. 

18-34 

35-44 

45-54 

55-64 

18-64 

$5,190 

$6,3 71 

$1 0,195 

$11 ,537 

$8,853 

$1 ,809 

$2,279 

$2,657 

$4,641 

$2,527 

Source: Kaiser FamHy Foundation analysis of data from the Medical 

Expenditure Panei Survey, 

The discussion below focuses on some of the issues faced by people with health issues in the pre-ACA nongroup insurance market These pre-ACA insurance practices highlight some of the challenges in providing 

access and stable coverage for people and some of the issues that any ACA replacement plan '"ill need to 

address, Many ACA replacement proposals haYe not yet been developed in sufficient detail to fully deal with 

these questions, or in some cases may defer them to the states. 

\Vc start by briefly summarizing key diftCrenccs bet\n~cn the ACA and prc-ACA insurance market rules for nongroup coverage that affect access and continuity of coverage. \Ve then focus on pre-ACA access and continuity 

issues for three difTcrent groups: (1) people transitioning from employer coverage or Medicaid to the nongroup market; (2) people with non-group coverage who develop a health problem; and (3) people who arc 

uninsured (arc not considered to have continuous coYeragc) who ·want to buy non-group coYerage. After that, 

we discuss how medical underwriting and rating practices can segment a risk poo1, initially and oYer time, and 

challenges that this poses for assuring continuous cow:rage. We end by rcviev.ing some of the policy chokes 

for addressing the challenges that have been raised. 

Insurance Practices Before the ACA 

The ACA significantly simplified the rules for health insurance enrollment, rating and benefits in the nongroup market Generally, benefits arc the same for all policies offered in a state, with four leYcls of cost sharing 

(bronze, siJYer, gold, and platinum), Insurers cannot consider a person's health at enrollment or in 

determining their premium. People can enroll in any plan during an annual open enrollment period or other 

times under special circumstances (called special enrollment periods), such as the loss of prior coverage. 
134 

The ACA \vas a substantial departure from prior insurance practices in most states, where insurers had far 

more flexibility over enrollment, rating and benefits. State laws and practice varied-- for example, a few states 

required insurers to accept all applicants and prohibited rating variation based on health, similar to the ACA --

hut this was not the norm. In most stales, insurers were permitted to consider health in their enrollment and 

rating decisions, Some of the more important differences between ACA and pre-ACA market rules arc 

described here, Their implications tOr providing access to coverage and assuring continuous and stable 

coverage are discussed in the next sections. 

1) Medical Screening of Applicants. The first and most obvious difference is that insurers could ask 

applicants about their health and generally could deny coverage to people with health problems. They 

also could choose to accept the applicant at a higher premium, and, in many states, could accept the 

applicant but limit the terms of the coverage to cxdudc benefits related to a specitled health condition 

(for example, an insurer could exclude bendlts related to asthma). Under.,.·rriting decisions could Yary 

'"·ith the t:ype and level of coverage sought: an insurer could deny enrollment in a polic)'- with a 10\vcr 

deductibk to an applicant with a relatively minor condition, such as acne, but might accept them in a 

higher deductible plan or in a plan \\ithout drug cm·erage. 

As will be discussed in the next section, the Health Insurance Portability and Accountability Act 

(HIPAA) provided access to coverage !(n· people with at least 18 months of prior coverage, if the most 

immediate prior eon~ rage was in a group health plan (generally a plan offered pursuant to 

employment by a public or private employer) but not Medicaid or Medicare). Insurers were required 

to accept these applicants (called "li!PAA-cligible .. individuals) without a pre-existing condition 

exclusion, but generally could charge them much higher rates than other applicants. States could 

specify an altcrnath·e coverage mechanism for HIPAA-eligible applicants; 38 states specitlcd an 

alternative, with most specifying a state high-risk pool. HIPAA-cligihlc individuals without health 

problems could choose to apply for medically-underwritten non-group policies, but doing so made 

them subject to preexisting condition exclusion provisions (sec Medical Underwriting and Preexisting Condition Exclusion Provisions box below). 

2) Multiple Rating Classes for Similar People in the Same Policy. Another difference is that 

premiums for people of the same age from the same place could be quite different for the san1e policy. 

Except for a dif!Crential for smoking, people of the same age from the same place face the same 

(unsubsidizcd) premium for the same plan under the ACA, Prior to the ACA, there were many rate 

classifications. For cxamph\ there could be a rate for new applicants \'vho have no health conditions, 

there could be several "substandard·' rate tiers f(Jr people with health problems, there could be 

different rates for people based on how long they have had the policy (durational rating, described 

more below, ,,,;hich means that a newly issued 40 year old vvould pay a lov•'er rate than a 40 year old 

who bought the same policy two years prior), there could be different rates based on how the policy 

was purchased (through an agent, directly frotn the insurer, through a trade group), the person's 

occupation, and others. Also, from year to year, the rates in each class could change by different 

percentages, increasing the differences for similar people in different rating classes. 
135 

3) Rating by Policy or Block. A third difference relates to how premiums arc established for 

tliffercnt policies offered by an insurer in a state. Under the ACA) v.-here all policies cover the same 

essential health benellts, an a\'erage expected cost is estimated for all projected enrollees across all of 

an insurer's non-group products in a state, antl prcmimns for particular policies are determined on 

the objective differences (i.e., cost sharing and provider network) from the an~rage cost In contrast, 

prior to the A C.~-\ premiums \vere established for each policy (or a group of policies, sometimes called 

a block) based on the expected claims costs for the people expected to be enrolled in that policy or 

block, projected over current and future years. Importantly, the experience of each policy or block is 

de,·cloped independent of the costs or results expected in other policies or blocks, which means that 

two policies that are almost the same could have Ycry different premhnns associated with them based 

on the anticipated costs of who is projected to be enrolled (and who bas actually enrolled). As 

discussed more below, a policy or block of polieies no longer for sale to new people (called a closed 

policy or block) would likely have much higher premiums for the same henellts than a policy currently 

ayaiJable to new cnrollecsY 

4) Broad Variation in Benefits Across Policies. Another difference is that there was signillcant 

variation in the benefits covered by prc-ACA policies, including options that excluded entire classes of 

hencllts such as prescription drugs or mental health. Under the ACA, all policies cover the same 

essential health benelits, with variations largely relating lo cost sharing and network. Pre-ACA 

policies sometimes had annual or lifetime limits on specitk or total benefits: for example, a policy 

might limit prescription bcnellts to Ssoo per year. :\fost states speciticd some benellts that needed to 

be covered or at least offered to applicants by insurers. 

5) Limited Ability to Switch Among Non-Group Plans. A t1fth difference relates the ability of a 

person ·with non-group coYerage to S\\itch policies without re-submitting to medical undenvriting. 

Before the ACA, people who v:erc accepted into a non-group policy \verc not necessarily able to switch 

into nmv non-group policies, at rcnev~·al or otherwise, either from their current insurer or from others, 

without passing medical undemTi\ing. Insurers sometimes offered people the ability to elect different 

policies at renewal (usually the ability to take a policy with higher cost sharing to moderate a rate 

increase), but they were not required to do ~nand did not have to allow current policyholders to move 

to different policies. 
136 

Medical Underwriting and Pre-Existing Condition Exclusion Provisions 

Prior to the ACA, insurers often used the health of indi>iclual enrollees in making decisions 

about lheir coverage. d t\ c;__:, is the process by ·which an insurer acquires 

information about the health of applicants for coYerage and uses the information to make 

deeisions about whether to offer coverage, what coverage to offer, and what premium to charge. 

Applicants for non-group coverage generally \vere required to answer a long series of questions 

about their health and health history, and often were required to provide authorization for the 

insurer to obtain their medical records. In the non-group market, insurers generally \Vere 

permitted to use the information to decline the application, accept the applicant for a reduced 

scope of coverage, or accept the applicant at a higher premium. 

A pre-existing condition exclusion provision is a contraet term that permits an insurer to 

exclude coverage for benefits sought by an enrollee during a defined period after the coverage 

begins (for example, twelve months) if the insurer can show that the claim relates to a condition 

that existed before the policy was issued. State laws varied in defining pre-existing conditions 

for non-group coverage; for example, in hmv far an insurer could look back to detect the 

condition, or in whether the condition must have been actually treated or \·vhether a reasonable 

person would have sought treatment. This exclusion allowed insurers to exclude benefits for 

pre-existing conditions that \Vcrc not necessarily detected dnring the medical undcrv.Titing 

process. 

While there are many other clifferences between ACA and pre-ACA non-group market rules (e.g., permitted 

co.<-~l sharing, limit~ on age rating), these have the most implications for providing access to and continuous 

coverage for people with health problems. Most fundamentally, medical screening divides people by health at 

initial enrollment. and the inability to switch polieies can trap people who develop health problems into much 

more expensive coverage. The potential implications of this arc discussed below. 

Pre-ACA Non-Group Market Rules for Access to 

and Continuous Coverage 

'To examine the issues raised by these pre-ACA market rules) we look at three different groups of people: 

1) People transitioning from existing coverage and applying for non-gronp coverage 

2) People with non-group coverage who develop health problems 

3) People without recent prior coverage applying for non-group coverage 

Assuring access to non-group coverage for people who maintain continuous coverage has been a priority- for 

proponents of changing the A CA. One of the attributes of the ACA is that people who lose eligibility for 

co\'crage can ohtnin replacement coverage in the non-group market on the same terms as others covered in the 

market~ without consideration of their health. 
137 

A large number of people who lose their coYerage might want or need access to non-group coverage. Looking 

at the 2012 through 2013 period (the 24 months imrnedia1ely prior to the ACA coverage expansion), about:: 

people ·with coverage lost it and became uninsured for some period. People without health problems 

leaving previous coverage gcnerall:y could purchusc undcnvritten policies in the market. Some, but not all, 

people with health problems who had previous coverage could qualify for designated non-group policies 

without regard to their health. 

As noted abo\"C1 prior to the ACt\ fcdcral1aw proYidcd guaranteed access to non-group coverage for people 

with at least 18 prior months of continuous coYerage if their most recent prior co\'eragc was an employer plan 

and if they did not hav·e a gap in cov-erage elf more than 63 days. These HIPAA-cligible individuals qualit!ed for 

specitlcd policies (most often, coverage in a state high-risk pool1 but sometimes designated plans offered by 

non-group insurers), with no pre-existing condition exclusion. Their premiums vv·crc almost always much 

higher than the rates charged to applicants who could pass medical undenvriting. 

The HlPM non-group market prmisions were perceived generally to haw fairly limited effect, primarily 

because the coverage made av-ailable could be cxpcnsiw. Sev·cral factors limited HIP.:\A's effectiveness in 

assuring access to non-group coverage: 

1) Eligibility. The guaranteed access and ·waiver of pre-existing condition exclusion provisions were 

aYailablc only to a limited group of people: those \vhose most recent previous coverage was 

involuntarily terminated and employment-based. Limiting the option to people leaving employer 

group plans left out people coming from public cm·erage such as Medicaid or ·who lost a prior nongroup plan because they moved out of area served by their insurer. A few states expanded the 

requirement to indudc other types of coverage~ but it was not the general ru1e. The provisions a1so 

left out people who wanted to switch plans within the non-group market, for example, because of 

network changes in their existing plan or if it had become unatTordable (discussed below). 

2) Cost. Federal 1-HPAA portability provisions also did not limit the premiums that could be charged 

for the speciikd plans available to HIPAA-eligible people. Most states used a high-risk pool to 

serve HIPAA-eligiblc people. where premiums typically ranged from125% to 200% of the 

estimated standard premiums for non-group coverage. \Vith a couple exceptions, income-based 

subsidies were not available in high-risk pools, making it quite dift!cult for people with modest 

iucomes. In states where insurers were required to make private policies available to HIPAAeligiblc individuals, insurers often ·were able to charge much higher premiums to HIPAA-eligible 

individuals with hea1th problems; for example, insurers could develop separate rating classes for 

HIPPA-eligihlc inclidduals who could meeting medical undenniting standards and those would 

could not. A few states limited the additional premium that could be charged to HIPAA-eligible 

indiYiduals \vho could not pass medical underwriting. 

In addition, HIPM only extended guaranteed availability to people after they had exhausted their 

eligibility for continuation coverage under~ \ or under state continuation lmvs, Coutinuation 

coverage can be cxpcnsiv·c: COBRA premiums are 102% of the full cost of the employer plan for at 

least 18 months. Affording COBRA can be diftlcult for people who lost their job and may not have 

new \York. 
138 

The requirement to exhaust continuation coverage and the relatively high premiums served to limit 

the number of people who could afford to take advantage of the guaranteed availability opportunity 

under HIPAA. As discussed below) people \Yho could pass medical underwriting could save these 

expenses and enroll in lov-,'er-cost plans, but they would not get the full benefits of hm1.ng 

continuous coverage. 

3) Combining Guaranteed Access and \Vaiver of Pre-Existing Condition Exclusion in the Same 

Provision. The law provided for guaranteed access to coverage and the v .. ·aiver of pre-existing 

condition exclusion provisions only in specified policies, which tended to be quite expensive. 

HIPAA-cligihlc indh-iduals who were healthy and could pass medical underwriting could get a nongroup policy for much less than the policies offered generally to HIPAA-eligible people, hut in 

choosing the cheaper policy they sometimes exposed themselves to a nc\\' pre-existing condition 

exclusion period, despite the fact that they had at least 18 months of continuous coverage. Many 

people may not even have understood that they ·were making this tradeoff. 

A different kind of issue facing people leaving employer group coverage or Medicaid ·who wanted to maintain 

continuous coverage were the limits on benefits in many non-group policies. One of the .significant changes in 

non-group coverage under the ACA \vas the establishment of a fair1y comprehensive essential health benetlt 

package. In particular) pre-ACA non-group policies had significant limits on mental health benefits (mental 

health parity requirements, which applied to employer-group plans for employers \\ith more than 50 

employees, did not appl)- to non-group coverage), and, unless required by states, typically excluded coverage 

for many policies, and also did not con~r costs associated 'Vdth pregnancy or routine delivet)l. Some state highrisk pools, 1vhich were the only options for HIPAA-eligiblc individuals \vith health problems, had tight limits on 

coYeragc for prescriptions.:1, 1 

Prior to the ACA, non-group coverage \Vas decidedly less comprehensive than employer group coverage. 

Suhslantial shares of non-group enrollees did not have coverage for roulinc 

' , and it \\'as not uncommon for policies to hm·e relatively lmY annual benefit limits for 

prescription drugs or menta1 hea1th services. Even though insurers were able to medically screen app1icants in 

most instances, they sti11 imposed significant limits on benefits 'Where there is a greater chance of purchasers 

selecting coverage based on the need for particular services. Unlike the group market, where employers select 

leYds ofhendlts for all their employees, insurers arc wary of non-group purchasers ,,vho are willing to pay the 

n_•lativcly high cost for more comprehensh·c benefits. These bcncHt limits, along 1\ith the rating issues 

discussed in the next section, meant that the non-group market was not a good long-term cm·erage option for 

many people, including those \Vho wanted to start a family or who dcYe1opcd mental health problems. 

Another aspect of maintaining continuous coverage is being able to keep the co,-cragc you obtain on a 

reasonable basis. Prior to the ACA, non-group c.ovcragc generally was guaranteed renewable, \vhich meant that 

enrollees had the right to renew their coYcrage (vdth certain limited exceptions) by pa~ring their premiums. 

Insurers also generally \'\'ere not permitted to vary renc\Yal premiums based on an enrollee's indhidual health 

or claims. Insurers, hO\.,:cver, through selecth·cly closing policies or blocks of business to nev.· enrollees and 
139 

through certain rating approaches, were able to access higher premiums than enrollees who developed health 

problems after they enrolled, As discussed above, people with non-group coverage generally were not able to 

switch carriers or mm:e to a new policyr (in an open block of business) unless they could pass medical screening. 

As a result, they could find themselves essentially locked into policies with escalating premiums that could be 

difficult to afford, 

This can happen several \vays, The medical underwriting process allmvs insurers to protect themsch·es from 

ad\·erse selection (see The Issue of Adwrsc Selection box below), but it also produces complicated dynamics 

that can segment risk by health even after people in good health have been accepted into coverage, Medically 

screening new applicants) and declining applicants who arc unhealthy, produces a group of healthy new 

enrollees \vhose expected clairns costs oYer the short term could be mcaningfu11y below the costs for an average 

mix of people, Prior to the ACA, the expected low co,ts for these enrollees would be reinforced because the 

group also would generally be subject to a pre-existing condition exclusion pro\ision for the first year that 

eliminated co\·erage for claims for pre-existing health conditions not uncovered during the medical 

unden\Titing process. Over time, howe,·er, some of the group of enrollees \vould develop health problems, and 

the average costs of the group would grow each year; by year three or four after their enrollment the expected 

costs for the group would roughly equal the expected costs for an average mix of people. This is sometimes 

referred to as "undcnvriting \Vcaring off.') An insurer, at any given time, 'Will have a group of recently 

undcnvritt.en enrollees, with relatively 1mv expected costs, and other groups enrolled for varying lengths of 

timL\ vdth the tendcnLJl for those enrolled longer to ha\·e worse m·crage health. If an insurer dosed these older 

products to new cnrol1ees and allowed healthy enrollees in them to sign up for new, medically-underwritten 

produds- premiums for existing enrollees \'\·ou1d escalate over time, and those \vith medical conditions would 

essentially be trapped into paying those higher premiums because they could not swilch to other coverage. 
140 

The Issue of Adverse Selection 

Prior to the AC1\ insurers used medical underwriting in the non-group market to protect 

themselves and their policyholders from ad-.:crse selection. Unlike coverage offered to large 

employer groups, where insurers anticipate getting a mix of better and worse health risks ·when 

they accept a new group, non-group coverage is sold person-by-person. While virtually 

everyone wants to have health insuranccj people 1Nith high or ongoing health needs are more 

likely to sign up at any given price, a tendency referred to as adverse selection. Adverse 

selection occurs not only in the decision of\vhether or not to purchase coYerage, but also in 

decisions about how much coverage to get (people in poorer health tend to ·want more 

comprehensh·e benefits and less cost sharing) and in decisions about whether or not to keep 

coverage (people in better health are more likely to drop coverage or move to less coverage in 

the face of premium inct·eascs). The relatively high cost of health insurance makes adverse 

selection more acute (premiums can be a large portion of a monthly budget1 so there is a 

tendency for healthier people to forgo coverage if they do not think they will need it). This is 

particularly an issue in the non-group market where enrollees pay the full premiums. 

There arc several 'Ways insurers can reflect these differences in their rating and enrollment practiec rates, and 

this a place \vhere problems can occur for people who develop health problems after enrol1ment One option is 

for insurers to combine the new and cxisling enrollees in blocks of business that arc being actively marketed 

(called "open" here), so that low expected costs of new enrollees can help offset the higher costs of enrollees 

who have been covered longer. As long as there is a reasonable stream of people entering and lcm,ing the 

block, premiums can remain reasonably spread over the entire group. In.surers also can pool the expected total 

claims of each durational group of enrollees over their average expected length of enrollment. This requires 

charging new and early-duration enrollees for more than their expected cosls during their early years, setting 

aside a portion of the premium (i.e., creating a reserve) that can be used to offset the higher costs for those who 

kc<'P their policies for longer periods. 

Some insurers, hmveyer, may not \vant to pool the lov .. ·cr costs of nev.: entrants vdth the higher costs of longerterm enrollees. For example, insurers ''ith larger and older hlocks ofhusiness may· find that the;" cannot 

compete \Yell for new enrollees against insurers without as much existing business, because those insurers 

wonld have a higher proportion of ne·w healthy enrollees and could have lnwcr rates for new business, 

partieularly if the nc'v carrier is not rcserdng for the effects of underwriting wearing oti An insurer also might 

dcn::-1op a new group of policies hascd on a new approach (for example, a policy where it shares risk with an 

Accountable Cure Organization (ACO) network) where it docs not want to pool experience ;dth its existing 

policies in determining rates. An insurer also may \nmt to increase its market share by being more competitive 

for new enrollees, which it might do by setting the premiums for new enrollees closer to their expected first 

year costs. 

Insurers that want to rednce the pooling of nc\vcr and longer-term enrollees h:wc several ways to do so. One is 

to use the duration of enrollment as an explicit rating factor. Insurers using durational rating can set initial 

rates relatiYcly low for new enrollees, but will need to raise them relatively rapidly each year (on top of 
141 

increases for rising health costs generally) for these enrollees to rct1ect their higher expected claims at later 

durations. Another option is for an insurer to stop selling policies in blocks of business to ne\.Y enrollees, 

directing them to new policies in a new block of business vvithout any existing enrollees. Because premiums 

are set hnsed on the expected costs for specific policies or blocks of business, premiums for the new polieies do 

not need to reflect the costs of the existing enrollees in the dosed block, and future premiums for the closed 

block will rcOcct only relatively higher average costs of the existing enrollees. 

Both of these practices end up harming enrollees who deYelop health problems. Enrollees facing the relatively 

higher premiums under durational rating or in a closed block will look for lower cost alternatives. Healthier 

enrollees \\'ho can pass medica] screening \'\'ill move to lower cost policies (essentially starting over as new 

entrants), while people with health problems who cannot mm·e \\ill have to stay and pay the higher premiums 

heing charged. The new round of higher premiums will cause more of the healthier enrollees to leave, resulting 

in higher expected costs for those remaining and higher premiums, a cycle that ·will continue until most 

enrollees have left the block 

There was a substantial number of people \\ithout health insurance prior to the ACA, many of whom had heen 

without coYcragc for long periods of time." The primary reason people \'\'ent vvithout CO\'erage was its cost, 

although in some cases people were unable to qualify for coverage due to their health.'' The two factors 

sometimes worked together; many states had high-risk pools or similar options for people \Vith health 

problems who were denied non-group cowrage, but the high premiums and other limitations could make these 

options difficult for people to afford and the pools had fairly low enrollment 

High-risk pools are being discussed as an important part of ACA replacement proposals. About 227,000 

people were enrolled in 35 state high-risk pools at the end of 2011, including ll!PAA-cligible inclhidnals, which 

·was equal to just over 2% of non-group market enrollment nationa1ly. 7 A fe\'\. states ·with relntively lower 

premiums, such as Mar~yh:md, 'Visconsin, Minnesota, and Oregon, covered some,vhat higher shares of their 

people. 8 Enrollment in state high-risk pools tapered off"-ith the opening of the federal Pre-Existing Condition 

Insurance Pool, created and funded under the ACA, which served many oft he people who preYiously would 

haYe been covered in the state pools. 

State high-risk pools vaded in terms of benefits, premiums, and funding. 9 As noted above, in many states the 

high-risk pool sen-eel as the state-designated mechanism to cowr HIPPA-eligihle individuals. There were a few 

common themes: premiums generally \vere calculated as a percentage of estimated standard premiums in the 

non-group market (typically 125% to 200% of standard premiums); coverage for pre-existing conditions was 

limited for period after enrollment; pools generally offered several benetit options, most states had lifetime 

benet1t limits and a few had annual limits; premiums did not cover the cost ofbenctits, with the difference 

subsidized by state and federal payments (a few states had dedicated revenue sources) or assessments on 

insurers. 

A combination of factors limited the attracti,·eness of pre-ACA state high-risk pools. The relatively high 

premiums made cm·crage difficult to afford for people with lmv or modest incomes) and only a couple of states 

had subsidies for lower-income enrollees. In addition) poo1s generally had pre-existing condition exclusion 
142 

periods for enrollees \\'ho were not HIPAi\-cligible indh·iduals, \Vhich means that people \\-'ere required to pay 

for coverage that would not cover the illnesses that had made them eligible lor the high-risk pool in the flrst 

plaec for six months to a year or more (depending on the state). A few stnte pools also had annual limits on 

some or all henetlts, and the majority had lifetime benefit limits. Given the populations served, these limits 

could affect those with high cost chronic conditions, such as the ongoing need for expensive prescriptions. 

A few states addressed access for people with health problems by requiring all insurers (or in some cases, one 

or more designated insurers) to accept applicants even if they were in poor health. Premiums in these states 

tended to he much higher than premiums in states that permitted medical underwriting, which limited 

participation in non-group coverage significantly and made coverage even more difficu1t to afford for people 

with modest incomes. 

Discussion 

There were many aspects of the pre-ACA non-group market that made it diftlcult for people with health 

problems to get and keep non-group coverage, Any proposal for replacing the ACA will have to determine 

which, if any, of these prcYious insurance practices will once again be permitted. Medical screening vvas the 

most obvious barrier, combined with high premium costs for people who were HIPAA-eligible, Even people 

who purchased coverage -when they were healthy sometimes v:cre unable to keep it because certain rating 

npproaches could cause their premiums to spiral. Returning to a 1ess structured, less regulated non-group 

market raises questions about how people with health problems \\ill be treated in terms of access to and cost of 

coYeragc. Health insurance underwriting and rating is complex, and re\'icwing how the pre-ACA market 

operated prmides information about the types of issues that people with health problems may confront if the 

ACA market structure is replaced. 
143 

Endnotes 

1 Proposals to Replace the Affordable Care Act. T!u: Henry ,J. Kaiser Family Foundation, 2017. 

1 American Academy of Actuaries. 

of State Comprehensive Health Insurantl' Plans. Comprehmsiw I-kalth Insurance for High-Risk Individuals: A 

State-lJV-citatc Anal-vsi8, 20l0/201L 

1 Annual maximum pharmacy benefits by stRte: AL: Sw,ooo; MS: Stoo,ooo; NH: $10,000: NC: SlOo.ooo applies to inje-ctable drugs. 

s Congressional Budget Offiee. (2003). How Many People Lack Health Insurance and For Hmv Long? 

Kaiser Health Tracking Poll- August 2011. The Henry J. Kaiser Fatnily Fottndation. 

B Ibid. 

unnni-ell<""'" Health Insurance Plans. Comprehensive Health Insurance for High-Risk Individuals: A 

M-emhership-2011. 

•l !'lational Association of State Comprehcn1:>ive HC'a1th Insurance Plans. Comprehcmdve Health Insurance for High-Risk Individuals: A 

State-by-State An;llysis, 2011/2012. 

I Phorw 65'H'l5.-J·94U\J 

1 Pllonc20:<:<H7·5:1.70 

Filling 1he rwedj(n• trusted biformation on rwtimutlll<·nlth issu('s till' Kaiset Fmllli!l Foundation L> 11 nonprofit OIY!tmization based in .\ft;;n/o Park, C'alijiwnia 
144 

Higher cost sharing in priYate insurance has been credited with helping to s1ow the growth of health care 

costs in recent years. Plan.s ·with higher deductibles and other point of service costs proYidc health plan 

enrollees with incentives to make more cost conscious health care choices. For families Y\'ith limited 

resources, hmren~r. hig_h cost !-iharing can be a potential barrier to care and may lead these families to 

significant tlnancial difficulties. Many current policic;;; expose individual enrollees to thousands of dollars 

in cost sharing expenses and family expenses can easily top ten thousand dollars when someone becomes 

seriously ill. 

\Vhile concerns about cost sharing arc not new, the recent co\'crage expansions under the ACA put a new 

focus on what it means for coverage to be affordable. The goal of the law was to coYer more of the 

uninsured, many of whom haYC limited means. The hn\· requires most people to have health insurance, if 

they can afford to pay the premium, or to pay a penalty. The issue for some families, hmvcvcr, is that the 

policies \Vith affordable premiums may h;:~yc cost sharing requirements that "\Yould be difficult for them to 

meet vvhcn the}' access sen ices. Many of the policies in tbe state and federal marketplaces have 

significant cost .sharing, as do many polities pr<)\'ided to people at work l' The ACA pro\'ides cost~ 

sharing assistance to some, primarily to those \\ith incomes below 200 percent of poverty purchasing 

through a state or the federal marketplace (sec sidebar), Others potentially face mucb higher ont-ofpockcl Pxpenses 

\!Vc u,c.;e information from the 2013 Survey of Consumer Finances to look at how household resources 

match up against potential cost-sharing requirements. \Vc assume that households pay premiums out of 

current income, but tbat they may need to usc saYings or other assets if they become seriously il1 in order 

to meet the deductible or the out-of-pocket limit under lheir health insurance policies, \Vc show that 

many households, in particular those vdth lower incomes or where someone lacks insurance, have lmv 

le-.,.els of resource..s that would make it diftkult for them to meet health insurance cost sharing demands. 

of Consumer Finances 

The Survey of Consumer Finances (SCF) is a triennial, nationally rcprese:ntath·e household survey 

conducted by the Federal Resen:e Board. The 2013 SCF prm·ides a snapshot of household finances, 

including de~ailed information on households' debts, assets, income and other characteristics, including 

the types of health insurance present in the household.t 
145 

The SCF collects information for households, ·which in some cases \\ill be different than the group of 

people considered to be a family in other surveys. Most of the information from the SCF, including the 

financial information, is designed to describe the "primary economic unit'' (PEU), \vhich is the 

economically dominant single person or couple (living together as spouses or partners) in a household 

and all of the other people liYing in the household \\·ho nrc financially dependent on that individual or 

couple. For this ana1ysis, \Ve limit the households to be more rcprescntath·e of those who arc likely to 

rely on priYatc hcallh insurance by excluding (1) households where a dominant economic individual or 

his or her spouse/partner if either arc over age 64 and (2) households ·with incomes under povcrly. 

Results arc shown for all these households as well as for households ,-..·here someone had private 

insurance and for households where someone \vas uninsured. Although we are looking at cost sharing 

The Affordable Care At:t, Accessibility and Coverage Options 
146 

for people with insur::mce, \Ve included households with people who were uninsured in 2013 because they 

are prime targets for cover11ge expansion under the ACA, either through expanded coverage at vvork or 

through ne\>v coYcragc options. For each groups results are further broken out by household size (one 

person or households of more than one person) and by poverty categories. 

Using the information from the survey on household assets and debts, \'>'e den~loped two measures of 

resources that households may hayc to meet health insurance cost sharing. The measures used here 

could he considered conserYatiYe because they assume that a household can bring a large share of its 

,..;aycd resources to bear to pay one-year's cost sharing in a health insurance policy. 2 

• The first (4_1.tcgory is liquid financial assets, which are tho.sc most easily converted to cash, The category"' 

includes checking and saving accounts, money market accounts, certificates of deposit, savings bonds} 

non-retirement mutual funds, stocks and bonds, hut excludes the value of dedicated retirement 

accounts (such as 401k accounts) and the cash value of life insurance. 

• The second category is net financial assets, which is a broader measure of the household's total 

resources. This category includes total all f1nancial assets, including assets dedicated to retirement, 

reduced hy the household's unsecured debts. For this measure, the value of assets is reduced by creditcard debt and other unsecured loans, but debts secured by real property (such as mortgage debt) and 

ioaus for vehicles and education arc not counted against assets. This category· measures hmv much 

money a household has to pay medical expenses after meeting debt obligations. 

We look at the median amount (one-half of households have more and one-half have less) for each 

measure to paint a basic picture of the financial resources availab1e to households. Median asset levels, 

rather than averages, arc used because assets, like income, arc uneYen1y distributed and the high asset 

levels of wealthier households skew the distribution. We also calculate the percentages of households 

with the resources to meet speeiiled dcductibles and out-of-pocket cost sharing limits. \Vc assume that a 

household meets medical cost sharing when they spend all of their net-financial assets or liquid financial 

assets; this assumption would leave households with no additional assets for savings or other 

emergencies and docs not account f(lt the complex financial picture many households face. 

Health Insurance Cost 

PriYate health insurance policies have several forms of cost sharing, including general deductihles that 

must he met before most services are covered, and specit1cd dollar amounts (eopayments) or percentage 

contributions (coinsurance) that plan enrollees must pay when they n~ceiYe covered services. Most plans 

arc required to ha,·e limits on annual enrollee cost sharing; the maximum allowed limits for 2015 arc 

S6,6oo for single coverage and $13,200 for family cu\·eragc. 

Cost sharing requirements Yary widely from policy to policy. Looking at plans offered by employers, 

about So% ofvwrkers vdlh employer plans have a general annual deductible and, among those, average 

dcductihles for single coverage an~ almost $1)800 in smaller firms (3 to 199 v•:orkers) and about S970 in 

large firms:1. Among all vYorkers enrolled in a plan with a deductible in 2014, the average is $11217. 
147 

There is considerable variation in deduetibles that covered \vorkers face. Around these averages, 25% of 

\vorkers enrolled in a plan with a deductible at smaller tirms have a single deductible of S894 or less 

\Yhile 25% have a single deductible of $2,500 or more. In larger firms~ 25% of\vorkcrs \Vho arc enrolled 

in a plan with a deductible haYc a single deductible of Ssoo or less vvhilc 25% haYe a single deductible of 

$1,265 or more. For all cm·en~d workers, 25% are in a plan vdth a deductible of sao or less and 75% arc 

in a plan \\ith a deductible of $1,500 or more. Out-of-pocket limits for workers in single coverage in 

plans offered by employers average about $~~,500 in small t1rms and about S3,ooo in larger firms; 25% of 

·workers in smaller tlrms have an out-of-pocket limit of $5,000 or more for single coverage; the 

comparable amount for larger firms is $4,000. Deducliblcs and out-of-pocket limits in family plans arc 

usually about twice the single amounts, hut some plans may have a different .structure, such as a per 

enrollee limit which make them harder to characterize. A more complete picture of dcductiblcs, out-ol~ 

pocket limits arc other cost sbaring in employer plans is anilahle [: '' , ]. 

Cost sharing also varies significantly in nongroup plans both across and within meta1 tiers. For example, 

average single dcductiblcs for plans \\ith a combined deductible for medical and prescription drugs 

offered in the federal marketplace range from S69 for platinum plans to $5,328 in bronze plans'. As "ith 

employer plans, there is signitkant variation around the averages, for example 13% of silver plans on the 

feclcml marketplaces hav'e a combined deductible ofless than $1,500 dollars and seven percent have a 

deductible of $4,000 or more. Out-of-pocket limits also have a large range: S1,975 for platinum plans 

and S6,a59 for bronze p1ans:'i. For more information on cost sharing in the federal exchanges see 

Many lower income purchasers in the federal and slate marketplaces also are eligible for subsidies that 

reduce the cost sharing in their policies [ ]. 

For this analysis, we compare household resources against two deductible levels: $1,200 single/$2>400 

family (referred to as the lower deductible amounts) and $2,500 single/Ss,ooo family (referred to as the 

higher deductible amounts); and against tvw out-of-pocket limits: S3jooo single/ $6 1 000 family (referred 

to as the lower out-of-pocket limits) and S6,ooo single/$12,000 family (referred to as the higher out-ofpocket limits). INc chose these levels to represent the mid to high range of cost sharing. \Vhile there are 

plans with less cost sharing and plans with more cost sharing, these leYels should pro,,ide a reasonably 

good measure of the ability of families to meet of the typical cost sharing requirements available in the 

market. Households with one member arc measure against the single amounts and households with 

more than one mcmher arc measured against the family amounts. 

Resources 

Among non-elderly, non-poor households, the median amount ofliquid Jlnancial assets is $4,560 and the 

median amount of net financial assets is $2,564. Liquil1 financial and net financial assets are lower 

among single houscho1ds than among households of two or more members, and are much lov.:cr in 

households with incomes below 400% of poverty than above (Figure 1). Households with incomes 

between 100% and 250% of poverty have quite low levels: the median for Uquid finaneia1 assets is just 

over $700 and median for netllnancial assets is just oYer $300. The poverty categories arc dellned 

based upon the poverty level established by the Department of Health and Human Service for 2013. In 

2015, a family of i(mr earning $24,250 would be 100% of poverty and households at $60,625 and 

\-,\,' 
148 

S97,000 would he 250% and 400% of poverty, n.:~spccth·ely. For a single individual, the poverty level in 

2015 is $11,770, indh·iduals earning S29,425 and $47,080 would be at 250% and 400% of poverty 

respecti\·cly6 , 

Figure 1 

$20,000 

$18,000 

$16000 

$14,000 

$12,000 

$10_000 

$8,000 

$6,000 

$-MOO 

$2,000 

so 

Median Liquid and Net Financial Assets 

Among All Non-Elderly, Non-Poor Households 

$18.343 

ONNfinanciali\>sets $1G,394 

$4,560 

All Nan,E!derly, 

Non-Poor 

Households 

$5,52.7 

OnePerson Multi-Person 

Household Hous('"hold 

$3,426 

2,089 

1DO% to 250% 250% to 400% Over 400% FPL 

FPL 

Asset leYcls vary ·when eYer;:one in thC' household is covered by private insurance and ·when someone in 

the household is \\it-hout insurance. In households ·where the only form of coverage was priYate health 

insurance, median liquid financial assets arc $9,751 and median financial assets arc $7,922 (Figure 2). 

The distribution is similar to that of all households: median asset levels arc higher among households 

with one member than nmong those with one-member and households with incomes under 400% of 

poverty han:- much lower assets than those with higher incomes. In contrast, households where at least 

one member v•;as uninsured hnYc lower asset levels: the median 1cvcl of liquid financial assets is $1,000 

and the median level of net financial assets is $315. Households with lm'V·er incomes have particularly 

low asset levels (Figure 3). 
149 

Figure 2 

$25,000 

$20,000 

$15,000 

$10,000 

$5,000 

$0 

Median liquid and Net Financial Assets 

Among All Non-Elderly, Non-Poor Households With Only Private Coverage 

DNetfinanclaiAssets 

$9,751 

All Non-Eldt>r!y, 

Non-Poor 

Households 

With Only 

Pnvate 

Coverage 

$11,378 

$5,158 

One Person Multi Person 100% to 250% 250% to 400% Over -400% FPL 

Household Household FPL FPL 
150 

Figure3 

$18,000 

$16,000 

$14,000 

$12,000 

$10,000 

$8,000 

$6,000 

$2,000 

$0 

Median liquid and Net Financial Assets 

Among All Non-Elderly, Non-Poor Households With Someone Without Insurance 

11LiquidAssets 

DNet Financial Assets 

$761 $1,103 

.. $3~7 IIIJ.3~' $Sl2 

~ 

$198 

$1,594 

$5,333 

AI! Non·£1der!y, 

Non·Poor 

Households 

W1ti1S-omeone 

Without 

Insurance 

OnePerson Multi·Person 100% to 250% 250% to 400% Over 400% FPL 

Household Household fPL FPL 

The figures a bow show that many households may have difficulty meeting health insurance cost-sharing 

requirements with existing resources. Median assets leYcls for households vvith incomes below 400% of 

poYcrty, and particularly those between too and 250% of poverty, arc low when compared to the higher 

deductible amounts and out-ot~pockct limits in health insurance policies. Families where someone lacked 

health insurance, a primary target for coverage expansion under the ACA, have relatively low assets 

across the board. 

Assets to Meet 

[n this section we look at the percent of households that have sufficient assets to meet the specified 

deductible amounts und out-of-pocket limits. The discussion here focuses on liquid financial assets 

because for most households they are the higher measure. Similar figures using the net financial asset 

measure arc shown in the appendix. In general, many households, and particularly those with lower 

incomes or with someone who was uninsured, do not have sufficient liquid financial assets to cover the 

deductibles amounts. Lookin~ at the out-of~ pocket limits, most households do not have suft1cicnt liquid 

financial assets to meet either the lower or the higher limit. The percentage of households who have both 

low incomes and enough assets to meet either of the out-of-pocket limits is very 1ow. 
151 

Overall, three in fiyc (63%) households have enough liquid financial assets lo meet the lower deductible 

amounts while one-half (51%) can meet the higher dl'ductiblc amounts (Figure 4). These percentages arc 

similar for single-member and multi-member households, but vary significantly by family income. Only 

32% of households \\ith incomes between too% and 250% of poverty can meet the lower deductible 

amounts, while one-in-fh·e can meet the higher deductible amounts. In contrast, 88% of households 

with incomes m·er 400% of poverty' can meet the lower deductible amounts and three-in-four (79%) can 

meet the higher amounts. 

Figure 4 

Percent of Households with Liquid Financial Assets Greater than 

Specified Deductibles 

100% 

90% 

80% 

7C% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Among All Non-Elderly, Non-Poor Households 

UMid RangeDeductibl<'!:$1,200/$2,400 

0 Higher Range Dl:'ductlble: $2,500/$5,000 

All Non~Eiderly, 

Non-Poor 

Households 

62% 63% 

One Person Multi-Person 

Hou~ehold Household 

88% 

62% 

100% to 250% 250% to 400% Over 400% FPL 

f-PL fPL 

Deductiblcs are easier to meet for households with only private coverage, where 76% have sufficient 

liquid financial assets to meet the lower deductible amounts and 65% can meet the higher amounts 

(Figures). Again there is signiflC'ant Yariation across income. Among households vvith only private 

coverage and incomes between too% and 250% ofpowrty, two in five (45%) have enough liquid flnancial 

assets to meet the lo-wer deductible amounts and 32% can meet the higher amounts; in contrast, for 

households ¥vith incomes a hove 400% of poverty, 90% have enough liquid financial assets to meet the 

lower deductible amounts and 81% can meet the higher amounts. 
152 

Figure 5 

Percent of Households with liquid Financial Assets Greater than 

Specified Deductibles 

100% 

90% 

SO% 

70% 

60% 

SO% 

40% 

30% 

20% 

10% 

0% 

Among All Non~ Elderly, Non~ Poor Households with Only Private Insurance 

&Mid Range Oeductlble:$1,200/$2,400 

D H1ghe1' Raf1gf' Deductiblr: $2,500/$5,000 

76% 

All Non-ElderlY, 

Non-Poor 

Households 

with Only 

Private 

lnsuran{:e 

76% 

OnePt>rson Multi·Person 

Household Household 

90% 

65% 

100% to 250% 250% to 400% Over400% FPL 

FPL FPL 

Households with at least one person who was uninsured have a particularly hard time meeting the 

deductible amounts. Only about one-in-three (35%) of these households have enough liquid financial 

assets to meet the lower deductible amounts and only 22% can meet the higher amounts. Among 

households with incomes beh'l'een 100% and 250% of poYerty, about a quarter (24%) have enough 1iquid 

financial assets to meet the lower deductible amounts aud only 13% can meet the higher amounts. 

Among households with incomes over 400% of poverty, 74% have enough liquid financial assets to meet 

the lower deductible amounts while just about one-half (57%) can meet the higher deductible amounts. 
153 

Figure 6 

Percent of Households with liquid Financial Assets Greater than 

Specified Deductibles 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

O'Yo 

Among All Non-elderly, Non-Poor Households with Someone without Insurance 

!!II Mid Range Deductible: $1,200/$2,400 

0 Higher Rang~: Deductible. $2,500/$5.000 

35% 

Ali Non·elder!y, 

Non Poor 

Households 

with Someone 

without 

Insurance 

30% 

34% 

1% 

OnePerson Multi-Person 

Household Household 

74% 

43% 

24% 

100% to 250% 250% to 400% Ove1 400% FPL 

fPL FPL 

Out-of-pocket limits arc higher than dcductihles and meeting them is more difficult for many families. 

Forty-eight percent of households have enough liquid finaneial assets to meet the lower out-of-pocket 

limits and 37% can meet the higher limits (Figure 7). The percentages arc 4uite low for households ;;ith 

incomes between 100% ancl250% of poverty, with 18% having enough liquid financial assets to meet the 

lower out-of-pocket limits and 11% being able to meet the higher limits. Among households 1\ith incomes 

over 400% of pm"erty) 75% hm·e enough liquid financial assets to meet the lov·lCr out-of-pocket limits 

while just 62% can meet the higher limits. 
154 

Figure 7 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

"30% 

20% 

10% 

0% 

Percent of Households with Liquid Financial Assets Greater than 

Specified Out-Of-Pocket limits 

Among All Non-Elderly, Non-Poor Households 

II Mid Range ODP Limit: $3,000/$6,000 

0 High Range OOP Limit $6.000/$12,000 

48% 

7% 

All Non-Elderly, 

Non-Poor 

Househo1ds 

46% 48% 

One Person Multi-Person 

Household Household 

75% 

43% 

18% 

100% to 250% 250% to 400% Over 400% FPL 

fPL fPL 

Things arc somewhat better for households with only private health insurance, where 61% of households 

have enough liquid financial assets to meet the lower out-of-pocket limit and 49% can meet the higher 

limit (Figure 8). Still, only 29% of these households with incomes between 100% and 250% of poverty 

can meet the lower out-of~pockct limit and only 18% can meet the higher amount. The percentages for 

those over 400% of poverty are similar to those for households overall. 
155 

Percent of Households with liquid Financial Assets Greater than 

Specified Out-Of-Pocket limits 

100% 

90% 

80% 

10% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Among All Nan-Elderly, Non-Poor Households with only Private Insurance 

IIi Mid Range OOP limit: $3,000/$Ei,OQO 

0 H1gh Range OOP Lrmit: $6,000/$12,000 

61% 

All Non-Elderly, 

Non-Poor 

Households 

with only 

Private 

ln~urance 

GO% 62% 

OnePerson Multi-Person 

Household Household 

Surv<:y of (orlsumer ~rn;mce (SU) data 

78% 

47% 

29% 

100% to 250% 250% to 400% Over 400% FPt 

FPL FPL 

A large share of households in whieh someone \Vas uninsured lacks enough resources to meet the out~ofpoeket limits (Figure 9). Only 20% of these households have enough liquid financial assets to meet the 

lower out-of-poeket limit and only· 12% can meet the higher limit. Even among households with incomes 

above 400% of pm:erty, only so% have liquid finnncial assets that meet the lower out-of-pocket limit and 

35% can meet Lhc higher limit. 
156 

Figure 9 

Percent of Households with liquid Financial Assets Greater than 

Specified Out-Of-Pocket limits 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Among All Nonwf/derly, Non~Poor Households with Someone without Insurance 

II M1d Range OOP Limit: $3,000/$6,000 

0 H1gh R,lnf!;P OOP lirmt: $6,000/$12,000 

20% 

12% 

All Non-Elde.rlv, 

Non-Poor 

Households 

with Someone 

Without 

imwance 

23% 19% 

One Person Multi·PN:.on 

Hotlsehold Household 

Financial 

SO% 

24% 

11% 

100% to 250% 250% to .100% Over 400% FPL 

f-PL FPL 

Faced with medical bills, people may tum to friends and relath·es to help them meet expenses. The SCF 

asks respondents whether in an emergency they could obtain $3,000 of financial assistance from friends 

or relatives?. Among non-elderly, non-poor households, 6q% respond affirmatively to this question. 

Households \'Y·ith higher incomes arc more likely to say that they can obtain S3,ooo from family or 

friends in an emergency: 82% for households with incomes over 400% of poverty compared with 51% for 

households wilh incomes betv~·een 100% and 250% of poverty. Similarly/ just over one-half (55%) of 

households that have liquid ilnancial assets below the lower out-of-pocket limits ($3,000 single/S6,ooo 

family) say that they could do so. 
157 

Figure 10 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Percent of Households that Could Obtain $3,000 from 

Relatives or Friends in an Emergency 

59% 

All Non·Eiderly, 

Non, Poor 

Hou~eholds 

Among All Non-Elderly, Non-Poor Households 

82% 

70% 

51% 

100% to 250% 250% to 400% Over 400% FPL 

fPL FPL 

55% 

47% 

LiquidfinanciaiLiquidfinancial 

Assets le5sthan Assetslesthan 

Mid RangeODP 

Limit 

Many non-elderly, non-poor households lack the resources to meet the deductihles and out-of-pocket 

limits that they mny encounter in the priYate insurance market Many households have insufficient 

liquid financial assets to meet the specified cost sharing measure-s, and the situation for net financial 

assets is no better (Sec Attachment 1). Not surprisingly) the dift1cultics are greater in households with 

luwer incomes and with someone ·who lacked health insurance. These groups are targets for expanded 

coverage under the ACA and, as they transition inlo coverage, it wil1 be important to assess \Yhethcr the 

policies they can get protect them llnancially if they become seriously ilL 

While the ACA prO\ ides for reduced cost sharing for some people with incomes below 250% of poverty 

that purchase coverage in a ,state or the federal marketplace, there is no assistance \\rlth cost sharing for 

those \\·ith higher incomes or for those obtaining coverage through a job. As is evident from the Figures 

and the appendix, substantial shares of households with incomes between 250% and 400% of poverty 

would be unable to meet even the lower out-of-pocketlimits with their current resources, and meaningful 

shares of households \dth incomes over 400% ofpov~;TtywoulJ have problems as well. For these peoplE\ 

serious illness may require that they borrow funds or become indebted to their health care prO\iders. 
158 

Roughly half of those with liquid financial assets below the cost sharing measures say they could obtain 

S3,000 in an emergency from friends or relatives, 

The higher cost sharing in prh·atc insurance has been credited vvith helping to slow the rate of health care 

cost grm\th. Asking enrollees to pay a portion of costs at the point of service may encourage them to 

make consumer health care more wisely and to weigh the costs and benefits of alternative treatment 

options and providers. At the same time, cost sharing that seriously stresses family budgets may act as 

an impediment to seeking needed care, frustrating a primary' reason people seck to be insured in the ilrst 

place. For these families) having coverage I·Wmld certainly reduce the ultimate financial consequences of 

serious illness, which is important both for the family and for providers delivering care, but this is a 

bargain that may look better in hindsight, after an illness has occurred, than it does when the family is 

trying to decide ·whether or not to pay for such a plan in the first place. Particularly as vre extend private 

coYerage to more families with lower incomes and limited resources, we need to be cognizant of their 

financial capacity to usc the cm·eragc that they are being asked to buy. 

The 2013 Survey of Consumer Finances (SCF) is a tliennial, nationally representative household sun·ey 

conducted by the Federal Reserve Board. The sun•cy has a dual frame, with respondents selected both 

from a national area probability design and a sample of households with high income tax returns. 8 The 

2013 SCF is the most current SUI\'CY aYailablc and is based on 6,015 households. C) For this analysis, \Ve 

excluded households in whkh (1) a financially dominant individual or his or her spouse was over age 64 

or (household income was kss than 100% of povert;l These limitations reduce the number of 

households to 4,080. 

The SCF defines a family as a "primmy economic unit (PEU)," or all of the individuals living in a 

household 1vho are financially interdependent with the dominant indi\'idua1 or couple. 10 Income and 

assets are measured for the FEU in the household. The definitions of the different types of assets and 

debts arc available I ] and[: , d. The analysis uses median rather than mean measures of assets to 

account for the ske>-ved distribution of hou::;:ehold ±lnanC'ial characteristics. 'Neights were applied to 

ensure medians 1vcre representative of the population. 

The SCF prO\ ides information about the tJ1)CS of insurance present in cacb household, and also about 

whether each member had coverage or not. Unlike financial charaetcristics, insurance questions are 

asked of all members of a household, including members that are not part of the PEU, which could be a 

relative who is financially independent or a financially independent nonrclative lhing in the household. 

This creates some potential ambiguity' when we look at households in which someone hns private 

coverage because it is possible that the only people with prh·ate coverage are not part of the FEU. To 

C'heck if this was biasing results> we also 1ookcU at households where ever:rone had private coverage and 

no other type of coverage and found that the quartiles for liquid and net financial assets were similar. 

Because we have information about \·'1-'hether or not each person in the household has some coverage or 

not 1 \\'C were better able to target the members of the PEU in identifying households \Vhere someone was 

uninsured. We selected only households where the financially dominant individual, his or her spouse or 
159 

partner, or his or her financially dependent children (regardless of the child's age) were uninsured. 

Households \·Yith only private insurance arc covered those in which all the members are covered by 

C'mployer coverage, private non-group coverage, Tri-carc and/or a union sponsored plan. 
160 

'non-group coverage< and/or a union sponsored Figures reported are percent of 

meeting family thresholds for households with more than one member and single-coverage threshold for 

~individual households 
161 

Endnotes: 

3 Kaiser Family Foundation. "Emp1oyf:'r Health lknef:its Survey" Sept 2015. 

4 Averages and distributions 

Mattbe1.\·. ''The Cost of Care with 

For more information see: Claxton, Gary; Cox, Cynthia and Rar, 

Kaiser Family Fo;mdation. February 11, 2015. 

lL 

6 U.S. Dcpartnwnt of Health & Human St>rvices. ":.:.015 P(nT'Jty Guidelines. ''http:/ jaspe.hhs.gov/povcrty/I5povcrty.cfm 

' Division of Research and Statistics Board of 

B. Kcnnickell, Traci L. Mach and Kevin H. Moore. ''Changes in U.S. Family Finances from 2004 to 

the Smve~· ofConsnnwr Finances." Federal R('servc Bulletin, vol. 95 (February 2009), pp. A53. 

Filling tlw fH'Ctljhr trusted inj(trmation on rwtimwl h!?Hith is1nws. the Kohwt Fomily Fmmdotwn lS u nonprofit org{mi.lafion ha$ed in Mrn.'o Park, C'ali{otnin 
162 

Premiums Will Change for Who Now Have 

Insurance 

Gary Claxton !http:llwww.kff.org/person/gary-claxton/), Larry Levitt 

lhttp://www.kff.org/person/larry-levittll (https:; itwitter.comllmTy _levitt), Karen Pollitz 

lhttp://www.kff.org/personlkaren·pollitz/l, Anthony Damico (http://www.kff.orglpersonlanthony· 

damico/1 

The federal government recently released draft regulations that address the benefits. 

market rules. and rating practices for nongroup coverage 

(http:llwww.kff.org(healthreforml8399.cfml. Before reform, the nongroup market was widely 

acknowledged to be broken, with restricted access, limited benefits, high administrativ 

costs, and frequent and large premium increases subject to inadequate oversight. 

Recent requests for large premium hikes for nongroup coverage in some states, at a 

time when the group market is experiencing very low increases, have revived concern~ 

(http:l/www.nytimes.com/2013/0l/06/business/despite-new-health-law-some-see-sharp-rise-inpremiums.html?ref=reedabelsonl about current pricing practices and the effectiveness of 

regulatory oversight. The ACA seeks to address many of these issues, essentially 

remaking the nongroup market starting in 2014 by instituting new rules and a platforn 

for increased transparency and price competition. Newly available premium and costsharing subsidies will vastly expand the number of people who will get coverage there. 

With so many changes and new participants, there understandably is a great deal of 

speculation about what the products will look like and how premiums in 2014 will 

compare to premiums in the nongroup market. 

Overall, we expect that average, unsubsidized premiums for nongroup coverage will bt 

somewhat higher under reform than they are today (as does the Congressional Budget 

Office (http://www.cbo.gov/j)ublicationl41792l). This is because many people will be getting 

better insurance. The law requires that all nongroup insurance provide a package of 

essential benefits, which includes items like maternity care and mental health that 

often are not covered in nongroup policies now. And, while patient cost sharing will 

still be quite high (http://www.kff.org;1tealfhreforml8303.cfm), everyone's out-of-pocket costs 

will be capped, which is not always the case today. 
163 

In addition, guaranteed access to coverage for people with pre-existing conditions may 

very well increase average premiums as well, as people with higher health costs come 

into the insurance system. Hopefully this will be balanced by attracting reasonably 

healthy young, uninsured enrollees also, using the carrot of premium subsidies in 

exchanges and the stick of the individual mandate. 

The ACA also redistributes the premium burden among different enrollees by 

eliminating premium differences for gender and limiting variation premiums due to 

age to a maximum of three to one. Compared with existing practice, the new rules will 

lower premiums for older people and many women, while raising premiums for young 

people (particularly young men). This has led to concerns that these young people will 

suffer "rate shock," though as we discuss below, the potential for premium increases 

among young people is mitigated by the fact that many of them will be eligible for 

premium subsidies. People under age 30 also are able to enroll in a special catastrophic 

plan that will provide coverage roughly similar to bronze plans and with rates that ma• 

be much less affected by the age limitation. 

Each of the insurance market changes in the ACA that may raise or lower premiums 

overall or redistribute them among different groups of people is explained below. 

Access to coverage 

The ACA addresses access to coverage in two fundamental and related ways. First, 

insurers must accept all applicants, including those with pre-existing conditions, durinl 

open enrollment periods and charge sick people and healthy people the same premimr 

Second, the ACA provides significant premium and cost-sharing subsidies to assist lowand madera te-lncome people with the cost of coverage. 

These provisions will change the population covered by nongroup insurance when the• 

take effect in 2014. Health plans now offering nongroup coverage can exclude people 

with health problems, and the high turnover that market now experiences means that. 

significant portion of nongroup enrollment is made up of people who have recently 

passed health screening. Many nongroup policies also limit benefits for the first year 01 

so for any pre-existing health issues that enrollees may have. Other industry practices, 

such as durational rating and opening and closing policies to new enrollees, can also b< 

used to keep premiums for new enrollees low, but can mean significant increases for 

policyholders who keep their coverage for longer periods, particularly if they develop 

health problems. All of these techniques work together to produce low premiums for 

those who can pass underwriting and an overall risk pool of nongroup enrollees today 

that is healthier than the population who will be eligible in 2014. 
164 

Eliminating medical screening and other current industry practices, without other 

policy changes, would markedly increase premiums: this can be seen from the high 

premiums and low enrollment in the handful of states where insurers must accept all 

applicants today. The ACA, however, provides significant financial assistance that will 

help many of the current uninsured afford coverage. Cost is the primary reason people 

do not have health insurance, and new premiums subsidies (combined with costsharing assistance so that lower income families can use the coverage) will significant!: 

reduce financial barriers to coverage in 2014. New premium subsidies will attract largE 

numbers of new applicants to the nongroup market, many in good health. The 

individual responsibility provision will add an additional incentive for healthy people 

to purchase coverage, and restricting access to annual and special enrollment periods 

will reduce the likelihood that people will wait until they develop health problems 

before seeking coverage. In addition, to address transitions issues (i.e., the concern tha1 

the less healthy will be the first to enroll), the ACA provides for $20 billion (a 

meaningful amount given the size of the market) in transitional reinsurance to offset 

adverse selection in the first three years of the program. 

The ACA design is intended to open access to the now restrictive nongroup market, and 

with a combination of market rules, tax credits and tax penalties, to produce stable ris1 

sharing with risk pools that have a reasonable mix of people in good and poor health. I 

will probably not produce the "healthier-than-average" nongroup risk pools that seem 

to exist now in some states, which means that premiums for nongroup coverage under 

reform will need to be higher to reflect the cost of covering a more average mix of 

healthly and less healthy people. 

Essential health benefits 

A second set of factors affecting premium change is the benefit design and associated 

cost sharing. The ACA defines essential health benefits that must be offered in the 

nongroup market beginning in 2014. While there will be some variation from state to 

state, the benefits generally will be based on benefits provided now in the small group 

market, with a couple of small additions (e.g., habilitation and pediatric dental). This, 

combined with ACA requirements to cover preventive services and for mental health 

parity, will result in nongroup benefits under reform that will be more protective than 

those in many nongroup policies today. Nongroup policies offered in the market now 

often have no coverage for routine maternity care and impose limitations on mental 

health and prescription drug benefits that will not be permitted when reform rules tak' 

effect in 2014. The more complete benefits will increase premiums when compared to 

current nongroup policies because there is more coverage. 
165 

The ACA also specifies five levels of cost sharing for nongroup policies, defined in most 

cases by an actuarial value, which is the average percentage of costs for covered 

benefits that the health plan will pay for. The ACA allows for a wide range of actuarial 

values, from 60% (bronze) to 90% (platinum), plus a somewhat lower level of coverage 

(catastrophic) which will be available to people under age 30 and others who find otheJ 

coverage offerings unaffordable. Policies after reform still will be able to have 

significant cost sharing: the actuarial value calculator recently proposed by HHS shows 

that a single policy with a $5,900 deductible, 10% patient cost-sharing and a $6,350 outof-pocket l.imit will meet the requirements of the bronze actuarial value level, and a 

family policy could have a deductible and an out-of-pocket limit twice as high. While a 

policy with this much cost sharing would hardly qualify as generous (e.g., most 

employer-based plans have deductibles that are thousands of dollars lower than this 

(http:/lwww.kff.org/insurancelsnapshot/chcmll0212oth.cfml, there certainly are nongroup 

policies currently available that require enrollees to pay even higher shares of their 

expenses. Setting a minimum actuarial value (in most cases) of 60o/o will, by itself, 

increase premiums for current nongroup enrollees with very high cost sharing. 

The benefit and cost-sharing changes for nongroup coverage under the ACA move that 

market from one largely defined by coverage limitations to one with a more complete 

level of benefits and catastrophic protection, similar to the level of protection that 

people with group coverage enjoy. Nongroup cost sharing will still be higher on 

average, but with real limits on catastrophic expenses. This additional protection will 

increase premiums for current enrollees with more limited benefits and very high cost 

sharing, but will also lower their out-of-pocket expenses when they need care. 

Premium rules 

Another set offactors that affects premium change under reform is how risk will be 

pooled. The ACA changes the way that health plans use an individual's demographic 

and health characteristics when setting premiums, and also requires plans to pool the 

risk of all enrollees with nongroup coverage in a market when setting rates. Unlike the 

access and benefit provisions discussed above, which change the average cost of 

coverage in a market, changes in how rates are set primarily affect how costs are 

distributed across different enrollees within a market, which means that some people 

will pay less and others more. Age rating in particular has received a good deal of 

attention recently, but these other factors matter as well. 

factors 

Health plans under reform will be able to vary the premium for a nongroup policy onlJ 

to reflect a policyholder's family size, age (with a 3 to !limitation), location, and tobacc 

use. Premiums in the current market vary much more widely based on demographics, 
166 

so these limitations, by themselves, will result in some people paying more and some 

paying less. Two of the more important relate to age and gender. It is now common for 

health plans to use age as a rating factor because older people, on average, have many 

more claims than younger people. Premium differences for the same coverage betweer 

a 21-year-old male and a 64-year-old male can easily be 500 percent. The premium 

difference in current policies between women of those ages is less, because younger 

woman are generally charged higher premiums than men their same age (even when 

routine maternity is excluded) and older woman are often charged lower premiums 

than men their same age. The gender and age-rating limitations in the ACA, by 

themselves, will have the effect of raising premiums for younger people and lowering 

them for older people. Younger men in markets where health plans vary rates by age 

and gender will be most atiected, because premiums will adjust both to reflect the limi1 

on age rating and the elimination of gender rating. The premium impact of the gender 

and age limitations (assuming the same benefit and cost-sharing) may be quite large (a 

increase of maybe 65% to 75%, or perhaps more, for younger men), before taking into 

account any premium subsidies discussed below. 

Health status rating and risk 

Beginning in 2014, health plans will no longer be able to surcharge new enrollees with 

health problems, and will be required to pool the experience of all nongroup enrollees 

in a market when setting rates. Current practices can cause less healthy people to pay 

more for the same coverage, even if their health issues developed after enrollment. In 

many states nongroup health plans can charge new entrants higher premiums. Insurer 

also are able to set premiums for a policy (i.e., distinct group of benefits) or group of 

policies based on who enrolls or is projected to enroll, which means that policies with 

similar benefits can have very different premiums depending on how they were sold, 

when they were sold and whether they are still being actively marketed. These 

practices can lead to less healthy people being disproportionately concentrated in 

certain policies, and the high premium increases they face can cause people to give up 

coverage (http:l/actuary.orgicontent/report-potential-regulatory-solutions-closed-block-probleml. 

Ending these practices will tend to lower premiums for some current nongroup 

enrollees with health problems and will increase them for enrollees who are healthy. 

changes 

The ACA changed not only the coverage that will be offered in the nongroup market bu 

also the environment in which it will be offered. Several provisions should reduce cost: 

associated with selling coverage, but some new fees will work in the opposite direction 

Two ACA provisions already in effect, enhanced review ofnongroup premiums and 

higher minimum loss ratios (enforced through required rebates) have put pressure on 

health plans to reduce their administrative costs and lower their rate requests 
167 

(http://wmv.kff.orgt11ealthreform/8376.cfml. Beginning in 2014, new health insurance 

exchanges will make nongroup coverage offerings more transparent, and provisions 

establishing a common essential health benefits package and standard cost sharing tier 

will make coverage much easier to understand. These changes will allow consumers to 

more easily compare premiums and benefits and will focus competition more squarely 

on price and value. The variety of benefit constructs, coverage limits and cost sharing 

differences in the market today make meaningful comparisons quite difficult. 

Price competition in exchanges will be enhanced by the premium tax credit structure, 

which ties the amount of the tax credits to the premium for the second lowest-cost 

silver plan in each market. Health plans with premiums above this level will be much 

less attractive to the millions of new and existing purchasers expected to receive 

premium tax credits, putting strong pressure on insurers to create more efficient 

networks and lower costs in order to be more price competitive. Health plans report 

pursuing strategies to reduce their costs through tighter, lower-cost networks to be 

offered though exchange plans''. These efforts should complement the broader 

payment and delivery system reforms (spurred on by the Medicare provisions under 

the ACA) that health plans are pursuing in their other commercial and government 

lines of business. 

There also are several ACA provisions that increase the cost of selling coverage. These 

include a new tax on health insurers, a small fee ($2 per member per month) to help 

fund the Patient-Centered Outcome Research Trust Fund, fees on medical devices that 

may be passed on to patients and purchasers, and fees (3.5% of premium) to fund the 

insurance exchanges. 

The net impact of these changes is unknown, but there is a strong argument that they 

should result in lower premiums. The incentives for more efficient delivery and lower 

administrative costs, reinforced by the minimum loss ratio and rate review provisions, 

should set the stage for a more robust effort by the industry to limit costs and cost 

increases in this market. The large number of new enrollees also will provide greater 

incentive for the health plans to invest in cost control programs for the nongroup 

market. 

The issue of rate shock for younger who now have nongroup coverage 

Recent discussion about premium rates under health reform have focused in on the 

potential rate shock for younger enrollees who will pay higher premiums under reforn 

with suggestions that phasing in the 3:1 age limitation could moderate the impact. As 

discussed above, there are a number of factors that will affect the premiums that 

nongroup enrollees will see under reform. Some will affect all buyers: the coverage is 

better; the limits on cost-sharing, while hardly generous, are more protective than som, 
168 

of the policies currently available, and the risk pool will more likely reflect the general 

population rather than a select, healthy one. Other changes, such as the elimination of 

gender rating and the limits on age variation, largely redistribute the premium burden 

advantaging some populations and disadvantaging others (particularly younger men). 

The suggested phase-in of the 3:1 age rating limit is intended to address one part of the 

rate shock concern, at least temporarily, but it would not affect changes in premiums 

due to better benefits and cost-sharing protections and a more inclusive marketplace. 

So does a phase-in make sense to at least partially mitigate the premium impact on 

younger enrollees? There are a few additional factors that might be considered in 

answering that question. 

The first is that most current nongroup enrollees will be eligible for premium tax 

credits, which will limit the share of the premium that they will be required to pay to a 

percentage of family income. We used income and coverage data from the Survey of 

Income and Program Participation to estimate 

(http:i/kaiserfamilyfoundation.flles.wordpress.com/2013/02/age rate analysis method 020613.pdf) the 

differences in the amounts that current nongroup enrollees would pay for the same 

silver plan under a 3:1limit and the unlimited age rating that exists in the market 

today. We estimate that 80% of current nongroup enrollees would pay less under the 

3:1limit for equivalent coverage, once premium subsidies are taken into account. Whil 

many younger enrollees would see higher premiums under the 3:1 age limit, they 

would not pay more because they would receive a tax credit that caps their premium 

obligation as a percentage of their income. It is important to note that this is not an 

estimate of the percentage of current nongroup enrollees who might pay more for 

coverage under reform, taking all factors into account; we only looked at the impact of 

the different age-rate limits because that is a policy that has been advanced by some in 

the industry and others. This analysis does not consider premium increases because th 

coverage is better or because the risk pool is more representative of the general 

population. 

A second consideration is that catastrophic plans available under reform may 

accomplish much of what the advocates of phasing in the 3:1 age limit are trying to 

accomplish: a low-cost plan with rates that reflect the medical spending of younger 

enrollees. The ACA permits health plans to offer a catastrophic health plan to people 

under age 30 and to people who otherwise would be required to pay more than 8% of 

their income for a health plan. While the catastrophic plans are part of the single risk 

pool that health plans must have for each market, the proposed regulations from CMS 

allow plans to adjust premiums for the catastrophic plans to reflect the demographics c 

its enrollees. Enrollment in catastrophic plans is likely to be younger, on average, than 

enrollment in the other tiers, because under the proposed rules people under age 30 

can easily enroll in a catastrophic plan but people who are older must first get a 
169 

certification from an exchange that premiums for other available coverage would 

exceed 8% of their income. The certification requirement will likely slow any 

enrollment of older people into catastrophic plans, leaving a younger risk pool. 

Catastrophic plans also will be treated separately under risk adjustment, which means 

that catastrophic premiums will not go up if enrollees in catastrophic plans are 

healthier on average than enrollee in other tiers. 

This all means that the catastrophic plans, if implemented as proposed, may have 

premiums that are more reflective of a younger and healthier population than plans in 

other tiers. Since the actuarial value of the catastrophic plans is very close to that of 

bronze plans (57% v. 60%), the premiums for younger people in catastrophic plans rna) 

be quite close to what you would get if you permitted unlimited premium variation for 

age in bronze plans. We estimate that the premium for a younger person in their 

twenties may be as much as 29% less in a catastrophic plan than in a bronze plan, 

assuming that catastrophic enrollment is primarily under age 30. This would cushion 

the potential rate shock for existing, young nongroup enrollees with low cost coverage, 

particularly those who would not receive a premium tax credit or who would rather 

pay a very low price for less coverage. 

A third consideration is the high turnover in the current market. A fairly high 

percentage of people who buy nongroup policies have their coverage for a year or less, 

which means that many of the people who the age rating phase-in is designed to help 

may not be planning to keep their current health plans an)""lay. A project 

(http://www.kff.org/insurancel7133.cfml that the Foundation did with the online broker 

eHealthinsurance found that, among nongroup purchasers aged 18 to 24, 38% of males 

and 44% of females had given up their policies by the end of their first year of coverag( 

and 60% have given up their policies by the end of the second year. This study is a little 

old and involved on-line purchasers, so it may not be representative of all younger 

purchasers. But given these high lapse rates, policy makers may want to get additional 

information about the purchase and retention of patterns of younger purchasers to 

help them understand how many current nongroup policyholders would actually 

benefit from a phase-in of the age rating limit. The availability of premium tax credits 

and the catastrophic plan already limit the number of current nongroup policyholders 

who would actually benefit from a phase-in; the high lapse rates only further reduce 

that number. 

In the big picture, the ACA addresses many of the shortcomings of the current nongrou 

market by providing access to a complete set of health benefits witl1 protections agains 

catastrophic out-of-pocket costs. The higher level of benefits, the better protection 

against catastrophic costs and wider access to coverage each tend to increase the 

average level of premiums, although out-of-pocket costs for enrollees will go down due 

to the better protection they receive. The more competitive marketplace created under 
170 

the ACA, greatly enhanced by the structure of the premium tax credits, will push in the 

other direction, forcing health plans to become more efficient and better managers of 

the premiums they receive. There already is some evidence that plans are working to 

create less costly, more efficient networks to offer with plans sold in exchanges. 

Limiting premium variation for age to 3:1 will increase premiums for younger people 

when compared to current rating practices, but several policies in the ACA limit the 

impact. The premium tax credits will protect many current nongroup enrollees from 

paying more due to their age, and the manner in which the federal government has 

proposed to implement the catastrophic health plan may blunt the impact of the age 

constraint, providing younger people with access to a low-cost policy that is more 

reflective of their age and relative health. 

-Gary Claxton, Larry Levitt, and Karen Pollitz (with analysis by Anthony Damico) 

1. Justin Lake, Andrew Valen, Michael Newshel, J.P. Morgan Securities LLC, "Managed 

Care and Providers Wrap-Up," JP. Morgan Health Conference, (January 2013). 

2. Christine Arnold, Cowen and Company, "4Q12 Hospital Survey Results Suggest Mixe' 

Views on Reform Impact," Health Care, (February 2013). 
171 

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173 

HOW DOCTORS DIE 

It's Not Like the Rest of Us, But It Should Be 

BY KEN MURRAY I NOVEMBER 30, 2011 

Years ago, Charlie, a highly respected orthopedist and a mentor of mine. found a lump in 

his stomach. He had a surgeon explore the area. and the diagnosis was pancreatic cancer. 

This surgeon was one ofthe best in the country. He had even invented a new procedure 

for this exact cancer that could triple a patient's tlve-year-survival odds~ from 5 percent 

to 15 percent~albeit with a poor quality of life. Charlie was uninterested. He went home 

the next day, closed his practice, and never set foot in a hospital again. He focused on 

spending time with family and feeling as good as possible. Several months later, he died 

at home. I Ie got no chemotherapy, radiation. or surgical treatment. Medicare didn't spend 

much on him. 

It's not a frequent topic of discussion. but doctors die, too. And they don't die like the 

rest of us. What's unusual about them is not how much treatment they get compared to 

most Americans, but how little. For all the time they spend fending otl'the deaths of 

others, they tend to be fairly serene when faced with death themselves. They know 

exactly what is going to happen, they know the choices, and they generally have access to 

any sort of medical care they could \vant. But they go gently. 

Of course, doctors don't want to die; they want to live. But they know enough about 

medem medicine to know its limits. And they know enough about death to know what all 

people fear most: dying in pain, and dying alone. They've talked about this with their 

families. They want to be sure, when the time comes, that no heroic measures will 

happen~that they will never experience, during their last moments on earth, someone 

breaking their ribs in an attempt to resuscitate them with CPR (that's what happens if 

CPR is done right). 

Almost all medical professionals have seen what we call "futile care" being performed on 

people. That's when doctors bring the cutting edge of technology to bear on a grievously 

ill person near the end of life. The patient will get cut open, perforated with tubes, hooked 

up to machines. and assaulted with drugs. All of this occurs in the Intensive Care Unit at 

a cost of tens of thousands of dollars a day. What it buys is misery we would not inlliet 

on a terrorist. I cannot count the number of times fellow physicians have told me, in 

words that vary only slightly, "Promise me if you find me like this that you'll kill me." 

They mean it. Some medical personnel wear medallions stamped "NO CODE" to tell 

physicians not to perform CPR on them. I have even seen it as a tattoo. 

To administer medical care that makes people suffer is anguishing. Physicians are trained 

.to gather information without revealing any of their own feelings, but in private. among 

fellow doctors, they'll vent. "How can anyone do that to their family members?" they'll 
174 

ask. I suspect it's one reason physicians have higher rates of alcohol abuse and 

depression than professionals in most other fields. I know it's one reason I stopped 

participating in hospital care for the last I 0 years of my practice. 

How has it come to this-that doctors administer so much care that they wouldn't want for 

themselves? The simple, or not-so-simple, answer is this: patients, doctors. and the 

system. 

To see how patients play a role, imagine a scenario in which someone has lost 

consciousness and been admitted to an emergency room. As is so oilen the case, no one 

has made a plan for this situation, and shocked and scared family members tind 

themselves caught up in a maze of choices. They're overwhelmed. When doctors ask if 

they want "everything" done, they answer yes. Then the nightmare begins. Sometimes, a 

t'amiiy'rcally means "do everything." but often they just mean "do everything that's 

reasonable.'' The problem is that they may not know what's reasonable, nor. in their 

confusion and sorrow, will they ask about it or hear what a physician may be telling 

them. For their part. doctors told to do ·•everything" will do it, whether it is reasonable or 

not. 

The above scenario is a common one. Feeding into the problem arc unrealistic 

expectations of what doctors can accomplish. Many people think of CPR as a reliable 

lifesaver when, in fact, the results arc usually poor. I've had hundreds of people brought 

to me in the emergency room after getting CPR. Exactly one. a healthy man who'd had 

no heart troubles (for those who want specifics, he had a "tension pneumothorax"), 

walked out of the hospital. If a patient suffers from severe illness. old age, or a terminal 

disease, the odds of a good outcome tl·om CPR are infinitesimaL while the odds of 

suffering are overwhelming. Poor knowledge and misguided expectations lead to a lot of 

bad decisions. 

But of course it's not just patients making these things happen. Doctors play an enabling 

role. too. The trouble is that even doctors who hate to administer futile care must lind a 

P'a)' to address the wishes of patients and families. Imagine, once again. the emergency 

room with those grieving. possibly hysterical, family members. They do not know the 

doctor. Establishing trust and confidence under such circumstances is a very delicate 

thing. People are prepared to think the doctor is acting out of base motives, trying to save 

time. or money. or efJort, especially if the doctor is advising against further treatment. 

Some doctors arc stronger communicators than others, and some doctors arc more 

adamant, but the pressures they all face are similar. When I faced circumstances 

involving cnd-ot~lifc choices, I adopted the approach of laying out only the options that I 

thought were reasonable (as I would in any situation) as early in the process as possible. 

When patients or families brought up unreasonable choices, I would discuss the issue in 

layman's terms that portrayed the downsides clearly. If patients or families still insisted 
175 

on treatments l considered pointless or harmtut l would otTer to transfer their care to 

another doctor or hospital. 

Should I have been more forceful at times? I know that some of those transfers still haunt 

Ill~·, One of the patients of whom I was most fond was an attorney from a famous political 

family. She had severe diabetes and terrible circulation, and, at one point, she developed 

a paintul sore on her foot. Knowing the hazards of hospitals. l did everything 1 could to 

keep her from resorting to surgery. Still, she sought out outside experts with whom I had 

no relationship. Not knowing as much about her as I did, they decided to perform bypass 

surgery on her chronically clogged blood vessels in both legs. This didn't restore her 

circulation, and the surgical wounds wouldn't heal. Her feet became gangrenous, and she 

endured bilateral leg amputations. Two weeks later, in the famous medical center in 

which all this had occurred, she died. 

lfs easy to tine! fault with both doctors and patients in such stories. but in many ways all 

the parties are simply victims of a larger system that encourages excessive treatment. In 

some unfortunate cases. doctors use the fee-for-service model to do everything they can. 

no matter how pointless, to make money. More commonly, though. doctors arc fearful of 

litigation and do whatever they're asked. with little feedback, to avoid getting in trouble. 

Even when the right preparations have been made, the system can still swallow people 

up. One of my patients was a man named Jack, a 78-ycar-old who had been ill for years 

and undc_rgonc about 15 major surgical procedures. He explained to me that he never, 

under any circumstances, wanted to be placed on life support machines again. One 

Saturday, however. Jack suffered a massive stroke and got admitted to the emergency 

room unconscious, without his wife. Doctors did everything possible to resuscitate him 

and put him on life support in the !CU. This was Jack's worst nightmare. When 1 arrived 

at the hospital and took over Jack ·scare, 1 spoke to his wife and to hospital staff~ bringing 

in my o11ice notes with his care preferences. Then l turned off the life support machines 

and sat with him. He died two hours later. 

Even with all his wishes documented. Jack hadn't died as he'd hoped. The system had 

intervened. One of the nurses, T later found out. even reported my unplugging of Jack to 

the authorities as a possible homicide. Nothing came of it. of course: Jack's wishes had 

been spelled out explicitly, and he· d left the paperwork to prove it. But the prospect of a 

police investigation is terrifying for any physician. 1 could fic1r more easily have left Jack 

on life support against his stated wishes, prolonging his life, and his suffering, a few more 

weeks. I would even have made a little more money, and Medicare would have ended up 

with an additional $500,000 bill. It's no wonder many doctors err on the side of 

overtreatment. 

!3ut doctors still don't over-treat themselves. They see the consequences of this 

constantly. Almost anyone can find a way to die in peace at home, and pain can be 

managed better than ever. Hospice care. which focuses on providing terminally ill 
176 

patients with comfort and dignity rather than on futile cures, provides most people with 

much better final days. Amazingly. studies have found that people placed in hospice care 

often live longer than people with the same disease who are seeking active cures. I was 

struck to hear on the radio recently that the famous reporter Tom Wicker had ''died 

peacefhlly at home. surrounded by his family." Such stories arc, thankfully, increasingly 

common. 

Several years ago, my older cousin Torch (born at home by the light of a flashlight-or 

torch) had a seizure that turned out to be the result of lung cancer that had gone to his 

brain. I arranged for him to see various specialists. and we learned that with aggressive 

treatment of his condition, including three to five hospital visits a \Veck for 

chemotherapy. he would live perhaps four months. Ultimately. Torch decided against any 

tn;atr.nent and simply took pills for brain swelling. He moved in with me. 

We spent the next eight months doing a bunch of things that he enjoyed, having fun 

together like we hadn't had in decades. We went to Disneyland, his first time. We'd hang 

out at home. Torch was a sports nut, and he was very happy to watch sports and eat my 

cooking. He even gained a bit of weight, eating his favorite foods rather than hospital 

foods. He had no serious pain. and he remained high-spirited. One day, he didn't wake 

up. Be spent the next three days in a coma-like sleep and then died. The cost of his 

medical care for those eight months, for the one drug he was taking, was about $20. 

Torch was no doctor, but he knew he wanted a life of quality. not just quantity. Don't 

most of us? If there is a state of the art of end-of-life care, it is this: death with dignity. As 

for me. my physician has my choices. They were easy to make, as they are for most 

physicians. There will be no heroics, and I will go gentle into that good night. Like my 

mentor Charlie. Like my cousin Torch. Like my fellow doctors. 

Ken Murray, MD, is Clinical Assistant Prqfessor ofFamily Medicine at USC. 
177 

Post-Hearing Questions for the Record 

Submitted to Melissa Thomasson 

From Senator Claire McCaskill 

"The History and Current Reality ofthc ll.S. Health Care System" 

Despite claims that the Affordable Care Act market is in a death spiral, a report released by the 

non-panisan Kaiser Family Foundation in July found that the "individual market has been 

stabilizing and insurers arc regaining profitability." The Foundation's report found that "insurer 

financial results show no sign of a market collapse," noting that, although some insurers have 

exited the market in recent years, "others have been successful and expanded their footprints. as 

\Vould be expected in a competitive marketplace." 

Many economists believe that the greatest risk to the stability of the individual market stems 

from the uncertainty surrounding the Administration's intention to continue making Cost Sharing 

Reduction or .. CS!C payments to insurers. 

L Please explain the relationship between CSR payments and market stability. 

2. How is the uncertainty surrounding CSR payments currently affecting the individual 

market? 

3. Would making the CSR payments mandatory have any effect on the stability of the 

individual insurance market'? 

4. Are there additional mechanisms for stabilizing the individual insurance market that 

we should consider'? 

The ACA- Coverage ancL.<.lilll~ 

Although there are still large gaps in coverage in the current system ofhcalth insurance in the 

United States. the uninsured rate for the t]rst three months of2017 was at an all-time low with 

only 8.8 percent of Americans uninsured. according to the Centers for Disease Control and 

Prevention. The Aftcn·dablc Care Act is l~u from perfect, but it has made health insurance 

accessible for millions of Americans who otherwise vvould have remained uninsured. 

5. Is there a benefit to providing access to health care insurance to as many people as 

possible? 

6. What arc the economic reasons for providing access to comprehensive coverage to as 
178 

many people as possible'' 

7. Expansion of coverage is not strictly an economic argument. Can you provide this 

Committee with some public policy arguments that support the need for more people 

to have access to comprehensive health care? 

Over the years. various administrations have succeeded in passing incremental ref(mns to 1111 

gaps left by our employer based system. Medicare and Medicaid provide insurance coverage to 

the elderly as well as the poor and disabled, respectively. CHIP extended Medicaid coverage to 

low-income children. However, there are still millions of Americans without any health care 

coverage, and millions more who have insufficient coverage and high dcductiblcs that preclude 

them from accessing health care services. 

8. What arc the largest gaps that remain under our current system? Are there certain 

holes left by the employer-based system that the Affordable Care Act does not 

address? 

9. Arc there steps that we, or our counterparts on the state level, can take to increase 

coverage? 

Defense ofTnsurancc Coverage 

The majority's staff memorandum states: ·'[t]he current health care debate is centered on a 

misguided. albeit appealing. principle of providing health care coverage to as many uninsured 

Americans as possible. While expanding healthcarc insurance coverage may be viewed as a 

laudable goal, it ignores one of the most significant problems within the current U.S. health care 

system---the cost of health care is sky rocketing." 

Although I absolutely agree that costs needs to be contained. we must also continue to strive to 

provide access to health care coverage to every American. 

10. Can you explain how access to comprehensive health care coverage can provide 

econon1ic stability to a patient facing a serious n1edical event? 

11. ls there recent data on the number of families who say they are having problems 

paying medical bills? 

!2. Are there studies demonstrating how Medicaid expansion has impacted medical debt'l 

13. Can you explain the benefits of coverage expansions related to hospital-based 

uncompensated care? 

On February 13, 20 !7, your article entitled. ''A lesson from history: Repealing the ACA will 

make health insurance more expensive·· was published by Stat News. In your article, the ACA 's 

individual mandate addresses the problem of'·adverse selection." 
179 

14. Please explain the problem of"adversc selection" in our health care system. 

15. How docs the individual mandate address the problem of''adversc selection'"? 

16. What other components of the ACA address the problem of"adverse selection'' 

17. Why would repealing the ACA make health care more expensive? 

18. What groups would be most adversely impacted by repeal of the i\CA? 

Many critics of the current state of the health care system assign blame on increased costs to 

greater coverage. In the stall memo you distributed at the last hearing, you included a chart that 

showed that increases in premium costs following enactment of the Allordablc Care Act. 

I note that this information only related to the primary cost drivers lor premiums in the individual 

health insurance market. 

This chart shows that there was an increase of 45 percent due to guaranteed issue. 

19. Explain what "guaranteed issue" is and why it was included as a market reform in the 

Affordable Care Act. 

The chart sho\VS an increase of 35 percent due to age bands being 3 to l. 

20. What do "age bands'' mean and why was it an important market reform? 
180 

The chart shows an increase of 17 percent for essential health benefits. 

21 What are "essential health benefits" and why was this a necessary reform included in 

the Affordable Care Act'' 

The chart shows an increase of nine percent f(lf actuarial value. 

22. What is ·'actuarial value?'" Is this a market reform under the Affordable Care Act, or 

some kind of cost driver separate from health reform? 

Recent Cost Drivers 

There are a number of cost drivers that are currently causing health care costs to rise dramatically 

that are not based on the insurance markets. Over the last two decades. the health care industry 

has experienced significant consolidation. 

23. How much has the cost of hospital care increased? 

24. Has hospital consolidation resulted in increased costs'' 

25. How can we as policymakcrs address hospital consolidation to decrease costs? 

26. To what extent has decreased competition among health care providers contributed to 

higher health care costs for consumers? 

27. How can we reform payments for physician services to contain costs') 

28. How docs the cost of prescription drugs impact overall health spending? 

29. What steps can we take to control the high cost of prescription drugs') 

Historical Cost Drivers 

The originall3lue Cross Blue Shield insurance providers were non-profit organizations that 

generally offered health care coverage at a ··community rate'' and provided coverage to all 

members of the groups regardless of the employees' ages or health status. 

30. Hovv did the adoption of"expericncc rating'' and "undcnwiting" by for-profit 

insurance providers change the risk pool for the insured groups'' 

31. How did this change in the risk pool affect the costs of health care covcragc'J 
181 

Post-Hearing Questions for the Record 

Submitted by: Melissa A. Thomasson, Ph.D. 

"The History and Current Reality of the U.S. Health Care System" 

October 11, 20 l7 
182 

l. Under the Ailordablc Care Act (ACA). insurance companies arc required to offer reduced enrollee 

cost sharing in the form of lower dcductibles and co--pays to people insured in the silver-level plan> 

with incomes 100-2500(· of the federal poverty level (FPL). Despite the greater generosity of these 

plans, these individuals pay the same premiums as higher-income individuals enrolled in silver-level 

plans. To compensate insurance companies for the added cost of these Cost-Sharing Reductions 

(CSRs), the federal government agreed to reimburse insurers directly. If the CSR payments end. 

insurers willlirce higher costs and may exit the individual marketplace. 

2. Some insurance companies claim that uncertainty surrounding CSR payments will kacl them to exit 

the market 

3. Making CSR payments mandatory would stop the exit of insurance companies generated by CSR 

uncertainty, 

4. Other mechanisms that could be used to enhance market stability would be reinsurance and high risk 

pools. 

5. The primary function of health insurance is to provide financial protection for individuals who experience an adverse shock to their health. Health insurance may help to prevent medical bankruptcy, for 

example. see Himmelstein ct a/. (2005, 2009): Dranove & Millenson (2006): Dobkin eta/. (2016): 

Hu eta/. (2016). Other studies flnd a less conclusive link (sec Morrison eta/. (2013): Gupta eta/. 

(2015)). Because insured individuals are better able to a!Tord medical care. they may enjoy better 

health outcomes than uninsured individuals (for greater discussion see Baicker eta/. (2013): Finkelstein eta/. (2012): Long & Baicker (2014): Finkelstein & McKnight (2008)). 

6. Sec the answer to number (5). 

7. As an economist. !leave this answer to my public policy school colleagues to answer. 

8. Under the ACA, employers are not required to provide affordable coverage for families- this is the 

so-called "family glitch''. Lo\v-to-moderate income fami1ics cannot qualify for premium tax credits 

to reduce the cost of a plan on the exchange if an individual employee in the family has access to 

''affordable" employer based coverage. This can lead to coverage gaps for family members. Without reauthorization of the Children's Health Insurance Program (CHIP). some children will remain 

uninsured and have no private market path for health insurance. 

9. In the short-run, Congress must reauthorize payments to states to support CHIP. In the longer run, the 

ACA would need to be modilicd to correct the "family glitch.'' 

10. I answered how insurance protects individuals in my response to question (5). 

I ! . I am not familiar with recent studies. 

2 
183 

See Hu eta!. (20 16) for a detailed answer of how :-.1edicaid expansions affect financial wellbeing. 

1:1. When hospitals treat uninsured individuals, they do not receive payment. Jn response, they may charge 

insured patients more to recover their losses. 

14. Adverse selection in health insurance refers to the situation in which individuals who are more likely 

to be sick are more likely to want insurance coverage at an average premium. Individuals who suspect 

they are likely to be more sick than average enroll, and individuals who believe they are healthier 

than average do not buy coverage. As a result, the average premium rises. Over time, this process 

continues until the premium becomes unaffordable. 

15. The individual mandate reduces the problem of adverse selection by making health individuals enrolL 

thus keeping average premiums do\vn. 

16. Other mechanisms that offset the higher cost of less hc,althy consumers that may help to reduce adverse 

selection include premium adjustments allowed hased on age anJ tobacco usc. 

17. Repealing the ACA will make health care more expensive for people with pre-existing conditions and 

less healthy people for scwral reasons. It will take away the individual mandate so that adverse selection occurs and increases premiums. Ending the ACA would also end end risk-selection protections 

such a~ guaranteed issue. Guaranteed issue and limits on medical underwriting prevent insurance 

companies from "cherry picking·· the healthiest enrollees so that less healthy individuals cannot find 

affordable health insurance coverage. Since repealing the ACA would increase the number of uninsured individuals, repealing the ;\C;\ would also mean that providers face more unpaid claims. so 

they may increase their charges for people who are able to pay. Finally, uninsured individuals who 

forego early treatment may end up paying more later to treat conditions at a more advanced stage. 

18. The groups most likely to be impacted would he those people without access to cmployer-hascd 

coverage or i\1edicarc. particularly individuals with pre-existing conditions. 

19 .. ;Guaranteed issue" is a requirement that insurers sell health insurance to any individual or farnily who 

seeks coverage, regardless of age or health status. 

20. Older people are more likely to face higher medical costs than younger people. If insurance companies experience rate policies (that is, charge people a premium associated with their expected health 

expenditures), older people would face much higher premiums than younger people and have difficulty paying for health insurance coverage. To mitigate this and keep insurance affordable for older 

Americans, the ACA mandates that insurance companies can charge older people no more than three 

times what they charge younger people. However, younger people face premium increases with age 

band rating, so the individual mandate is very important to make sure they buy coverage and prevent 

adverse selection. 

3 
184 

21. Essential health benefits are a standardized se1 of services that insurance companies must cover under 

the ACA. It is important to specify a standard sd of services so lndividuals can comparison shop for 

plans. Premiums refiect both the amount of henelits that arc covered hy a plan and administrative and 

other fees. If the benefits diller across plans, it makes it more difticult for people to detenmine which 

plans offer better value. 

Actuarial value is a term used to refer to the expected payments an insurance company expects to pay 

to an individual who has a policy. It is a standard insurance term and is not related to the ACA nor is 

it a separate driver of the cost of health care. 

23. Answering this question is difticult because the best sources of data on hospital costs over time only 

come from Medicare. The share of hospital expenditures in overall health care expenditures has 

remained Loirly steady over the past 20 years, between 30 and 33 percent (Peterson-Kaiser Health 

System Tracker, 2017). There is an extensive literature in economics on hospital costs. See CoLlpcr 

eta/. (20 15); Ho & Lee (20 15) for an overview. 

24. Por discussion of this see Dali1y (2014); Gaynor & Vogt (2003): Gowrisankaran eta/. (2015); Tay 

(2003). 

25. Consolidation could be reduced with enforcement of antitrust policy and full staffs at the Pcderal 

Trade Commission and the Department of Justice. Medicare payments arc also a huge lever. Por 

example, see White (20 13). 

26. This is an excellent question. The references cited in questions 23 through 25 above will help shed 

light on this. More importantly. recent trends of hospitals merging and acquiring physician practices 

will further concentrate the health care market and likely lead to reduced competition and further 

costs. but I am not aware of a study that has yet looked at these issues. 

27. Reimbursement methods based on fcc-for-service payment have historically driven health care costs. 

Congress can LLSC Medicare and the ACA as mechanisms for payment reform, and focus on valuebased reimbursement ins lead of reimbursement on a fee-for-service schedule. For evidence of !\1cdlcare's influence on private physician payments, see Clemens & Gottlieb (2013). ln addition. letting 

physicians determine their O\Vll reimhurscmcnt in a closed-door setting may not he efficient. (sec: 

https://www.ax ios.com/amas-doctor- pane 1-sti 11-Llpcrates-behind-c losed·doors-2493 77 5917 .hllnl). 

2R. Over the past 25 years, the' share of health care spending on prescription dmgs has nearly doubled, 

from 5.5 percent in 1995 to over 10 percent today (Peterson-Kaiser Health System Tracker, 2017). 

Spending is driven by costs and utilization, but I am not aware of economic analysis that spcciiically 

focuses on cost alone. 

29. There is not a single cause of rising prescription drug costs. Price controls and policies intended to 

limit government spending can have unintended consequences. Por example, when a federal govern4 
185 

ment audit of Average Wholesale Prices (AWP) in the Medicaid program Jed states to reduce Medicaid 

rcimubsrement for many drugs, pharmacies switched to dispensing higher priced drugs instead (sec 

citetAlpcrt 2013. Another example or this comes from a Medicare reform in 2003 that led oncologists 

to switch to much higher costs drugs (sec Gatesman & Smith (20 ll)). Investigation into indust1-y 

consolidation, the role of Pharmacy Benefit Managers (PBMs) and greater incentives for transparent 

pricing would shed light on the costs in the pharmaceutical industry. 

30. The adoption of modified experience rating led the plans that still engaged in community rating to suffer from adverse selection. To compete. these plans eventually had to convert to modified experience 

rating as well. See Thomasson (2004) for greater discussion. 

31. To my knowledge, no research has been done about bow this affected the costs of health care coverage. 

5 
186 

References 

BAI<KER, KArHEHI:-lE, TM!HMAN, SARAH L., ALLEN, l!EIIll L., BERNSTEIN, MIRA, GRUllFR, 

JONATHAN H., NEWHOliSE, JOSEPH P., SCHNEIDER, ERIC C., WRIGHT, BILL J.. ZASLAVSKY. 

ALAN M., & FlNKELSTEJN, AMY N. 2013. The Oregon experiment: effects of Medicaid on clinical 

outcomes. New England Journal of Medicine. 368(18), 1713-1722. 

CLE~!ENS, JEFFREY, & GOTTLIEB, JOSHUA D. 2013. In the Shadow of a Giant: Mcdicarc's!n!lucncc on 

Private Physician !'payments. NBER Working Paper, 19503. 

COOPER, Z,\CK, CR,\IG, STUART Y.. GAYNOR, MARTIN, & REENEN. JOHN VAN. 2015. The Price Ain't 

Right 0 Hospital Prices and Health Spending on the Privately Insured. NBER HY!rking Paper, 21815. 

Di\FNY, LEE:V10RE. 2014. Hospital industry consolidation--still more to come 0 New England Journal of' 

Medicine, 370(3). 198-9. 

DOBKI~. CARLOS, Ft'IKELSTE!N, A\1Y, KLUENDER, RAYMOND, & NOTOW!DJGDO, MATTHEW J. 

2016. The Economic Consequences of Hospital Admissions. NBER Working Paper, 22288, 1-42. 

DRANOVE, DAVID. & MII.LENSON, M!CliAEL L. 2006. Medical Bankruptcy: Myth versus Fact. Health 

Af}ctirs, 25(2). W74--W83. 

FINKELSTEIN, A~!Y, & MCKNIGHT, ROBIN. 2008. What did Medicare do? The Initial Impact of Medicare 

on Mortality and Out of Pocket Medical Spending. Journal oj'Puhlic Economics. 92(7), 1644-1668. 

FINKELSTF!\1, AMY. TAUBMAN. SARAH, WRIGHT. BILL, BER'ISTEIN. MIRA. GRUBER, JONATHAN. 

NEWHOUSE. JOSEPH P., ALLEN, HElD!, BA!CKER. KATHERINE, & OREGON HEALTH STUDY 

GROUP. 20!2. The Oregon Health insurance Experiment: Evidence from the First Year. The QuarterlY 

Journal of' Economics. 127(3), I 057- I 106. 

GATES>!AN. MANDY L .. & S~I!Tl!, THOMAS J. 2011. The Shortage of Essential Chemotherapy Drugs in 

the United States. New F~ng!and Journal of1"fedicine, 365(18), 1655. 

Gi\YNOR. MARTIN. & VOGT, WILI.IAM B. 200J. Competition Among Hospitah. RAND Journal of 

Economics, 34(4), 764-85. 

GOWRISANKARAN, GAUTAM, NEVO. JI.V!Y, & TOWN, ROBERT J. 2015. Mergers When Prices are Negotiated: Evidence from the Hospital Industry. American Economic RPview, 105(1 ). 172-203. 

GUPTA, ARPIT, MORRISON, EDWARD. FEDORENKO, CATHERINE, & RAMSEY. SCOTT. 2015. Cancer 

Diagnoses and Household Debt Overhang. Columbia Law and Economics W(Jrking Paper, 514. 

HIM\1ELSTEIN, DAVID U., Tl!OR'IE, DEBORAH, WARREN, ELIZABETH, & WOOLHANDLER, STEFFIE. 

:::005. Illness and Injury as Contributors to Bankruptcy. Health Affairs. 24, W5:63-W5:73. 

6 
187 

HIY1MELSTE!N, DAVID U., T!!DRNE, DEBORAH, \Vi\RREN, ELIZABETH, & WOOLIIA:'-IIJI.ER, STEFFIE. 

2009. "Medical Bankruptcy in the United States, 2007: Results of a National Study. The American 

Journal ojivfcdicine, 122(8), 741-746. 

Ho, KATHERINE, & LEE. ROBIN. 2015. Insurer Competition and Negotiated Hospital Prices. NBER 

Working Paper. 19401. 

HU, LUOJIA. KAESTNER, ROBERT, MAZU\'lDFR. ilASIIKAR, MILLER, SAR,\11, & WONG, ASHLEY. 

2016. The Effect of the Patient Protection and Affordable Care Act Medicaid Expansions on Financial 

Wellbeing. NBFR \Vorking Paper, 22170. 

LONG, BENJAMIN D. SOVIMERSAND SHARON K, & BAICKER, KATHERINE. 2014. Changes in !\1ortality 

After ?vlassachusetts Health Care Reform: A Quasi-experimental Study. Annals of !111ernal Medicine. 

160(9), 585-593. 

MORRISON, EDWARD R., GUPTA, ARP!T, OLSON, LENORA, COOK, LAWRENCE, & KEENAN, 

HEXIT!ER. 2013. Health and Financial Fragility: Evidence from Car Crashes and Consumer Bankruptcy. 

UniversitY of' Chicago Coase-Sandor lnstitute.f!Jr Law & Economics Research Paper, 655, 13-81. 

PETERSON-KAISER HEALTH SYSTE~l TR,\CKER. 2017. U.S. Health Expenditllrcs 1960-20/5, Distribution hy Se1Ticc T>JH'. Tech. rept. Kaiser Family Foundation. 

TAY, ABIGAIL. 2003. Assessing Competition in Hospital Care Market" The Importance of Accounting for 

Quality Differentiation. RAND Journal of Economics, 34( 4 ), 786-814. 

THOMASSON, MELISSA A. 2004. Early Evidence of an Adverse Selection Death Spiral? Evplorations 

Economic History. 41(4). 313-328. 

WmTE, CHAPI:-.1. 2013. Contrary to cost-shift theory. lower Medicare hospital payment rates for inpatient 

care lead to lower private payment rates. Health Af]l1irs, 32(5), 935-43. 

7 
188 

Post-Hearing Questions for the Record 

Submitted to Katherine Baicke1· 

From Senator Claire McCaskill 

"The History and Current Reality of the U.S. Health Care System" 

Questions Below, Responses Enclosed 

Market Stabilitv (CSRs) 

September 6, 2017 

Despite claims that the AlTordablc Care Act market arc in a death spiral, a report released by the 

non-partisan Kaiser Family Foundation in July found that the "individual market has been 

stabilizing and insurers arc regaining profitability." The Foundation's report fotmd that "insurer 

financial results show no sign of a market collapse," noting that. although some insurers have 

exited the market in recent years. •·others have been successful and expanded their footprints, as 

would be expected in a competitive marketplace.'' 

Many economists believe that the greatest risk to the stability of the individual market stems 

Jl·om the uncertainty surrounding the Administration's intention to continue making Cost Sharing 

Reduction or ·'CSR'' payments to insurers. 

l. Please explain the relationship between CSR payments and market stability. 

2. How is the uncetiainty surrounding CSR payments currently affecting the individual 

market? 

3. Would making the CSR payments mandatory bavc any efTcct on the stability of the 

individml insurance market? 

4. Are there additional mechanisms for stabilizing the individual insurance market that 

we should consider? 

Although there arc still large gaps in coverage in the current system of health insurance in the 

United States. the uninsured rate for the first three months of 2017 was at an all-time low with 

only 8.8 percent of Americans uninsured, according to the Centers for Disease Control and 

Prevention. The AfTordable Care Act is far from perfect, but it bas made health insurance 

accessible for millions of Americans who otherwise would have remained uninsured. 

5. Is there a benefit to providing access to health care insurance to as many people as 

possible') 

6. What arc the economic reasons for providing access to comprehensive coverage to as 
189 

many people as possible? 

7. Expansion of coverage is not strictly an economic argument. Can you provide this 

Committee with some public policy arguments that support the need for more people 

to have access to comprehensive health care? 

Over the years. various administrations have succeeded in passing incremental reforms to fill 

gaps left by our employer-based system. Medicare and Medicaid provide insurance coverage to 

the elderly as well as to the poor and disabled. respectively. CHIP extended Medicaid coverage 

to low-income children. However, there are still millions of Americans without any health care 

coverage. and millions more who have insufficient coverage and high dcdnctibles that preclude 

them from accessing health care services. 

8. What are the largest gaps that remain under our current system·7 Are there certain 

holes left by the employer-based system that the Affordable Care Act does not 

address? 

9. Are there steps that we, or our counterparts on the state level, can take to increase 

coverage? 

Defense oflnsurance Coverage 

The majority's stall' memorandum states: "[t]he current health care debate is centered on a 

misguided, albeit appealing, principle of providing health care coverage to as many uninsured 

Americans as possible. While expanding healthcare insurance coverage may be viewed as a 

laudable goal. it ignores one of the most significant problems within the current U.S. health care 

system~-the cost of health care is sky rocketing." 

Although I absolutely agree that costs needs to be contained, we must also continue to strive to 

provide access to health care coverage to every American. 

10. Can you explain how access to comprehensive health care coverage can provide 

economic stability to a patient facing a serious medical event? 

ll. Is there recent data on the number of families who say they are having problems 

paying medical bills? 

12. Are there studies demonstrating how Medicaid expansion has impacted medical debt? 

13. Can you explain the benefits of coverage expansions related to hospital-based 

uncompensated care'' 

You were a co-author of the Oregon Medicaid experiment, which is often referenced as evidence 

that health outcomes under Medicaid coverage are "no better than being uninsured." 

14. Did the Oregon Medicaid experiment indicate that individuals with Medicaid 

coverage were no better off than their uninsured counterparts? 
190 

15. Is Medicaid coverage better for individuals than remaining uninsured? If so. why? 

16. Are there any economic or non-medical bcnef1ts to having access to health insurance? 

17. Arc there any psychological benefits to having access to affordable health care 

coverage? 

Explanation of Premium Increases 

Many critics of the cunent state of the health care system assign blame on increased costs to 

greater coverage. In the stati memo you distributed at the last hearing, you included a chart that 

showed that increases in premium costs following enactment of the Affordable Care Act. 

l note that this information only related to the primary cost drivers for premiums in the individual 

health insurance market. 

INCREASE iN PREMIUMS 

This chart shmvs that there was an increase of 45 percent due to guaranteed issue. 

18. Explain what '·guaranteed issue'' is and why it was included as a market reform in the 

Afiorclable Care Act. 

The chart shows an increase of 35 percent due to age bands being 3 to 1. 

19. What do "age bands'' mean and why was it an important market reform'7 

The chart shmvs an increase of 17 percent for essential health benefits. 
191 

20. What are "essential health benefits" and why was this a necessary reform included in 

the Affordable Care Act 0 

The chart shows an increase of nine percent for actuarial value. 

21. What is ·'actuarial value?" Is this a market refonn under the AtJordable Care Act or 

some kind of cost driver separate limn health reform'! 

Recent Cost Drivers 

There are a number of cost drivers that arc currently causing health care costs to rise dramatically 

that are not based on the insurance markets. Over the last two decades, the health care industry 

has experienced significant consolidation. 

22. How much has the cost of hospital care increased0 

23. l las hospital consolidation resulted in increased costs'> 

24. !low can we as policymakers address hospital consolidation to decrease costs? 

25. To what extent has decreased competition among health care providers contributed to 

higher health care costs for consumers'? 

26. !low can we reform payments for physician services to contain costs? 

27. How does the cost of prescription drugs impact overall health spending? 

28. What steps can we take to control the high cost of prescription drugs0 

Historical Cost Drivers 

The original Blue Cross Blue Shield insurance providers were non-profit organizations that 

generally ofTercd health care coverage at a "community rate'' and provided coverage to all 

members of the groups regardless of the employees' ages or health status. 

29. !low did the adoption of"experiencc rating'' and "underwriting" by for-profit 

insurance providers change the risk pool for the insured groups? 

30. How did this change in the risk pool affect the costs of health care coverage? 
192 

RESPO:"SES TO QUEST!O:"S FOR THE RECORD 

KatherinC' Bakker. l'hD 

Dean, Ilarns School of Public Pnlicy 

kbaickcr(i!;uchicago cdu 

1155 E 60th Street 

Chicago, lL 6063 7 

Submitted asfi:JIIow-up to ''The History and Current Reality of the U.S. Health Care System" 

Thank you for the opportunity to testify, and for these additional questions. As several of the 30 

questions are closely related, and some fall outside my area of expertise, I will group my answers 

by topic and focus on those where I believe I can provide the best information. I have attached 

some supplemental material (including pieces that I have co-authored) that speak to these 

questions in greater depth, and have referenced my original testimony when relevant. 

The Effects of Medicaid Coverage 

Several of the questions focused on the effects of Medicaid coverage on health care use, financial 

stability, and health outcomes. One of the pieces that I have attached synthesizes my reading of 

the evidence on these points, which is very much infonned by my work on the Oregon Health 

Insurance Experiment. 1 In that work, we found that people on Medicaid arc substantially better 

off than if they were uninsured, with better self-reported health, lower rates of depression, and 

more tlnancial stability (including reduced risk of having unpaid medical bills sent to collection) 

although we found no evidence that Medicaid coverage results in substantial improvements in 

several Zhronic physical health conditions such as high blood pressure 2 '

1 There is also a broader 

set of evidence speaking to the health improvements associated with insurance 4 The benefits to 

Medicaid enrollees relative to being uninsured comes along with an increase in health care 

utilization (and a commensurate increase in program costs that must be bome by taxpayers)-

including primary and preventive care, prescription drugs, hospitalizations, and emergency 

department visits. 2

·

5

·

7 

Data on Coverage and Spending 

The attached chart (also appearing as Figure 3 in my written testimony) draws on data from the 

CI\·IS Oftlcc of the Actuary's National Health Statistics Group to show the increase in spending 

on hospitals, prescription drugs, physicians, and other types of care over time. 

Estimates of the share of the uninsured who are eligible for public insurance programs such as 

Medicaid or CHIP vary substantially, but arc often in the range of \i,l, meaning that most of the 

uninsured are not eligible for these programs. 8 (An additional share of the uninsured are eligible 

for tax credits.) Many people who are eligible for pubic insurance are thus not enrolled, whether 

it is because of lack of information or low valuation of the coverage. There is evidence that 

facilitating the Medicaid enrollment process, such as through clearer communications, 

appreciably increases enrollment suggesting that valuation of the coverage is not the sole driver 

of enrollment pattcrns. 9 
193 

Health Care and Healrh lnsurance Markets 

l touched briefly in my written and oral testimony on two topics related to health markets. first, 

there is evidence that hospital consolidation leads to higher hospital prices, provider 

consolidation leads to higher provider prices, and insurer consolidation leads to higher 

premiums lO-ll These effects should be taken into account by regulators assessing potential 

mergers. 

Second, as several witnesses highlighted, insurance markets are likely to be more stable when 

insurers have clear information about rate-setting regimes, subsidies, and market participation. 

Higher enrollments will facilitate risk-pooling. 

Last, I believe that there is considerable potential for payment reform to increase the value of 

health care delivered and the financial sustainability of our health care system. Like patients, 

providers respond to t1nancial incentives. 14·

15 Private insurers have experimented with "valuebased" payments and accountable care organizations, along with alternative payment models 

introduced in Medicare's payment schedule for physicians and other services, the 

etTectivcncss of these and alternative payments systems is still being explored. 

Terminology 

My usage of technical tcnns like "actuarial value," "guaranteed issue," and "ratings bands" is 

intended to be consistent with standard utilization, such as that summarized at 

https:/lwww .healthcare.gov I glossary. 

l thank the committee for the opportunity to testify. Please do not hesitate to let me know if l 

can be of service in the future. 

Sincerely, 

Katherine Baicker 

'1155 East 60\h Street Chicago, !L 60637 harris.uchicago.cdu 
194 

Figure 

Person<>IHe:<lf\h CareSpendingbyTypeofService,1950-2015 

l,OOO 

1155 East 60th Street. Chicago, ll 60637 harrls,uchicago.edu 
195 

References 

1. Oregon Health Insurance Experiment. at.::~:::..::='"'·"'"'""-"'"'"·=~· 

2. Baicker K, Taubman S, Allen H, et al. The Oregon Experiment Effects of Medicaid on 

Clinical Outcomes. New England Journal of Medicine 2013;368: 1713-22. 

3. Finkelstein A, Taubman S, Wright B, et al. The Oregon Health Insurance Experiment: 

Evidence from the First Year. Quarterly Journal of Economics 2012;127:1057-106. 

4. Sommers BD, Gawande AA, Baicker K. Health Insurance and Health- What the Recent 

Evidence Tells Us. New England Journal of Medicine 2017;377:586-93. 

5. Taubman SL, Allen HL, Wright BJ, Baickcr K, Finkelstein AN. Medicaid increases 

emergency-department usc: evidence from Oregon's Health Insurance Experiment. Science 

20 14;343:263-8. 

6. Finkelstein A, A11cn H, Wright B, Taubman S, Baicker K. Effect of Medicaid Coverage on 

ED Usc·-·- Further Evidence from Oregon's Experiment. New England Journal of Medicine 

20 16;375: 1505-7. 

7. Baickcr K, Finkelstein A. The Effects of Medicaid Coverage- Learning from the Oregon 

Experiment. N Eng! J Mcd 2011 ;365:683-5. 

8. U.S. Census Bnrcau. Current Population Survey, Annual Social and Economic Supplement 

2017. 

9. Wright BJ, Garcia-Alexander G, Weller MA, Baicker K. Low-Cost Behavioral Nudges 

Increase Medicaid Take-Up Among Eligible Residents Of Oregon. Health Aff(Millwood) 

2017;36:838-45. 

10. Baker LC, Bundorf M, Royalty AB, Levin Z. Physician practice competition and prices paid 

by private insurers for office visits. J AMA 2014;312: 1653-62. 

11. Austin DR, Baker LC. Less Physician Practice Competition Is Associated With Higber Prices 

Paid For Common Procedures. Hca1tb Affairs 2015;34: 1753-60. 

12. Dali1y L. Are Health Insurance Markets Competitive? National Bureau of Economic 

Researcb Working Paper 2008; 14572. 

!3. Daf'ny L, Gruber J, Ody C. More Insurers Lower Premiums: Evidence from Initial Pricing in 

the Health Insurance Marketplaces. American Journal of Healtb Economics 20 15; 1:53-81. 

14. McClellan M. Reforming payments to healthcare providers: The key to slowing bealthcare 

cost growtb while improving quality? Journal of Economic Perspectives 2011 ;25:6992. 

15. Chandra A, Cutler D, Song Z. Who Ordered That? The Economics of Treatment Choices in 

Medical Care. Handbook ofHcaltb Economics2012. 

16. Baicker K, Cbernew ME. Alternative Alternative Payment Models. JAMA Internal Medicine 

2017;177222-3. 

17. Baieker K, Mullainathan S, Schwartzstein J. Behavioral Hazard in Health Insurance. The 

Quarterly Joumal of Economics 2015. 

18. MedPAC. Report to Congress: Medicare and the Health Care Delivery System2017 June. 

19. Muhlcskin D, Saunders R, McClellan M. Growth Of ACOs And Alternative Payment 

Models In 2017. Health Affairs B1og2017. 

1155 East 60th Street. Chicago, IL 60637 harris.uchicago.edu 4 
196 

Health Insurance Coverage and Health- What the Recent 

Evidence Tells Us 

The national debate over the Affordable Care Act 

(ACA) has involved substantial discussion about 

what effCcts if any insurance has 

on health and mortality. The prospect the 

law's replacement might lead to millions of Americans losing coverage has brought this empirical 

question into sharp focus. For instance, politicians 

have recently argued that the number of people 

with health insurancr is not a usefhl policy metric1 

and that no one dies from a lack of access to health 

carc.2 However1 assessing the impact of insurance 

coverage on health is camplex: health effects may 

take a according to 

insurance design, and are clouded by 

confounding f:1ctors, since insurance changes usn~ 

ally correlate with other circumstances that also 

affect health care use and outcomes. 

Nonetheless, aver the past decade, high-quality 

studies have shed light on the effects of coverage 

on care and health. Here) we review and synthesize 

this evidence, focusing on the most rigorous studies from the past decade on the effects of coverage 

fOr nonelderly adults. Previous reviews have provided a thorough discussion of older studies.' We 

concentrate on more recent experimental and 

quasi-experimental studies of the i\CA and other 

expansions of public or private insurance. The cf.. 

fccts of coverage probably vary among 

types of plans, and settings. and these 

not all directly apply to rhe currcnr 

But as a whole, this body 

fers important insights into how coverage affCets 

health care utilization, disease treatment and outcomes, self-reported health, and mortality. 

FlNANC!AL PROTECTION 

AND THE ROLE OF INSURANCE 

having health insurance improves financial security. The strongest evidence comes from the Oregon Health Insurance Experiment) a rare randomized, controlled trial of health insurance 

coverage.l' ln that study, people selected by lottery from a Medicaid \Vaiting list experienced 

major gains in financial well-being as compared 

with those who were not selected: a $390 average 

decrease in the amount of medical bills sent to 

collection and a virtual c!lmination of catastrophic 

out-of-pocket expenses.4.R Studies of other insurance 

expansions, such as Massachusetts' 2006 health 

care reform/ the ACA's 2010 "dependent-coverage 

provision" enabling young adults to stay on a parcnes plan until age 26,6 and the ACA's 2014 Medicaid expansion,~ have all revealed similar changes, 

including reduced bill collections and bankruptcies, 

confirming that insurance coverage reduces the 

risk of large unpredictable medical costs. 

But from a policy perspective, health insurance 

is viewed differently from most other types of 

insurance: there is no push 1 for example1 fbr uni~ 

versa! homeowners' or renters' insurance subsidized by the federal government. VVe contend that 

there arc two reasons for this difference. First, 

policymakers may value publicly subsidized 

health insurance as an important part of the social s::J.fety net that broadly redistributes resources 

to lower-income populations. Second, policymakers may view health insurance as a tool for 

achieving the specific policy priority of improved 

medical care and public health. Evaluating the 

impact ofinsurance coverage on health outcomes 

and whether these benefits the costs of 

expanding coverage- is our 

ACCESS TO CARE AND UTlL!ZAT!ON 

Reforewc assess these effects, it is worth rccogniz- for coverage to improve health, insurance must 

ing the role of insurance as a tool fOr managing improve people's care, not just change how it's 

financial risk. There is abundant evidence that paid for. Several observational studies have found 

N fNCL j MEO NEJM.C)RG 

Th~ NC\\ England Journal of Medicme 

Downloaded from ncjm nrg on J\lllt: :26. 20! 7. For persnnuluse only No other uses w1thout permission 

Copyright t" 2017 \·1a.'isachusd!s ivkdical.'-.ocicty. A!! rights reserved 
197 

Domain and Findings 

Fmancial security 

Reduct1on in medical bills sent to co!lectton and 

in catastrophtc_ med1cal spcnd1ng 

Reduced out-orpocket medtcal spending 

bankruptcieS af"td improved 

Access to care and L:tilization 

1ng a 

utilization and rates ofhav-

<>ource of cMejpcrsonal phystctan 

lncrcased preventive vis1ts and some preventive 

services including cancer screening and lab 

tests 

Increased prescnption drug utilization ahd adherence 

Mn~ed evidence on 

wtth some studies 

others a decrease 

Improved access to surgical 

Chronic d1sease care and outcomes 

Increased rates of dtagnosmg chronic conditions 

Increased treatment for chronic cond1t10hS 

Improved depressiOn outcomes 

No choiesMixed ev1dence on cancer stage at time of diag· 

Welt-being and self-reported health 

Improved self-reported health m most studies 

Some ACA-spec1fk studieS have shown limited 

or nons1grlificant changes 

Mortality 

stud1es on whether 

mdependent predictor 

estimates m random1zed trial, 

rule out large mortai1ty Increases 

or decreases 

S1gmGcant reductions 

penmental analyses, 

care~amenable causes 

nov.nlnadd 

Insurance or Policy 

Ex-amined''r 

OCP, Med~eaid 

MA 

Medicaid, MA 

Mc:dicaid, MA 

Medicaid 

Medicaid, DCP, MA 

DCP, MA 

Medicaid 

Medicaid 

Medicaid 

Medicaid 

MA. DCP 

Medica1d, MA. DCP, ACA 

McdiGiid, ACA 

Private insur<Jnce 

Med1caid 

Medicaid, MA 

Studies 

Baicker et al. 2013"; Hu et 2016 5 

Chua and Sommers 20146

; Baicker et aL 20l3~ 

Mazumder and Mdler 201e 

Baickcr et al. 2013': Sommers eta!. 2014 and 

2016"' 1

'; S1mon etal. 2017~n 

Ghosh ct a!. 2017\ 2

; Sommers et aL 2016H 

Taubman et aL 2014; 3

; Akosa Ant\vi et aL 201SH; 

Miller 20lF; Sommers et <lL 201611 

Scott et aL 2016; 0; Loehrer et at. 2016u 

Baicker et aL 2013 4 ; Wherry and Miller 2016" 

BaKker e± .aL 20134; Sommers et al. 201719 

Baickcr et aL 2013'' 

Baicker et <tl. 2013' 

et al. 20] 310; Robbins: et al. 2015l; Loehrer 

20161' 

Courtemanche et al. 2017'\ Mdler and Wherry 

201P 

Kronick 200927 ; Wilper et al. 2009'" 

Finkelstein et al, 2012' 

Sommers et aL 20]2 ';Sommers eta!. 2014"; 

Sommers 2017n 

The "\h~w FnghmLl Jnurna! nf:-vkJ1cine 
198 

SOUNDlNG BO~\RD 

that the ACA's coverage expansion was associated with higher rates of having a usual source 

of care and being able to afford needed eare, 12,n 

fc1ctors associated with hctter health outcomes. Stronger experimental and quasi-experimental evidence shmvs that coverage expansions 

similarly lead to greater access to primary carc,u·24 

more amhulatory care visits,8 increased usc of prescription medications, and better medication 

adhercnce. 11 

There is also strong evidence that coverage 

expansion increases access to preventive services, 

which can directly maintain or improve health. 

Studies of Massachusetts' health care rcform9 and 

the ACA's Medicaid expansion found higher 

rates of preventive health care visits, 11 and although the utility of the 'iannual exam" is uncertain, such visits may facilitate more specific evidence-based screening. For instance, the ACA 

Medicaid expansion has led to significant increases in f()r diahetcs, 11 hypcrcholcsterolemia1 rs and and the Oregon study revealed 

a 15-pcrcentage-point increase in the rate of cholesterol screening and 15- to 10-percentage-point 

increases in rates of screening for cervical, prostate, and breast cancer.'1 

The connection between health outcomes and 

use of other services, such as 

department (ED) care, and oospiian.zai:IOrls, 

to be more complicated. 

serves critical health needs, though some 

represent low-value care or reflect poor 

care. Thus, it is not surprising 

evidence on the of coverage on ED use and 

hospitalizations is mixed. 35 Both types of utilization went up in the Oregon study, 8

·

13 \Vhereas 

studies of other coverage expansions found reductions in ED use,n.t·<.t~ and changes in hospital 

use have not been significant in several ACA 

studiestt,b- though these studies may not have 

had an adequate sample size to examine this less 

common outcome. Meanwhile, studies of Massa~ 

chusetts' reform and the ACNs dependent-coverage 

provision indicate that insurance improves access 

to some high-value types of surgical careY'·1

" 

CHRONIC DISEASE CARE 

AND OUTCOMES 

The effects of coverage are uarucu><Inv important 

for people with chronic a vulnerable 

high-cost population. Here, the Oregon experiment found nuanced effects. After 2 years of 

coverage, there were no significant 

changes in glycated hemoglobin, pressure! or cholesterollevels:t On the has is of these 

results, some ohservers have argued that expanding Medicaid does not improve health and 

is thus inadvisable.\(> However, the study revealed 

significant increases in the rate of diagnosis of 

diabetes that were consistent with findings in 

t\VO recent post-ACA studies 1uu7 along with a 

near-doubling of use of diabetes medications)4 

again consistent with more recent data on the 

ACA's Medicaid expansion." Glycated hemoglobin levels did not improve, but, as the authors 

note, the confidence intervals are potentially 

consistent with these medications' working as 

The investigators did not detect sigchanges in diagnosis of or treatment for 

high cholesterol or hypertension. One recent 

quasi-cxperimenral study, however, shmved that 

the ACNs Medicaid expansion was associated 

tvith better blood-pressure control among community health center patients.·18 

Meanwhile, the Oregon study found suhstantial improvements in depression, one of the 

leading causes of disahility in the United States. 39 

Jt also found an increased rate of diagnosis 1 a 

borderline-significant increase in the rate of 

treatment with antidepressant medication, and a 

30% relative reduction in rates of depressive 

symptoms.4 

Other studies have assessed the effects of 

insurance coverage on cancer~ the leading cause 

of death among nonelderly adults in the United 

States.40 Though not all cancer results in chron~ 

ic illness, most cancer diagnoses necessitate a 

period of ongoing care, and approximately 8 

million U.S. adults under age 70 are currently 

living with cancer.41 Beyond increases in cancer 

screening, health insurance may also facilitate 

more timely or effective cancer care. However1 

evidence on this front is mixed. A study of Massachusetts~ reform did not find changes in 

breast-cancer stage at whereas the 

ACA's dependent-coverage provision was associated with earlier-stage diagnosis and treatment 

of cervical cancer among young women. 21 Another Massachusetts study revealed an increase 

in rates of potentially curative surgery for colon 

cancer among low-income patients after coverN ENGLJ Mf.D NEJM.ORG 

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199 

age expansion, \Vith fewer patients waiting until 

the emergency stage for trcatmentY 

""IP"'""''"" for many other illnesses 

such as disease, and heart failure 

require additional research. Studies do show that 

tOr persons reporting any chronic condition, gaining coverage increases access to regular care fi)[ 

those conditions. 19,

3

[) Overall, the picture tOr managing chronic physical conditions is thus not 

straightforward, with coverage effects potentially 

varying among diseases, populations, and delivery 

systems. 

WELL·BE!NG AND SELF~REPORTED 

HEALTH 

Although the evidence on outcomes t(Jr some 

conditions varies, evidence from multiple studies 

indicates that substantially improves 

their health, At 1 year, 

Oregan fOund a 25% increase in the 

likelihood of patients reporting "good, very 

good, or excellent" health, and more days in 

good physical and mental health.s Evidence from 

quasi-experimental studies indicates that selfreported health and functional status improved 

after Massachusetts' reform 23 and after several 

prc~ACA state Medicaid cxpansioos, 22 and that 

self-reported physical and mental health improved after the ACA's dependent-coverage provision went into effCct.6 

Recent studies of the fiCA's 2014 coverage 

expansion provide more mixed evidence, Multihave found improved seJf .. reported 

the ACA's coverctge expansion, either 

in broad national trcnds 24 or Medicaid expansion 

studics, 10'

11 \vhereas one found significant changes only for select subpopulations 2

s and ;mother 

not at an.:s Larger coverage gains have generally 

been associated with more consistent findings 

of improved sclf:rcportcd hcalth. 19 

Docs self-reported health even matter? lt squarely fits within rhe World Health Organization's definition of health as "a state of complete physical, 

mental, and social \..vcll-bcing," and improved subjective well-being (i,e,, feeling better) is also a primary goal for much of the medical care delivered 

by health care professionals. In addition, selfreported health is a validated measure of the risk of 

death, People who describe their health as poor 

have mortality rates 2 to 10 times as high as those 

who report being in the healthiest category.41"

13 

MORTALITY 

Perhaps no research question better encapsulates 

this policy debate than, "Does coverage save lives?'' 

Beginning with the Institute of Medicine's 2002 

report Care without Coverage, some analyses have 

suggested that lack of insurance causes tens of 

thousands of deaths each year in the United 

States:H Subsequent observational studies had 

conflicting findings, One conducted that lacking 

coverage was a strong independent risk factor 

f(n death, 28 whereas another found that coverage 

was only proxy for risk factors such as socioeconomic status and health-related behaviorsY 

More recently) several studies have been conducted 

with stronger research designs better suited to 

answedng this question. 

The Oregon study assessed mortality but was 

limited by the infrequency of deaths in the 

sample. The estimated 1-year mortality change 

was a nonsignificant 16% reduction, but with a 

confidence interval of -82% to +50%, meaning 

that the study could not rule out large reductions 

or increases in mortatity. As the authors 

note, the study sample and duration were not 

well suited to evaluating mortality. 

Several quasi-experimental studies using population-level data and longer follow-up offer more 

precise estimates of coverage's effect on mortality. One study compared three states implement:-

ing large Medicaid expansions in the early 2000s 

to neighboring states that didn't expand Medicaid, finding a significant G% decrease in mortality over 5 years of follow-up. 22 A subsequent 

analysis showed the largest decreases were for 

deaths from "health-care-amenJble'' conditions 

such as heart disease, infections, and cancer, 

which arc more plausibly affected 

medical carc.l'l Meanwhile, 3 study 

setts' 2006 reform found significant reductions 

in all-cause mortality and health-care-amenable 

mortality as compared with mortality in demographically similar counties nationally, particularly those with lower pre-expansion rates of 

insurance coverage.') Overall, the study identified 

a "number needed to treat" of 830 adults gaining coverage to prevent one death a year. The 

comparable estimate in a more recent analysis of 

Medicaid's mortality effects was one life saved 

fOr every 239 to 316 adults gaining coverage.19 

How can one reconcile these mortality findings with the nonsignificant cardiovascular and 

N ENGLJ MED NEjM.ORG 

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200 

SOUNDING BOARD 

diabetes findings in the Oregon study? Research 

design could account for the difference: the Or~ 

egan experiment was a randomized trial and the 

quasi-experimental studies were not, so the latter arc susceptible to unmeasured confounding 

despite attempts to rule out alternative explanations, such as economic factors, demographic 

shifts, and secular trends in medical tec:hnolr::~v. 

But as coauthors of several of these 

we believe that other explanations better account for this pattern of results. 

First1 mortality is a composite outcome of 

many conditions and factors. Hypertension, dyslipidemia, and elevated glycated hemoglobin levels are important clinical measures but do not 

numerous other causes of increased risk 

death. Second, the studies vary substantially 

in their timing and sample sizes. The Massachusetts and Medicaid mortality studies examined 

hundreds of thousands of people gaining coverage over 4 to 5 years of follow~up, as compared 

with roughly 10,000 Oregonians gaining coverage and being assessed after less than 2 It 

may take years for important effects insurance coverage such as increased use of 

mary and preventive care, or treatment for 

threatening conditions such as cancer, HIV-AIDS, 

or liver or kidney disease to manifest in reduced morrality, given that mortality changes in 

the other studies increased over timc.'U2 

Third, the effects on self-reported health 

so clearly seen in the Oregon study and other 

research arc themselves predictive of reduced 

mortality over a 5~ to 10-year period.4241 Studies 

suggest that a 25% reduction in self-reported 

poor health could plausibly cut mortality rates in 

half (or further) for the sickest members of society, who have disproportionately high rates or 

death, Finally) the links among mental health 1 

financial stress~ and physical health are numerous,~) suggesting additional for cover~ 

age to produce long-term health 

DIFFERENT TYPES OF COVERAGE 

In light of recent evidence on the benefits of 

health insurance coverage) some ACA critics 

have argued that private insurance is beneficial 

but Medicaid is inefTectivc or even harmfuL" Is 

there evidence for this view? There is a greater 

of rigorous evidence on Medicaid's effects 

studies of pre-ACA expansions, from 

the Oregon study, and from of the ACA 

itself- than there is on the of private 

coverage. The latter includes studies oft he ACA's 

dependent-coverage provision, which expanded 

only private insurance) and of Massachusetts' 

refOrm, which featured a combination of Medicaid expansion, subsidies fOr private insurance 

through Medicaid managed care insurers, and 

some increase in employer coverage. But there is 

no large quasi-experimental or randomized trial 

demonstrating unique health benefits of private 

insurance. One head-ro-head quasi-experimental 

study of Medicaid versus private insurance, 

based on Arkansas's decision to use ACA dollars 

to buy private coverage for low-income adults, 

found minimal differences.u.t') Overall, the evidence indicates that having health insurance is 

beneficial, but from patients' perspectives 

does not seem to matter much whether it is 

public or privatc,47 Further research is needed to 

assess the relative effects of various insurance 

providers and plan designs. 

Finally, though it is outside the focus of our 

discussion, there is also quasi-experimental evi~ 

dence that Medicare improves self-reported 

health'8 and reduces in-hospital mortality among 

the elderly;" though a study of older data hom 

Medicare's 1965 implementation did not find a 

survival benefit. 50 However, since universal coverage hy Medicare for elderly Americans is well 

entrenched, both the policy dehate and opportn· 

nities for future research on this front are much 

more limited. 

IMPLICATIONS AND CONCLUSIONS 

One question experts are commonly asked is 

how the ACA or its repeal - will affect 

health and mortality. The body of evidence summarized here indicates that coverage expansions 

significantly increase patients' access to care 

anJ use of preventive care, primary care, chronic illness treatment:, medications, and surgery. 

These increases appear to produce significant, 

multifaceted, and nuanced benefits to health. 

Some benefits may manifest in earlier detection 

of disease, some in better medication adherence 

and management of chronic conditions, and 

some in the psychological well-being born of 

knowing one can afford care when one gets sick. 

Such modest but cumulative changes - which 

one of us has called qthe heroism of incremental 

N !;NGLJ MED NfJM.Oll.G 

Th~· \'cw England Journal of Medicine 

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(\1pyright t" 2017 1V1assachusetts Medical Socll't} All ngllts 
201 

care"' 1 -- may not occur for everyone and may 

not happen quickly. But the evidence suggests 

that they do occur, and that some of these 

changes will help tens of thousands 

of people live longer Conversely, the data 

suggest that policies that reduce coverage will 

produce significant harms to health, particularly among people with lower incomes and 

chronic conditions. 

Do these t1ndings apply to the ACA' Drawing 

on evidence from recent coverage expansions is) 

in our view, the most reasonable way to estimate 

future effects of policy, but this sort of extrapolation is not an exact science. The ACA shares 

many features with prior expansions, in particu~ 

lar the Massachusetts reform on which it was 

modeled. But it is a complex law implemented in 

a highly contentious and uncertain policy environment. and its effects may have been limited 

by policies in some states that reduced take-up,"2 

Congress 1S partial defunding of the provisions 

for stabilizing the ACA's insurance marketplaces,"3 and plan offerings with high patient cost 

sharing. Furthermore) every state's Medicaid 

program has features, which makes diper life saved, suggesting that expanding health 

insurance is a more cost-effective investment 

than many others we currently make in areas 

such as workplace safety and environmental 

protections.n~ 4 Factoring in enhanced well-bemental health) and other outcomes would 

further improve the cost-benefit ratio. But 

ultimately, policymakers and other stakeholders 

must decide how much they value these improve~ 

ments in health, relative to other u.scs of public 

resources from spending them on education 

and other social services to reducing taxes. 

There remain many unanswered questions 

about U.S. health insurance policy, including 

how to best structure coverage to maximize 

health and value and how much public spending 

we want to devote to subsidizing coverage for 

people who cannot afford it. But whether enrollees benefit from that coverage is not one of the 

unanswered questions. Insurance coverage in~ 

creases access to care and improves a wide range 

of health outcomes. Arguing that health insurance coverage doesn't improve health is simply 

inconsistent with the evidence. 

Disclosure forms provided by the aurhors are available at 

rect comparisons Finally, coverage ex~ N.EJAtorg. 

pansions and contractions will not necessarily 

produce mirror~image effects. For these reasons, ::~;T~~-~~ 

no study can offCr a precise prediction for the and 

current policy debate. But our assessment, in 

short, is that these studies provide the best evi- ,all m Boston. 

dence we have tOr projecting the impact of the This article was published on june 21,2017, NEJM org 

ACA or its repeJl. 

The many benefits of coverage, though, come L 

at a real cost. Given the increases in most types 

u.s. 

of utllization, expanding coverage leads to an 

increase in societal resources devoted to health 

care:~ There arc key policy questions about how 

to control costs, how much redistribution across 

because t!n·y 

2017 (http:/1 

wwYccbsncws.cc•mlnews/gop·congcessmaocwbodydies 

socioeconomic is optimal, and how 3. McV\'illiams J.\t Health consequences of uninsurance 

tradc-offs among state) local, and pri- ren•nt evidence and impiicavate spending should be managed. In none of 4. 

these scenarios, however, is there evidence that 

more people in the United States will s. He. L. K"""'" R. 

save society money. 

Are the benefits of publicly subsidized coverage worth the cost? An analysis of mortality 

changes after Medicaid expansion suggests that 

expanding Medicaid saves lives at a societal cost 

reform. JAMA 2014; 

of $327,000 to S867,000 per life saved. 29 By com- ;~ed~~~7o~: :~ ~~:~:~c~!d ~nea~!:!~~is~;e~~~ei\~ a~~~~Ju~~~t ~ parison, other public policies that reduce mortality have been fOund to average $7.6 million s. A, T;mbm:~n S, Wright H, et al. The Oregon 

N CNGLJ MED NEJM.ORG 

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Copyright'{"' 2017 lv1assachusctts ivledical Society All rights rc~crn;d 
202 

SOt;N Dl :--:G BOARD 

Kron1ck lk;\lth :nsur.1nce L(li'Ciagc and mortal it)' 

d. Health ;lcrv Res 2009:44:1211·31. 

28, McCormKk D, Bor 

H:mmclstem DU 1n~ucwcc :<nd rnorubty 1n US 

1\m J Public Health 2009;9fJ:22H\!-9'1. 

N E1'-.lGLJ MED NtjM 

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nsc \mly :\\• \ilhl'f U\CS ''i!h\)Ut pcrmissilln 

S\\Ctct> i\Jl nght:. n:s~.:rved 
203 

49. C:trd D. ~loblon C . .:\1Jc-sus N. Dot'S iiws?QJ 

Econ 2009;124:5f)7-(Ji(l. 

50. A, .\1cK~1ight R. 

N t\JGLJ Mf!) 

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204 

INSURING THE UNINSURED 

Featuring an evaluation by principal investigators Katherine Bakker and Amy Finkelstein 

by a lottery. This provided a rare 

of CX~('1\Jillg 
205 

which a tcJm ofn'->t'ard\\~rs 1s to thi' 

t\w o~l\ randomized evalna~ion ~~1o.t has ever been conducted 
206 

RESULTS 

Medicaid increased the use of he2lth"care services. 

FIGURE 1: EFFECT ON EMERGENCY-DEPARTMENT USE 

Data from Emergency Departments 

Medicaid diminished fi.mmda! 

FlCURE 2: EFFECT ON FINANCIAL HARDSHIP 

Data from ln·Person Interviews 

Medicaid 

bdls thJ.~ 

\j_j 

FIGURE 3: EFFECT ON CLINICAL MEASURES 

Datafmmln·Person!nterviews 

While long-run cflects may differ from tho~e round over this 

two-yr:ar study period, these health measures 

choscn explicitly because shown them to 

n•spond ~o nwd1cation ·within this time frame. 

n'portmg hmlth 

to fair or poor) 

effect on 

.:mploymt>nt due to 
207 
208 

The NEW ENGLAND JOURNAL of MEDICINE 

The Effects of Medicaid Coverage- Learning from the Oregon 

Experiment 

Katherine Baicker, Ph.D, and Amy Finkelstein, Ph.D. 

argued that Medicaid doesn't de~ 

liver much in the way of real benefirs, either becJusc it 

vidcrs so tittle that 

have tnmbk gaining <1Cccss to 

or hcuusc the low-income 

uninsured alreJdy have rcJson~ 

able access ro cue through clinics, 

uncompensated care, emergency 

dcpanmcms, and ouhlf-pockct 

spending. Or hers have argued that 

providing ,\'ledicaid coverage ro 

the uninsured would reduce total 

health care spending by improving health and reducing inefficient use of and crncr~ 

gcncy rooms. the costs 

and benefits of Medicaid arc empirical questions. 

One might think that these 

questions would have been settlcd with data long J.go, but they 

arc notoriously difficult to rc~ 

Comrmi;sons of the inuninsured can 

yield misleading results, because 

differ in many 

as and baseline health) that are difficult to 

control for fully and that affect 

the outcomes of interest) such 

as health and the usc of health 

care. For example, if less 

people arc more likely to 

obtain Medicaid, one 

conclude from 

the health of those 

with 3.nd without McdicJ.id that 

MedicJid is bad for one's health. 

\Vorking with a team of researchers, we have taken advJntagc of an unprecedented oppor-

~EJM Oil;; 

~;;" EnglanJ Jnurna! of i\kdiC1111.' 

tunity to gauge the effects of 

Medicaid coverage on low-income, 

previously uninsured adults, using the gold standard of medical 

and scientific research: randomized, controlled trial. In 2008, 

Oregon used a lottery to allocate 

limited number of Medicaid 

spots for 1mv~income adults (19 

to 64 years of age) to people on a 

\Vaiting list for Medicaid. Those 

selected by r:mdom lottery dr;nv 

\von the opportunity to apply for 

Medicaid. In rotal, ahour 10,000 

people were selected from the 

90,000 on the 

10,000 

enrolled 

who 

filled 

out the required and 

met the eligibility 

The lottery provides an 

tunity to estimate the 

tecrs of allowed to apply 

to treat). 

It also allows us to estimate the 

D~.mnlpadcd lfom nepn ort; on Jul;.- I r:m pnsnnal tN' (1111) "'-'n \)thcr m·c, \\ llhout pcnniss~>)n 

Copy nght c 2U ll :'\ lassachuscth \kz!Jcal S1JCicl\ ,\1! nght~ 
209 

caus::d effects of hcing enrolled 

in Nlcdicaid relative to being uninsured (the eftCcrs of "treatment on the treated,'' which we 

focus on hclmv), under the Js~ 

sumption that selection by the lottery ro be able to apply for Medicaid affects the outcomes we 

studied only through irs role ln 

increasing insurance 

\Vc !10\V have evidence 

effects of the first ye;:u of Medicaid coverage after the 

These results arc based on 

ministrative data from hospital 

discharges, credit reports, and 

death records, in addition to 

mail surveys we conducted. \Ve 

found that ,\1cdicaid coverage 

increases the usc of health care. 

it raises rhe proba~ 

of using outpatient care by 

3'5%, of using drugs 

by 1 )%, and hospital admission by 30%. \Vc did not detect a 

statistically significant change 

room utiliz:ltion, 

our t:stimares were imprecise. Overall, vvc estimate 

that the increased health care 

usc from enrollment in ,:\kdicaid transhtcs into about a 2'5'% 

increase in total annual health 

c:ue expenditures. 

That Medicaid increases health 

cue usc makes economic sense. 

since insurance n:duces the price 

of care ti)r the insured (in this 

prograrn, there arc no copaymcnu;l. increase in health 

cnrc use is associated with more 

consistent primary care: people 

with Medicaid coverage vvcrc l0°i0 

more likely ro report having 

regular place of care and 55°/o 

more likely to report having a 

usuJl doctor; J\1cdicJid covcr::tge 

also increased the use of prevcn~ 

tive care such as m;-1mmograms 

(by 60%) and cholesterol moni~ 

toring (hy 20%). it's 

possible that improved 

of care delivery could reduce overall spending, that docs not appear to hJvc in Oregon, at least in 

What benefits accrue along 

tvith this increase in spending? 

VVc examined two potential benefits: financial protection and imhcalth and well-being. The 

protection aspects of insurance are too often overlooked 

in academic and public 

is designed not to 

but to help 

creates catastrophic financial losses, a key purpose of health insuwnce i.s to reduce the financial risk posed by catastrophic 

medical expenditures. 

We found that Medicaid improves financial security, 1\icJicaid reduces by 40% the proba~ 

bility that people having 

to borrow money or payment 

on other bills because of medical expenses. Although it does 

not Jppl"ar to reduce their risk 

of bankruptcy (at least in the first 

year), it decreases by 25% the 

probability that they will have 

unpJid m(;dical bills that arc sent 

to collection agency. This effect benefits not only the insured 

but, since the vast mJjority of 

bills sent to a collection agency 

arc never paid~ also those who 

ultinurely help to finance 

unpaid cue, including health 

care providers and the public 

sector. 

VVe also found that being covered by Medicaid improves selfreported hcalt h as compared \Vith 

being uninsured. Mcdic::tid enrollees are 2S% more likely to indicate that they're in 

good, or excellent 

or poor health). They are 25% 

less likely to screen positive for 

depression. They arc even 30% 

more likely to report that they 

10 10S6/"£JMpllOS222 NfJM ORG 

rk Nt>\1 l:'nglnnLl Jownal oL\kdicinc 

THf MEDICAID COVERAGE 

are pretty happy or very happy 

(vs. not too happy). 

It's hard to tell from the current data whether objective, 

cal health has improved. evidence we have to date suggests 

that least some of the impro\Ttncnrs in seJf:·reportcd health 

probably reflect more general 

sense of improved and 

reduced stress; for the 

improvements in self.reportcd 

health start to show up after 

only month of insurance coverage and before health care use 

has started to increase, Of course, 

our of increased health 

care usc increased access to 

care suggest that physic::tl health 

may also have improved or will 

improve, \Ve wili know more 

when vve have data from the second year, when \VC collected inhmnation on health mea~ 

surcs such as pressure, 

obesity, cholesterol, and blood 

sugar control. (Currently our only 

objective health mcJsure is mor~ 

tality, on tvhich \ve vvcrc unable 

to detect an effect.) VVhcther it 

wos health or generol 

(or both) that improved, 

represent important 

benefits of along \Vith 

the reductions in financial strain. 

There are~ of course, limits to 

the lessons that can he drawn 

from this experiment. For exam~ 

ple, the results arc naturally spcto the study's lHJlJUWllHl. 

insurance plan, and 

environment. Coverage by private 

insurance, in different settings, 

or of people with very different 

characteristics than those who enrolled in Oregon's 1\rledicaid 

might have very 

Moreover, the Oregon lottery insured only 10,000 adults. 

The system-level effects of insurmillions of at once, 

str3in on provider 

D\mnlundcJ fwm neJm \1rg on Ju!;, l. For pcrsPnal usc only ~~) ntllcr tiSl''> wtt1wut permis~wn 

Cop~nghl ~c I \hs~adlUsetts \kd1cal Sm·1ct;.- A!l rights rco.cm.::d 
210 

network and any changes in the 

delivery of care, might be quite 

different. In addition, our current 

results cover only the effects of 

the first year of insurance coverThe costs and beneof coverage may 

well be different. 

That said, we bciicvc that these 

rcsuli·s provide the hcst evidence 

to date on the efft::cts of J\1edicaid cxpansinns. Our results cast 

cnusidcrabic doubt on both the 

view rhat Medicaid can 

health cue spending, at 

the short run, and the 

pessimistic view that Medicaid 

coverage \\'On't make difference 

ro the uninsured. \Ve expect ongoing data collection to provide 

even more information about the 

longer-run costs and benefits of 

tvkdicaid covtTagc. 

G); and th~ Departmer>t 

''"»ochcoctt; lnSN\Jte of 

Tecf-.r'Oiogy, Carnbndgf', MA (A F.) The 

study diScussed 1r1 artlde 'A•dS conducted oy the authors alor<g w<th Sarah Taub· 

l0.lOS6jNr}Mf1 I 108222 

TheN~\\ Lng.land .klllrna!l)f\·kdtcine 

OF MEDICAID COVERAGE 

L Levy Meltzer D 'tnpact of healti-1 

msurance on health. Annu Rev Pubi1c Hcaltf-t 

2008,29.399-409 

2. lnsHutc of MediC1 1lC unm 

sured consequences for health and 

health cart~ Wash;ngton. DC Nat:onal Acad· 

ern;es Press, 2009 

3. f tnkdstc•n A, Taubmar> S, Wnght 3, et al 

!he health 

D(m nluadcd fr,~m n..;Jm nrg on July 2()] 1 personal U'>C nnl;. :\n n1her US'-'S \\ 1thnut penn iss inn 

\ ·or:ng:ht J~ 2\lll ~1a'l~<KhtL'·eib \kdJCa! S,Kitty ,\II nghts rl.'~crn:d 
211 

The Oregon Experiment - Effects 

of Medicaid on Clinical Outcomes 

ABSTRACT 

Despite the imminent expansion of Medicaid coverage ftJr low-income adults, 

effects of expanding arc unclear. The 2008 Medicaid expansion in 

based on !orrery dra\vings a waiting list provided an opportunity to 

these ct1Ccrs. 

Approximately 

randomly s.eicctcd to be able to 

were not selected. Measures included 

globin levels: screening f(Jr depression; medication inventories; 

health status, health care utilization, :md ont-of:pocket 

services. \Vc used the random assignment in the lottery to calculate the 

of Medicaid coverage. 

'vVc fOund no significant effect of Medicaitl on the prevalence or diagnosis 

of hypertension or high cholesterol levels or on usc of medication for these 

co1Hlitions. Medicaid coverage significanrly increased the probability of a diagnosis 

of diabetes and the usc of diabetes medication, but \VC observed no significant ef.. 

feet on average glycatcd hemoglobin levels or on the percentage \Vilh 

levels of G.S% or higher. lv1cdicaiJ coverage decreased the probability positive 

screening for depression (·--9.15 percentage points; 95% confiUcnce interval, ·-·16.70 

to -1.GO; P:::0.02), increased the use of many preventive services, and nearly climin,Jted catastrophic out-of-pocket medical expenditures. 

This randomized, controlled study showed that Medicaid coverage generated no significanr improvements in measured physical health outcomes in the first 2 years, 

but it did increase usc of health care services, raise rates of diabetes detection and 

management, lo\vcr rates of depression, and reduce fluancial strain, 

MAY?, 1713 
212 

1714 

N 2008, OREGON INITI;\TED A LIMITED EX~ 

panslon of its Nlcdicaid program f()r lmv~ 

income adults through a lottery dr;.nving of 

ap,prc>xuua•cry 30,000 names from a woiting list 

almost 90,000 persons. Selected aduhs vvon 

the opportunity to apply for Medicaid and to en~ 

roli if they met eligibility requirements. This lotstudy the eft(:cts 

usc of random assignment. 

Earlier, non randomized studies sought to investigate the effect of !vkdicaid on health outcomes 

in aclu!ts vvirh the usc of quasi~expcrimcntal ap~ 

proaclws.H Although these can be Jn 

improvement over designs and often 

involve larger samples than arc feasible with a 

randomized design, they cannot eliminare conf{mnding bctors as dfectivcly as random 

ment. \Vc used rhe random assignment" 

in the Oregon Medicaicl lottery to examine the 

d1Ccts of insur<.:ncc coverage on health care use 

and health outcomes after approximately 2 years. 

METHODS 

RANDOMIZATION AND INTERVENTION 

Oregon Health Plan Standard is a Medicaid 

for low~incomc, uninsured, 

who arc not eligible for other public insur~ 

Medicare for persons ()5 years 

of age or f(lr disabled persons; the Chill . .lren's Health Insurance Program for poor cbil~ 

dr-cn; or Medicaid f(Jr poor children, pregnant 

\Vomcn, or other specific, categorically eligible 

ubtiuns). Oregon Health Plan Standard ro 

new enrollment in 2004, but the state opened a ncvv 

waiting list in early 2008 ::md then conducted 

eight random lottery drawings from the list be~ 

tween March and September of rh::tr year to allo~ 

catc a limited number of spots. 

Persons who were selected won the opportunity- fi.Jr rhcmsdves and household nlL'mber- to apply f"iJr Plan Standard. 

To be persons 

of age Oregon residems who vvcre U.S. ciri~ 

zens or !cgal immigrants: they had to he ineligible f(~r other public insurance ;:md uninsured f(H 

the previous () months, \'1-'ith an income that \NJS 

below 100% oft he federal poverty level and assets 

of less th3n $2,000. Persons who were randomly 

selected the were sent an application. 

Those who it and met the eligibility 

criteria \VCrc enrolled in the plan. Oregon l Jealth 

Plan Standard 

on income), through 

managcd~carc organizations. The lottery process 

and Oregon l Icalth Plan Srandard arc described 

more detail clscwhcrc. 4 

DATA COLLECTION 

We used an in~pcrson data~collcction protocol to 

assess a wide variety of outcomes. Vv'c limited 

data collection to the Portland, Oregon, metropolitan area brcrtusc of logistical constraints. Our 

study population included 20,745 people: 10,405 

selected in the lottery (the lottery \Vinncrs) and 

10,340 not selected (the control group). Vle con~ 

ductcU interviews between September 2009 and 

December 2010. The interviews took place an 

cragc of 25 months after the lottery began, 

Our data~collcction included detailed 

qucstionnctires on 

insurance coverage; an inventory of medications; 

and performance and blood~ 

pressure measurements. \-VCrc 

also obtained.~ Depression was 

usc of the eight-question version of the Patient 

llealth Questionnaire (PfiQ-8),'' and scll:reponcd 

health~ related quality of lite \Vas assessed with 

the usc of the 1\kdical Outcomes Study 8~rtcm 

Short-l~orm Survey? More information on recruitment and t1cld~co1lcction protocols arc included 

in the study protocol (available with the full text 

of this article at NEJ~~1.org); more information 

in the 

Su]pplemcntary Appendix at NEJM,org), 

review boards approved the 

study, and written infOrmed ronscnt vvas obtained 

from all participants. 

STATISTICAL ANALYSIS 

analy~ 

scs. The results of a fCw post hoc anal~ 

;rscs also presented and arc noted as such in 

Tables 1 through 5. Analyses were perfOrmed with 

the usc ofStata software, version 12.'1 

Adults randomly selected in the lottery \Vcrc 

given the option to apply fOr tvlcdicaid, hut not 

all persons sdcctcd. hy the lottery enrolled in 
213 

or MFDlCAfD ON OUTC0\1ES. 

Medicaid (either because they did not apply or 

ht.:causc they were deemed ineligible). Lottery selection increased the of Medicaid coverage during om period by 24.1 percentage 

points (9S% confidence interval [Cl], 22.1 to 25.9; 

PdHH11). The subgroup of lottery ·winners ¥vho 

ultimately enrolled in Medicaid was not comparable tn the overall group who did not 

win the lottery. \Vc used a standard 

instrumental-variable approach (in which lottery 

selection \Vas the instrument for Medicaid coverage) to estimate the causal cftCct of enrollment in 

Medicaid. Intuitively, since the increased 

the chance of being enrolled in by about 

pcrccnt:1gc and we assumed that the 

lottery outcomes only by Medicaid enrollment, the effect of being in 

Medicaid was simply about 4 times (i.e., 1 divided 

by 0.2.5) as high as the cH(\.'t of able to 

fOr Medicaid. This yielded a estimate 

the cHCct of insurance covcragc.w (Sec the 

1\ppcndix for additional details.) 

analyses were adjusted for the number of 

household memhers on the lottery list because 

selection was random, conditional on household 

size. Standard errors \-Vcrc clustered acconling to 

household to account for intra household corrcl:o1-

tion. \Vc fitted linear probability models tix binary outcomes. As ;.;cnsitivity checks. we shmvcd 

that our results were robust \Vhcn the average marginal cfft:cts from logistic tOr binary 

outcomes were estimated when demographic 

cha mctcristics were included :1s cowuiatc,-; (sec 

the Supplementary AppcnJix), All analyses were 

weighted for the 3tHl field-collection 

design; construction weights is detailed in 

the Supplementary Appendix. 

RESULTS 

STUDY POPULATION 

Ch::nactcris:tics of the respondents arc shown in 

T2blc 1. 1\ total of 12,229 persons in the study 

sample responded to the survey, tOr :m effective 

rate of 71%, There \Vcrc no significant 

hcnvccn those selected in the lottery 

a.nd those not selected with respect to the response 

mtcs to either the full survey (0.28 

points higher in the group selected in lottery, 

P= 0.86) or spccitlc survey measures, each of which 

had a response rate of at least 97% among people 

\.vho completed any part of the survey. Just over 

L Characteristics ofthe 12,229 Survey Respondents.'~ 

Lottery 

Controls Winners 

(N = 5&42) (N = 6387)-i' 

Fernak st~x 56.9 56.4 

Age 

19-34 yr 36.0 

35-49 yr 36 4 3G.6 

50--64 yr 27.6 28.3 

Race or ethnic: group§ 

Non-Hispanic 

were The cater,orics 

othet) were not rroutually exck.sive; respordcnts 

or ethnic Groups as they wtshcd 

half the participants were women1 about a quarter were 50 to ()4 years of age (the oldest d1gihlc 

group), and about 70% were non-Hispanic 

There \Vt:>rc no d iftCrcnces be--

tween those selected in 

selected with respect to these characteristics {P 

stJ.tistic, 0.20: P:::0.99) or to the wide of 

preGlndomiz<ltion and intcrvic\v characteristics 

examined (sec the Supplementary i\ppcndix). 

CLINICAL MEASURES AND HEALTH OUTCOMES 

Table 2 show;.; estimJ.tcd cff(:cts of Medicaid covcr<~gc on blood~pressurc, tot8l and high-density 

lipoprotein (IIDL) cholesterol, and glycatcd hemoglobin levels and depression. In the control 

group, 30% ofLhc survey respondents had positive 

screening results for depression, and we detected 

clcvarcd blood pressure in 16%, a high total cholcstcrollevc! in 14%, and a glyeatcd hemoglobin 

lcvd of 6.5% or more (a diagnostic criterion fl1r 

PValue 

0.60 

0.38 

0.87 

0.43 

1715 
214 

17lb 

diabetes) in S0

/o. N1cdicaid coverage did not have 

Cl significant eftCct on measures of blood pres~ 

sure, cholesterol, or glycated hemoglobin. Further analyses involving t\VO prespccificd subpersons '-iO to 64 years of age and 

who reported a diagnosis of dia~ 

bctcs, hypertension, a cholesterol level, a 

heart attack, or congestive heart fallurc befOre 

the lottery (all of which were balanced across the 

two study groups)- sho\vcd similar results 

the Supplementary Appendix). 

The predicted 10-ycar risk of cJrdiovascu!ar 

events vvas measured \Vith the usc of the Framingh::un risk score, which cstim::ttcs risk among 

persons older th;m 30 years of age to 

sex, age, levels of total cholesterol and I !DL 

lcstcrol, blood pressure and usc or nonuse of 

blood-pressure medication, status vvith respect 

to diabetes, and smoking status, with the predicted risk of a cardiovascular event within 10 

years ranging from less than 1% to 30%. 11 The 

Blood pressure 

Systolrc{mm Hg) 

Diasto!rc (rnm Hg) 

EievateJ 

HypertePsio'l 

Dragnosrs after lottery(%)}~ 

CL,nent U<;<" of medrcat10n for hypertension (%)5!: 

Cholt'steroi"'"'' 

Total level (rnr,jdl) 

Hrgh to:allevel (%) 

HDl lew! (mg/dl) 

l"ow HDL level (%) 

Hyperch o lesterole mf a 

after lottery(%)§~ 

10~ycar predicted risk did not chcmgc slgnificantl}' 

with ~kdicaid coverage (-0.21 percentage points; 

95% CI. -1.56 to 1.15; 1'=0.76). 

\Vc investigated whether Medicaid cover;1gc af: 

ti.:ctcd the diagnosis of and usc of medication for 

hypcrcholcstcrolcmic!, or diabetes. 

2 shows diagnoses after the and 

current medication usc. \Vc f(mnd no of 

Medicaid coverage on diagnoses after the lottery 

or on the usc of medication f()r blood-pressure and 

high cholesterol levels. We did, however, find a 

greater probability of receiving a diagnosis of 

diabetes (3.83 perccnt<~ge points; 95% Cl, 1.93 to 

5.T3: P<0.001) and using medications fOr diabetes (5.43 percentage points; 9'3% CI, 1. 39 to 9.48; 

P:::::0.008). These arc substantial increases from the 

mean rates of diagnosis and mcdic<1tion usc in the 

control (1.1% and G.4%, respectively). 

1\ result on screening for depression 

was defined as a score of 10 or rnorc on the 

PliQ-8 (which ranges hom 0 to 24, with higher 

Current use of rnedicatrc::n for high cholesterol level (%}1 I 

Glycatcd hemoglobin 

Level(%) 

Lewl (%ltl 

N E~CLJ ORC I.,1AY 2, 
215 

FrrECTS ON CllN!CAL OUTC0!'•1FS 

Variable 

Deprl"S';Jon 

Po:;!\ive screening re;;ull 

after lottery CYO)j~l 

~ not prcspecificd 

~1 A DiFt1npant cons1dercd to have rccc!vcd <1 

dngnos1s a her March 2008 (the start of the 

wds 'lot consldt'rcd to h;we a :he 

;.;cores indicating more symptoms 0f depression). 

Medicaid co\'Cragc resulted in an absolute de~ 

crc;~sc in the rate of depression of 9.15 percentage 

points (95% CI, -1().7 to -1.(J0; P::::::0.02), rcprc~ 

scnting a relative reduction of )0%. Although 

there was no significant incn;asc in the usc of 

mcdic;nion for depression, Jl..kdic~1id coverage 

led to an absolute increase in the prohability of 

receiving a diagnosis of depression after the lottery of 3.81 percentage points (95°/o Cl, 0.15 to 

7.46; P:::0.04), representing a relative increase of 

about 80%. 

Mean Value in Change with Medicaid 

Control Group Coverage (95% C!)'!' 

]0.0 -9.15 (-l6.70tu-1.60) 0.02 

48 3.81 (O.l5 to 7.46) 0.04 

16.8 5.49 {-0.46 to 11.45) 007 

8.2.t-7.5 -0.?1 (--l.J6 to l.l5) 0.76 

lL6±8.3 0.24 

HEALTH~RELATED QUAUTY OF LIFE AND HAPPINESS 

Table 3 shows the effects of Medicaid coverage 

on health-related quality of life and level of lnpMcdicaid coverage led to an increase in 

of people who reported that their 

\·VaS the same or better as compared with 

their health 1 year previously (7.84 percentage 

points; 95% CI, 1.4) to 14.2i; Po=tl02). The physical-component and scores of 

the health-related quality of measure are 

based on diffCrcnt \Veigh ted combinations oft he 

eight-question h<_Htcry; each ranges from 0 to 100. 

1717 
216 

1718 

HealtfHelated quii!ity ofiife 

H('alth or bettc•J v-.. 1 yr ?ar!1er (%) 

SF-8 subscd!c:~ 

Mental-component 

PhysiCal-component score 

No penn or v"ry mild 

coverage led to 

increase 1.95 points ('JS% Cl, 0.03 to 3.88; 

P:::::O.OS) in the average score on the mental component; the magnitude of improvement was approximately one fifth of the standard deviation 

uf the score. \Vc did not deFINANCIAL HARDSHlP 

of lite 

levT3blc 4 shlnvs that iv1cdicaid coverage led to a 

reduction in financial strain from medical costs, 

according to a number ofsclt~rcportcd measures. 

In particular, expenditures, defined 

as oul-of:pockct expenses exceeding 30% 

of income, vvcrc nearly eliminated. These expenditures decreased by 4.48 

Mean Value in Change with Medicaid 

Control Group Coverage {95% C!)'i' P Value 

80.4 7.84 {l 45 to 14 23) 0.02 

44.4dl.L1 US (0.03 to 3.83) 005 

45 S:t-10.5 1.20 (-0.54to 2.93} O.l& 

5G 4 078 

pit;ll 8dmissions. Vlc estimated that Medicaid cov~ 

cragc inncascd annual medical spending (based 

on measured usc of prescription drugs, oH1cc 

visits, visits to the department, and 

hospital admissions} or about 3'1% reb~ 

tivc to the in the control group. Medicaid covcr::1gc also to increases in some 

vcntive care and screening services, 

cholesterol screening {an increase of 14.57 per~ 

ccnragc points; CJS0/o CI, 7.09 to 22.04; P<0.001) 

and improved perceived access to c8rc, including 

a usual place of care (~m increase of 23.75 pcr95% Cl, 15.44 to 32.06; 1'<0.001). 

no significant effect of Medicaid coverage on the probability that a person was a smoker or obese. 

DISCUSSION 

(95% Cl, -8.26 to -0.69; P=0.02), o 

duetion of more than 80%. 

rc~ This stuUy \Vas based on more than 12,000 inperson intcrvic\vs conductcU approximately 2 years 

ADDITIONAL OUTCOMES 

Table S shows the effects of Jvkdicaid coverage 

on health care utilization, srending on health 

cue, preventive care, access to and quality of care, 

smoking status, and obesity. Medicaid coverage 

resulted in an increase in the number oCprcscrip~ 

tion drugs received and ofllcc visits made in the 

previous yc:H; we diU not find significant changes in visits to the emergency department or hosafter a lottery that assigned access to 

1\rtedicaid f(H· low-income, uninsnrcd 

adults a group that the majority of 

persons who arc newly for Medicaid under the 2014 cxpansion. 12 results confirm that 

Medicaid coverage increased overall health care 

utilization, improved sclf~rcportcd health, andreduced financial strJ.in; these findings arc eonsis~ 

tent with previously published results hased on 

mall surveys conducted approximately 1 year ~d~ 

ORG "'AY 2, /01) 
217 

OF MEDlCA!D ON CL!:\'!C/\L OlJTCOMES 

1 Mean Values and Absolute Change in Financial Hardship with Medicaid Coverage!"" 

Variable 

Any out-of-pocket spendmg {%) 

A:nou'lt c.Jf out-of.pockot spencJmg ($) 

Catastrophtc cxr:cndtturcs {%):!: 

Mean Value in 

Control Group 

58.8 

J)/8:::.12195 

5.5 

56.8 

24.4 

Change with Medicaid 

Coverage {95% C!H P Value 

-15,30 (--23.23 to· 7.32) <:0.001 

(-408.75 to -21.95) 0.03 

,-4.48 {-8.26 to -0.69} 0.02 

-·13.28 {-21.59 lo -4.96) 0.002 

-14.22 {~21.02 to -7.43) <0.001 

values are weighted meaqs tSD. Wher·e rnear;s arc shown without standard devtatrons, they 

effect of Medtcatd estimGted tht' usc msttwneotal-vaneble 

Ali for the nurr,ber of household 

tcr the lottery:• \Vith thcEic new data, we found 

that increased health care utili;:;ation observed at 

persisted, and \VC prc5cnt nc\V results on the 

of 1\kdicaid coverage on objectively measured physical health, depression, condition-specific treatments. and other outcomes of interest. 

Medicaid had no cffCct on 

the or hypertension or 

cholesterol levels or on the usc of medication for these conditions, It increased the prohab!lity of a c:iagnosis of diabetes and the usc of 

medication t()r diabetes, but had no significant 

of measured glycatcd heof G.S% or higher. Iv1cdicaiJ 

substantial reduction in the risk 

of a positive screening rcs1Jlt for depression. This 

pattern of findings with respect to clinically 

measured health an improvement in mcnt;d 

health but not in physical health (Table 2) -

\\'JS mirrored in the self-reported health measures, with improvements conrcntratcd in mental 

r:1ther th;m physical health (Table 3). The improvements :tppc:u to be specific to depression :1.nd 

mcmal health measures; ~~\cdicaid coverage did 

not appear to lc~ld to increase in sclf.:.rcpmtcd 

hrtppincss, vvhlch is Jrguably a more general mea~ 

sure of overall subjective wcll~bcing. 

llypcrtcnsion, high cholesterol levels, di3heand depression are only a subgroup or the 

of health outcomes potentially affected by Medicaid coverage. \Ve chose these conditions because 

they contributors to morbidity and 

mortzdity, to measure, prevalent in the 

lovv-incomc population in our study, and plausibly modifiable by ctlCctivc treatment within 

30% of their household ir<corre 

2~ycar time framc.n·lb Nonetheless, our power 

to detect changes in health was limited by the 

relatively small numbers of patients with these 

conditions; indeed, the only condition in vvhich 

we detected improvements \Vas 

vvhich \Vas by far the most prevn!cnt four 

conditions examined. The 9S0/o eonfldcncc intervals h.H many of the estimates of cffCcts on individual physical health mc1surcs \Vcrc wide 

enough to include changes that would be considered clinically signific;1nt such as a 7.16-pcrccntagc-point reduction in the prevalence of hypertension. Moreover, although we did not find 

a significant change in glyc;Hcd hemoglobin lev~ 

cls, the point estimate of the decrease we ob~ 

served is consistent with that which would be 

expected on the basis of our estimated increase 

in the usc of medication for diabetes. The clinical-trial literature indicates that the usc of oral 

medication for diabetes reduces the glycatcd 

hcrnoglobin level by an avcr3gc of 1 percentage 

point within ::JS short a time as G monthEi. 1s This 

estimate Crom the clinical literature suggests 

that the increase in the use 

in our cohort would 

hemoglobin level 

in the study population 0.05 percentage 

vvhich is well within our 95% confidcnrc 

val. Beyond issues ofpmvcr, the cffCcts of Medicaid 

covcrJgc mJy be limited by the multiple sources 

of slippage in the connection between insurance 

coverage and observable improvements in our 

hc;:dth mctrics; these potential sources of slippage include access to care, of underlying conditions, prescription mcd3G8;18 NFJM ORG MAY?, 2:0>) 171<) 
218 

Mean Values and Absolute Change in Health Care Utilization and Spending, Preventive Care, Access 

to and Quality of Care, rtnd Smoking and Obesity with Medicaid Coverage.* 

Mean Value in Change with Medicaid 

1 Variable Control Group Coverage {95% Cl)t 

Utilization (no of visit'l or rnedkations) 

prescnpt1on drugs 

OffiC(~ vlsrts in past mo 

OutpatiNit r.-lst 1? rl"IO 

Emergency department visits rn past 

Hospital admiSSions in ;::ast 12 mo 

F!u 1t1 persons :;-50 yr 

Paparucolaou smear in worr:en 

t'vbrnmography In worn en 

PSA test 1n mer. -:cSO yr 

Percc:ved :;~ccess to <~nd qual1ty of care{%) 

Had a usual place of care 

Rere1vcd al! needed care in past 12 mo 

Care was of high qual1ty, if rece1ved, past 12 rno 

obes1ty 

icadons, compliance \Vith recommendations, and 

effectiveness of treatment in improving hcalth. 17 

limitations in statistical pnwcr, \VC 

analyses of subgroups in vvhich ct: 

tCcts might he stronger. including the ncar-elderly 

and persons vvho reported having received a diagnosis of diahctcs, hypertension, J high cholesterol level, a heart attack, or congestive heart 

bilurc bct(wc the lottery. \Vc did not find significant changes in any of these subgroups. To 

try to lmprovc statistical power, \VC used the 

l8-t2.8 0.66 (0.21 to 1.11) 0 004 

5.5-tl1.6 2.70 (0.91 to 4.<19} 0.003 

0.1-±-0.4 0.01 (-0.03 to 0.09) 0.18 

1.0±2.0 0.09 {~0.23 to 0.42) O.J/ 

0.2t.0.6 0.07 (-0.03 to 0.17) 0.17 

3,257.1 1,171.63 (199.35 to 2.143.91) O.D18 

27.2 14 57 (7.09 to 22.04) <0.001 

t9.l 1 26 (~9 44 IO 96) 0 82 

10.4 4.19 to l2.62) 0.31 

11.5 ~5.74 (~19.31 to U\3) 0.41 

44.9 1444 (7.64 to 26.24) 0.016 

78.9 29.67 (ll.9G to 47.37) 0.001 

71.4 19.18 (l.l4 37.2l} 0.037 

46.1 23.75 (15.44 to 12.06) <0.001 

61.0 11.43 (3.62 to l9.24) 0.004 

78.4 9.85 (2.71 to 17.00) 0.007 

42.8 5.18 (-2.54 to 13.70) O.l8 

risk score as a 

us to reject a decrease 

20% in the predicted 10-ycar cardiovascular risk 

or a decrease of more than 10% in predicted risk 

among the participants with high~risk diagnoses 

before the lottery. Our rcsuhs were thus consistent with at best limited improvements in these 

particular dimensions of physical health over 

this time period, in contrast \~lith the subst::mtial 

improvement in mental health. 

Although changes in health status arc of grcm 
219 

interest, they arc not the only important poren~ 

tLll benefit of expanded health insurance coverage. llca!th insurance is a financial product thctt 

is dimed ;H fin<1ncial protecting from catastrophic care expenses he-come injured or sick land ensuring that the providers who sec them arc paid}. rn 

our study, Medicaid coverage almost completely 

eliminated catastrophic out-ot~pockct medical 

expenditures. 

Our estimates of the cflCct of Medicaid cover-

::lge on hc.dth, health care utilization, and fin;m~ 

cial str:-1in apply to able-bodied, uninsured adults 

vvith incomes bclO\v 100% of the federal poverty 

level vvho express interest in insurance 

of considerable interest 

care policy, gircn the planned expansion 

of Medicaid. The Patient Protection and Aff()rdahlc C:uc /\ct of 2010 allmvs states to extend 

OC'TC(),\lES 

datcsY' Third, the ncvvly insured particirams in 

our study constituted small share of all ttninsurcd Oregon residents, 

effects that insuring them 

the system-level 

generate, such 

as strains on provider capacity or investment in 

infrastructure. Fourth, we examined outcomes 

in people who gained an average of 17 months 

of coverage (those insured through the lottery 

were not necessarily covered fi.1r the entire study 

period); the cffCcts of insurance in the longer 

run may diHCr. 

Despite these limitations, our study provides 

evidence of the cftl;cts of expanding Medicaid to 

low-income adults on the basis of a randomized 

design, which is r8rcly Jvailablc in the evaluation 

of soda! insurance V/c found that insurance led to access to and utilization 

of hcctlth care, substantial in mental health, and reductions in 

Medicaid to all adults with incomes of we did not observe reductions in measured 

up to l )8Wn fCderal poverty leveL I rowevcr, blood~prcssurc, cholesterol, or glycatcd hcmoglothcrc arc several important limits to the general~ bin levels. 

izability of our findings. First, the lcNl-incomc Tlw ~wd corll'lusi,)ns 

uninsured population in Oregon differs fi:om ~old)- tht: aurlwrs ,mJ dll not 

the overall population in the Unircd States in view~ t>fthe funJcr~. 

some respects, such as the proportions of per~ 

sons \Nho arc members of racial and ethnic minority groups. Second, our csrimatcs speak to the 

effCct of Medicaid coverage on the subgroup of 

people who signed up fOr the lottery and tiJr 

whom \Vinning the lottery affCctcd their coverage status: in the Supplementary Appendix \Vc 

provide some additional details on the characteristics of this group. ,1\i.cdicaid coverage may have 

diff-Crcnt ctlCcts for persons vvho seck insurance 

through the lottery than fix the general popula~ 

tion Jff(xtcd by coverage mandates. For example, 

rcrsons who signed up i{;r the lottery may have 

expected a greater hcJ.lth hcncfit from insuwncc 

covrrngc than those vvho did not ::-~ign up. Of 

course, most cstim8tC's suggest imperfect land 

selective) Mcdic:Jid take-up rates cvcn under manN t>.IGL_j 

Catherine T. 01ac;\rthur Foundation; the NJtional on 

(P)(lMI012Sm RC2/\C0;3NJc;l, 2nd ROlN;034Sl'il); t!1c 

Johnson Foundation: tlic ,\lfi:'Cd P . .s:oan ;:ound;\· 

tlon; the Smith Richardson Foundation: and Sccunty 

,\Jrnini~tration () RKC {)?j()t)~400·03·00, to the Natiorul 

orEcnnotn!C Rc~earch as p:ln uf the Retirement Rc~cl.rch Con·Wt· 

tl\llli oi the and by the Center~ 

MAY 1, ?013 1721 
220 

,\iFDlCJ-\lD ON CLINICAL OUTCOJ\1ES 
221 

The NEW ENGLAND JOURNAL of MEDICINE 

OCTO~CR 20, 2016 

Effect of Medicaid Coverage on ED Use- Further Evidence 

from Oregon's Experiment 

Amy N. Finkelstein, Ph.D., Sarah L. Taubman, Ph.D .. Heidi L. Allen. Ph.D .. SiiiJ. Wright. Ph.D., 

and Katherine Saicker, Ph.D, 

Th<.> cffi~ct of ,\kdicaid cnrcrage on health and 

the usc of health care services is of nrst·ordcr 

policv impo11ancc, pnrricularlr as policym:1kcr~ 

consider expansions of public health insurance. 

go to the ED and not to a primary 

care office?" He hypothesized that 

"Despite the earlier finding that 

coverage increased outpatient usc, 

many of these newly insured pa· 

tienrs probably had nOt yet cstab· 

Estimating the effects of expand· 

ing Medicaid is challenging, how· 

ever, because Medicaid enrollees 

and the uninsurrd differ in many 

ways that may a lso affect out· 

comes of in~rest. Oregon's 2003 

expansion of Medicaid through 

random-lottery selection ()f poten· 

rial enrollcts from a "va iting list 

offers the opp(>rtuniry ro assl·ss 

Medicaid's effi:crs with a random· 

izcd evaluation tlw is not con· 

taminated by such confounding 

factors. ln a previous rxamin:1tion 

of the Oregon Health Insurance 

Experimem, we fhund that Mt·dic· 

aid coverage increased health care 

use across a ronge of settings, 

impro1•ed financial security, and 

reduced rates of depression among 

enrollees. but it produced no de· 

tectable changes in several mea· 

su rcs of physical health, employ· lished relationships with primary 

mem rates, or earnings.'·• care physicians. If so, the excess 

i\ key finding was that Medic· ED usc will attenuate with time."' 

aid incrc:tscd emergency depart· We have now analyzed addi· 

ment !ED) visits by 40% in the tiottal data in order tO address 

first 15 months after people won these questions: Does the increase 

the ottery. ~ This finding w:1s in ED usc caused by Medicaid 

greeted with c:onsidcrablc att~n- coverage represent a short·term 

tion and surprise, given the wide· effect thar is likely to dissipate 

spread belief that cxp~nd ng Med· over time? And does Med icaid 

icaid covC'ragc H) more uninsured CO\'eragc encourage the newly inpeople would encourage the use sured to substitute physician of. 

of primary care and therebr re· fice visits for ED visits? We used 

duce ED usc. Many observers spec· the lottery tO implement a ran· 

ulated that the increase in ED domizcd, controlled evaluation 

use would abate over time as the of the causal effect of Medicaid 

newly insured found altcrnati\•c coverage on health care usc, ap· 

sites of care or as their health plying a standard instrumental 

needs were addressed and thcii variables approach. More detail 

health improved. One com menta· on the lottery, data, and methods 

tor, for example, raised the ques· is avaibble elsewhere•·• as well as 

rion, "But why did these patients in the Supplementary Appendix 

1505 
222 

1 S06 

EFFECT Or MU)ICA!D COVERAGE ON ED USE 

A 

Estimated Effect of Medicaid Coverage nn ED Use over Time. 

2007 2010 for Lhc 12 EDs in the Portland 

membNs hvtng m the catchment area 

SIVc>ly covered these EDs 1 bars indtcate 95% confidence mtcrvah SL.:pplcmcntary Appcnd1x for detads. The 

plvs the estimated effect of Medicaid coverage from the two·stage least-squares regressiOn 

(available at which 

also provides results. 

Extending our ED administrative datJ by year ro span the 

2007~2010 period, we analyzed 

the p.lttcrn of the eff('ct of Medicaid coverage on ED use over a 

2-year period after the 2008 lottery. The graphs shmv the effEct 

of Medicaid coverage over time 

both in terms or the mean 

number of ED visits per person 

(Panel ;\) and whether a person 

had any ED visits (Panel B) 

measured ,separately for the fOur 

6-mouth periods after lottery notification. There is no statistical or 

suh;,untivc cvi<.:lencc of any time 

p:lttcrn in the effect on ED usc 

on either variable. Medicaid cov~ 

cragc increased the mean number 

of ED visits per pcr,son by 0.17 

(st:mdard error, 0.04) over the 

first 6 months or about 61% rela~ 

tivc to tile mean in the control 

group of individuals not selected 

in the lottery; over the subsequent 

three 6-month periods) the 

estimate:; arc similar and, the 

most part, statistically indistinguishable from each other. For example, we c;mnot reject (P::::0.80) 

the hypothesis that the 0,17 increase in ED visits ~tttributablc 

to Medicaid coverage in the first 

6 months is the same as the 0.15 

increase in visits in months 1R to 

24. Thus. using another year of ED 

data 1 vvc t(nmd no evidence that 

the increase in ED usc due to 

Medicaid coverage is driven by 

pcnHJp demand that di:;sipatcs 

over time; the effect on ED usc 

appears to persist over the first 

2 years of \Vc repeated 

hospital admissions and once again fbund no 

evidence of any time pattern:; in 

the effects of Medicaid coverage 

over the first 2 years (see the Supplemcnt,~ry Appendix f{x details). 

In our previous 1-vork, \VC found 

that 1\i.cdicaid increased both physician office visits and ED usc. H 

To whether Ntedicaid 

coverage the relationship 

between office visits and ED use, 

we analyzed data on annna! office 

visits ftom our 2010 in~person survey, combined with administrative 

records on ED usc for the same 

over the same 12-month 

period. We estimated 

that Medicaid coverage increased 

the joint probability of a person's 

having both an ED visit and 

office visit by 13,2 percentage 

points (standard error, 3,5), 

VVc e:;timated separately the 

effect of J\1edicaid coverage on 

whether the person had an office 

visit and whether he or she had 

an ED visit; we used these esti¥ 

mates, together with BJyes' rule, 

to the effect that MediccoverJge would have on the 

joint of having both 

types of visits the increases in 

the two of visits were independent each other. The predicted increase in the joint prob~ 

ability under the assumption of 

independence i,s 9.9 percentage 

points (standard error, 3. 5), which 

is less than the estimate of the 

actual increase in the joint probability. VVc thu,s found no evidence 

that Medicaid coverage makes usc 

of the physician's office and usc of 

the ED more substitutable for one 

another. If anything, the results 

suggest that it makes them complemcntJ.ry. 

One possible reason for this 

finding is that the type of people 

who usc more care \Vhen they 

gain Medicaid coverage are likely 

to increase usc across multiple set~ 

tings, including both the ED and 
223 

the physician's offkc. Another possible reason is that by increasing 

the usc care, Medicaid 

coverage may up driving greater usc of emergency care. For example, primary care providers may 

sometimes encourage to 

seck such care. One participant we intcrvievvcd told us, ''I 

went to the doctor's office one 

time and they said, no, you need to 

go to the ER because your bload 

sugar is vvay too high. It's going 

to take us hours to get it down. 

So you need to go to the ER." 

For policymakcrs dellbcrating 

Jbout Medicaid expansions, our results, which draw on the strength 

or a randomized, controlled design, suggest that nc\vly insured 

EFFECT OF MEDICAID COVERAGE ON ED USE 

will most likely usc more 

care across settings including the ED and the hospital 

- for at least 2 years and that 

expanded is unlikely to 

drive substitution of l27:10':17·1U(l 

office visits f()r ED usc. 

-oregon-led-more-shun-term-ed usc) 

or~ (SJW) 

The United States and Cuba- Turning Enemies into Partners 

for Health 

C. William l<eck, M.D., M.P.H. 

n June 2016, the U.S. Depart· 

mcnt of 1 Ieaith and lluman 

Services (HilS) and Cuba's Ministry of Public Health signed an 

umbrella accord that promises to 

make health cornerstone of the 

De\V era of cooperation bctvvecn 

the two countries. The memorandum of understanding (MOU). 

signed by IIHS Secretary Sylvia 

MJthcws Bunvcll and Minister 

Roberto Morales Ojeda, is the latest expression of goodwill since 

the December 2014 rapprochement that renewed diplomatic relations and reopened embassies in 

Washington and I favana. According to the HHS announcement 

the MOU "establishes coordination across a broad spectrum of 

public health issues, including 

global health security, communi~ 

cable and non-communicable discases, research and development, 

and infOrmation terhnology." 1 fi~ 

nally the door has been opened 

f(x bilateral collaboration aimed 

at preventing and controlling discases that affect people in both 

countries including infectious 

threats such as Zika as well as cancer ;:md other chronic conditions 

that arc the main causes of death 

in the United States :111d Cuba. 

Somewhat lost in the attention 

received by the MOU and the 

general progress of negotiations 

- which allmv for expanded 

travel to Cuba for Americans -

is the fJct that \Vashington's sixdecade embargo against CubJ. is 

still in place .. Although President 

Barack Obama's executive actions 

have reduced its reach, only Congress has the power to end the 

embargo altogether. lts restrictions 

seriously hamper the full collab~ 

oration promised in the MOU. 

\Vhy should Americans care? 

Although Cuba is relatively poor, 

N fNG( J MfD 1?5;lb 

it has managed to make prevcntion~orientcd primary care1 as well 

as secondary and tertiary care, 

available to all its citizens. Today, 

markers of population health in 

Cuba compare favorably with those 

in the United States, and there 

are fCwer geographic and urbanrural health disparities. Cut off 

from pharmaceuticals, medical dc-~ 

vices, and other technology developed in the United States 1 Cuba 

has also invested heaYily and 

sncccsstully in biotechnology 

and related fields, as vvcll as in 

strategies to address and 

infectious diseases chronic 

conditions common in its aging 

population. 

As a result, the United States 

can learn a number of lessons 

from Cuba's experience - about 

the organization of medical services, the establishment of community-based programs to pro~ 

1507 
224 

1\attwrincB<lkker, 

PhD 

AmitabhCh,}ndra., 

PhD 

Cnrresponding 

Opmmn 

The Veiled Economics of Employee Cost Sharing 

mi:l1ons of people m the United The trJde·off between wage:. and fnnge benefits 1s 

States \\lho get heJith Insurance through thew employ· central to understanding the drstnbut1onai effects of 1nrece1ved the unwelcome news that cost shanng 

would Harvord Un11.:ers1ty, when: both of us 

creases 1n health care costs. Employers provide a SlfTll· 

lar menu of Insurance opt1ons to VR)rkers w1th d1fferent 

work and get our health 1nsur,1nce, :ncreased cost- wtlgcs and salaries. Health Insurance prem1u1ns rej_lre· 

gress1ve ;md partJCuiarly h<mnfu1 tor !ower-wage 

employees.: The critiques :mpilc1tiy presumed that 1t is 

possible tc have h1gh wdges, iower prem1ums, dnd no 

cost sharmg. But th:s prcsurrq..ltlon misses the fundamentz\1 econom1c conneclions between wages. prem1· 

ums, ,]nd cost shanng 

Cost sh;mng has certainly mer eased, from copayrrwnts for f)hys1oJn offJceviSitsand prescnpt1on drugs to 

cleciuct1b!es; thefructJon of workers 111 a plan Witll at least 

a $1000 

siDnng feels like J decrease both i!l the gcncros1ty of coverage CJnd 1n cmnpensatton.ltsecrns part1cularlyunfaa to 

iower·wage workers who face the same deductrbles ollld 

COfl<lyments as the1r ll1gher-pa1rl counterpilrts Jnd who 

may 

creases1n cost shanng Jre not rH2cessanly regressive nor 

neces<;an!y assooMted w1th lower compensation 

;mce 

rea!1ty of who JctuJIIy Pi1Y'> lor health msurthe different lmp,Kts of changes !11 :nsur· 

ance plans en low-wJge and h1gh·wagt:o employees. Despit<:' th~:.' hdnd wnngmg over incn-;asl:'s 1n employee 

premnHn contnbut1ons, the employee share at premiums husstayed behveen 27~«_, Jnd 29% for t110 last 2 decades. although the dollctr amounts tuve 1ncre,1seri because toi<Jl prem1ums howe lnCiea:.ed. The prermum lor 

a famtly policy more thdn doubloJ frorn approximately 

SSOOO m 2002 $16 800 1n 2014. 2 Th1s 1s far from 

transp~lrent to employees, most of whom do not see 

the1r emp!oyf'r'S share of the premnml. More Importantbut even rnore opaque~1s the fact that employees ultimately pay not only thm sh&e of prem1ums but tl11~i1 

E:>rnp!oyer's share as we>ll \ Th1s iSclnven by tile econom· 

1cs of labor markets Employers are largely indifferent be, 

tween paytng dn employee ~40 000 1n and 

$20 000 1n be11efits and paymg $50 000 tn vv<1ges and 

$10 000 in benef1ts-~n1 both c,lses, total compcnsdt:on IS ');60 000 When the cost of ht?.Jith Insurance lr1· 

less money left available for wnges. Th:s 

"wage fnnge" trade-off Wto'ii ctocurnenterl dnd 

Jpf-JI:es to nonprofit and for-prof1t employers aid<e_ in 

1n health msurancc prem1urns do not get Jbsorbed by an unl1m:ted reservoir of profits or endowsent n much !CJrger share of compensation for ,1 family 

tdking home $40 000 than for a family that rnakes 

$1.'50 000·--Jnd a premiUnllncre;:Jse of $1000 tJkes a 

much b1gger perce!ltage bite out of take· home pay for 

the iower-nKome family, A lower-income family m1ght 

prefer to have less generous hea!th insurdnce and more 

compensJtlon, so that more money was available for 

rent, gas, anrl other pnonttes. So why do they llctve th1s 

compensation package? 

A key reason that employers prov1L1e a similar menu 

of :nsurance optiOns, regardless of an employee's :ncome, IS th<1t the tJx code Ill the United States favors 

he,Jith insur Z\nce benefits relatiVt.~ to wages as long as em, 

rloyers offerthe1r h:gh and low, wage workers the same 

pldns. This tax preference fosters compensation pon:k" 

ages that are skewed toward health 1nsur a nee rather than 

w;'lges. The skew1ng has 2 ii1Sidlous etfects: !tIS both re· 

gress;ve and meffK1Pnt 

The tax preference for hevlth Insurance 15 regres 

s1ve because 

mcorne workers· an employee m the40% mnrg!nJl tax 

brdcket ,.,nth;) $10 000 tax-free pohcy saves $4000 1n 

avoided, whereas ;m employet'ln th<? 15% tJX 

bracket only $1500. H1gher-1ncome workers are 

also more l1keiy to have JObs thJt offer expensive 1nsur· 

dnce plans. f-\s a result, 1ower·wJge workers. have slow 

or nonex1stent wage growth because of the grow1ng 

shdr€ of the1r compensation devoted to heJith :nsurance 1nstead of w<1ges. and thetr tnsurance plans cater 

mme tot he prefer·encesof higher-wageworkers than to 

thens. Remedying th1s rl:'gresstveJspect of the tax code 

!S one of the mottv,ltions for the "Cadillac tax": stJrtmg 

1n 2018, heaith msurers have to pay a tax on employer 

health msurance plans with premtums greater th<m 

$10 700 for tndiw:iuals or $27 500 forfarr.iltes.r' l hese 

Uolbr amoun1 s tnc.reasc only Js qu1ekly as inflatton. so 

if health msurJnce prem:ums mcrease more qutckly, 

more c1nd More [Jians w1:1 be subject to the tax overt1rne. 

The Cadilldc tax provtdcs ,1 mot1vat1on for employers to 

slow premtum growth 

Another reason to reduce the :.ubs1dy for expenstve employer· sponsored health 1nsurance ts that the 

substdtes encourage the prollfer,'ltlon of plans vv1th mini~ 

rm! cost shanrtg, which in turn encourctges the lneffluent usc of med:cal care. At flrst blush, 1t might seem 

ments~they are that costshanng ISJliSt a way of diVldlllg upw!1etf1er em· 

paychecks occur 1n- players m employees pay the b11ls, but decades of evi· 

stantdneoL:Sly for e;:;ch llld:viduc!l, however. So mn-eJses :n pn?lllllHflS c1re much more v1sibie ond sal1ent 

th;m U1e1r effect on take,tmrne p,:y 

dence shmv lhal lower cost shanng leads p,'ltlents to 

consume more cJreoflmlltec1 health value--such e1s unnecessJry tests-·and that th1s consumpt1on leads to 

JAMA Internal Medicine 

Copyrlght 2015 American Medlc;l! Association. All rights reserved. 

1081 
225 

Opm1on 

higher health HlSUf21lCe premiUins ;_c: Cost shZlnng Gill thus 1111t1 

gJte the pn::m1um :nm:ascs that vvould bf' nec>drd to expand covCIJge to new servtces--manyof ~vh1ch rmy p<irttcul&ly beneftt p,3-

lients w1th St>ltOus illncc;ses 

il1e potential usefulness of cost shcmng does not, however, 

that we would all be better off with across-the-bocJrd 1n 

cre<tses 1n cost shanng ° F:rst, Insurance provides cruoal ftnancrJ! 

p;otcctlon 0g0rnst ~otent1J\Iy cdtdstrophiCdi!y lligh health 0xpenLlitures P<:lttent cost sh;utng Cforles the v;1b~Gf the nsk protectton 

thnt hcclith 1ns~nnnce prov:des. The benefit of reduc1ng the over· 

usc of m0d:cal serv:ces thJt is tnheront 1n substdLztnghea!thGre must 

be balancE:'d ,1g,1:nst the cost of losing f~rtJilC1dl protectlon when it 

realiy rniltters A c!i'>proportlondtt:> share of health spending 1s ford 

relatM:o-iy sma~i number of people requmng veryexpens1ve care /\ny 

1nsu1 anc~: plan w.th adequate protect1on ag;11nst cat'lstrophlc out 

of-poc.ket spendmg (~uch Js em annudl out-of.pocket mdxnnum of 

$10 000) wil! iE'ilVe a substJntlalshare of t1ealth care cxpendttures 

rncxcess of that :naxmrunt and thus not subject to C\)St shanng Second. as we have discussed, a g1ven dollar arnount of cost shcmnghas 

c::fferent :mp:,cat:ons for people w1th different :ncomes, 

Conflict of Interest Disclosures: C'IJ 8o•c4er :~ <1 

10fl2 JAMA Internal Ml"didne 

1ng that opt:mal cost shc11tng m:ght 1nnease w:th IIKOn<e. At present, 

th:s f(\lture is se-en more m cost-shanng subs:dH?S for low·mcome 

enro!iees 1n some publtc plans than 10 employer-sponsored health 

;nsur,:mce. Th:rd, p,-,t:ents f2ong h1gher deduct:bles and cop<Jys may 

reduce cCJre of h1gh va!ue (such Js adherence 1 o effect1ve med:ca 

tiOnsl along W1th the care of low value (such as tests that Jre not 

recommendcd)Y· 10 The ev:dence suggests that more soph:stiCdted cost slki!lng, such as h1gher copay:, for care of questionable 

heJith bc:neftt, might encourage higher-value health care spendmg 

Jnd c;tem the growth of health lnsurancr:> prem1ums 

that protect preventJVe care from copayrnents and 

"value-based" :nsur d!KQ plans that substdJle medle<ltlons that help 

keer:: pJttcnts oL:t of the hosp1tai :o 

rhese caveats do not nwJn that cost shanng shou!d he ;:schewed as a too! to improve vaiue~but rather that cost shanng 

st10uid be deployed lfl a more nuanced way than Jt 15 now_ if enabled by t('gu!Jtory changes dfKl hewlth care system reforms, cost 

shar 1ng based on the value of care and scaiE'd by 1ncome could IHtprovc health, slow mcreases tn health msuranc!? prenliums, and 

mcre0se t0l<e-home pay 

Copyright 2015 American Medical Association. AI! rights reserved. 
226 

Alternative Alternative Payment Models 

for controlling sp;.'nd~ thL' number ofpaliL'nts staying at a skilled nursing facility or 

mg and improvmg the quahty of care delivered in tht' United usmg home health care bcforcjointrcplaccmcntdecrcased afpayr~wnt reforms that aim CCllC 

nck·r.s an mcentive to 1m prove v;~hl('.1ka1tll care prov1dcrs Jre 

often in the hcst to 

identify ways to reduce waste 

and help thrir patients chose 

the most efficient sltcs and 

type;, of care. Giving health cu<> prov1ders a flnancictl stake in 

driving value C<ln he much more cffccttve and pabtahle than 

health spending. ptishing thL: nsk onto pa" 

t:cnt.s, or sub] cering them to onc·sizc-f1ts-c~ll insurer rules" 

Thcrr several types of pavmcnt reforms. Some :~p· 

pro,\chC's tota! population spending, such 

able Care OrganizJtions, These models typically prov1dc 

incent1vcs for physiCklll groups ordehvcry systems to reduce 

pPr-cap\taspendmgand improve quality. The savings arcgcn, 

craUy share C. \v1th the organizatwn that employ,'> the pnmary 

phys1c!an. Other paynwnt m.ocll'ls focus on cp1sod~::s 

(bundles) of cJrc, creating incentives for providers to Emit 

spcnchng \'p!sodr while quJhty henrhm,uks. The savmgs typically accrue tn the organizatwn that 

controls the hospit;1l or spcc1a.hstn'spons1ble for the episode. 

\\lli::dlGlrc 1-s currently experimenting with both approaches. 

In this 1ssuc of J/i:\1A !nternol Mr:dJcmc, Navathc ct aJ 1 study 

the effect ofcp1sode payment on lower cxtrcmlty joint ;-er1accn1C'nt in a.smgh' hospitnl system. Their findingsarestrik1\th:r approximatr\y S yrars under:! different bundled paym{'nt programs for these rroccduJes, spendmg at the Bapt1st 

Much ofthJt stems from 

s::~v1ngs on postacntc care, suggcstln,f\ the Importance 

whc>ther postacutc Cdre is mcludcd m the bundle. The changes 

they document arc much larger than most of those scf'n in other 

stlJdir.s of similar llund!rs. cxarnp!e, an cJrlicr study,· 

amminga!l p;uttr;p;mh in 10ft he 2. \lundlcd dvmonstratlOnS studicd by Navuthc ct al at Baptist Health System 

found an:'!ctgl' sav1ngs of J.bout 4')·~).· This could Ieflect diffelences 111 the duration of the episode (shorter in thc stuUy by 

cmd colleagues), cxpencnce 

in the study by and 

meth0clology (NJvtlthe ~md ;::ollc-af,ues do not formally incorporate an control group), variation progrJm partkipants (Navathr and colleJgues examine 1 

tc•rn). \Vh:le the results of the study by NavJthc t't CJ.l dH.' 

prmmsmg, further research wm be ncetlcd to assess how well 

this cornpanson of spending before vs the 1eform \aptures the causal effect of the payment reform and l1owbroadly 

these Jesults would gem;1alize toothc1 lJospit;:d systems. The 

headline results rnay not capture <tl1 of the other dam:nsions 

along whKll providers may respond. For example, there is some 

evidence from tfw sHJdy by Dum mit et JF that health cuP provtdeJs pa1U through cp1soJe mollds select healthier pJtit'JltS; 

ter episode payment model introduced. Moreover, 

Dumm1t et al reported that the nmnbcr oflmvcr extremity joint 

set sJvings per 

hospital increasctl enough to off, 

( Navathc et al abo report large in~ 

creases in volume. Some of this may rd1ect brond trends for 

gl1:ater 11se or shifts in care toward the participatingfJcilitit:'S. 

Much more work ts nl'('\led to assess how· health status changes 

affpct c<dculatcd savings ;md the extent to 'vhich volume m, 

crease:s offset per episode savings. 

broadly, the e-ffectiveness of these ;:!lternatlve p:Jy· 

mC'nt models in impro\·mg quality and lov.rering spending 

hmgPs on design and mrptementatlOn choices. I Tow the benchmJ.I ks agamst which spending is evaluated arc set and updtHecl is crucial to generating the right targets and attracting 

the right particlp;mts. The share of savings providers get to keep 

(mduding upslctc vs downside nsk) !Sa key determinant of tho 

st1cngth ofthc incenti\'('5 to rPduce rt:SGU!TC usc. scopeof scrv1ccs covered (such as whetlw1 postacutc cue m· 

duded) and the range of conditions covered Jffcct not only the 

inccntn'eS to save, but the rnagnitmle oft he potenticll systt'rnlevel savings, 

So which is more promising, cpisode~has0d or population~ 

based payment rcfonns? Either could be better than the 

fee-for-service systcm that domnutcs McdiccHC now 

partkuknlywith broad scope and real financial stakes~but both 

seem hkely to generate mdy modest savings in their current 

mcarnanons. The greater share of spending potentially cov~ 

ercd by population-basl'd payments suggests that, absent 

bro~1dcr reach of cpisodc-bZ~sed modt:'ls, popubtion-bascd approJclws might eventually have a bigger impact system-

\Vidc, although savings to date have been modest: estimates 

suggest th0t A COs covt:·r about 25°,0 of Medicare Parts A and B 

::.p;.;nding and gcncrarv 1<>;., ro 2% savings \potentially nsing DVH 

t1mc).'1 Evell if episode-based models result m sonwwhat lligher 

savmgs for covered spendmg, a5 cunent!y constituted they are 

likely to covcrJ smaller fraction of spending than population~ 

based payments could. Moreover, to date have bcr:n 

by a smull subset of ('pis ode types, suggesting C'Xpan· 

sions oft he prog1am yield even ]0\11,'('1 furthc>r 

crorled by any increase in the number ofepisodC's, ',.(, 

lt JS also important to note that the Medicare program 

doc;;; not capture all of the savings in e-ither model- thnt is the 

"sh;npd'' part ofsh;ucd savings. The population-based saving 

shan' a portwn of savmgs with health care 

f)rovidcrs. Over savings to Medicare would grow 

benchmarks rose more slowly than they otbcrwisc would, In. 

the eplsodc·basC'd mod0ls, benchmarks are set a few percent 

below estimated spendmg, gt1arantecmg that Medicare \Vill 

reap some savmgs, but go to 

hcdlth care prov1dns. 

JAMAJnterna!Medidne Publishedon>ne.January 3,2017 E1 

Copyright 2017 An;erlc.an Medical Assuciatwn. AI! rights reserved. 
227 

The good that neither type of reform seen1s to 

lovver the qurtlity of cue thus far and both have the potential 

to be dialed to incrcast~ savings to the Mcdlcare program 

and ldcally, both could be deployed in concert, 

designed so th<1t the strengths of each complement the 

weaknesses of the other. Rut there> are concerns that they 

compete to Glpturc savings, and there are currently so many 

Jiffcrcnt option:, and demonstrations in play thJt the cffcc~ 

Author Affiliations: HJtVd'd CbcHl Sc"ooi of ?ubltc 

Altemat1ve AlteiPat,ve Payme11t Models 

tiveness of c>ach may be dulled by the discordant incentives 

and systc:rns with which health care providers must grapple. 

The existence of so many competing options-··even leaving 

aside other Medicare programs like the Merit-based Im·entivc Payment System, Mr:dicar~ Advantage, and Medicaid~ 

may well undermine the potential for payment rdorm 

to health care' providers to•sard rNl delivery-system 

h:nprovemcnts. 

Mt>wJsnotcor-np£.'fhJted 

5 Durmwt L, Marrufo I. M.w;.ha'l1etJI 

1 Na~oatheAS, TroxdM\ Lrao J~l.t't aL Cost of 

Published Online: January 3, 2017 

(onf!ictof!nterestDisclosurc;.:Dt·Bdtcker·sPrves 

2 Durr>m:t LA l(ahvwoglu D. Marrufo G, et ai 

A>soctalton betwr:;en ho~;:HtJI part:upatron m a 

Qctober17, 2016 

6 Urdaptlieta 0. We~nberg D. Pedtmen 5. K1m G 

Cannon-Jones S. Woodwara J fvaluat1on of the 

' " 1\ccesscd Octobc>r 2:0. 20\6 Accessed October 17,2016 

3 f<Sl1er E.S '>'1i.'81CJi·<~'s bundlc:d pdym0nt p;ogram 7. McWillmTlSJ,'\11, Hatf1E>Id LA. (herO!ew ME, 

tor JOint replacement prom1se and pet;!? ~ardon BE. Schwartz AL Early performance of 

pharmaceutical. Jnd related compan 1es Jccountabiecare orgJniZdtlons m Med;nre '\ · 

Additional lnform,~tion: The authors grdteftilly 

acknm>.dedgt' expert rese,m:h C%1S~,\flce from 

JAMA lntern~! Medldne 

4 \1c\Vilk1mS JM. SaVInfl'i from ,\C0s-8t,H1dlf'g 0'1 

An;' llltHP i\~eci. ?016 

3.20f! 

Copyright 2017 American Medicfll Association. A!! rights reserved. 
228 

Post-Hearing Questions for the Record 

Submitted to Sabrina Corlcttc 

'"The History and Current Reality of the U.S. Health Care System" 

September 6, 2017 

Market Stabilitv (CSRs) 

claims that the Affordable Care Act market is in a death a released by the 11011-

Kaiser Family Foundation in July found that the market been ""'"I'IIZI.ng 

profitability.'' The Foundation's rcpoti found that "insurer financial 

sign of a ··noting that. although some insurers have exited the market in recent 

·'others have been successful and expanded their footprints, as would be expected in a 

marketplace." 

Many economists believe that the greatest risk to the stability of the individual market stems from the 

unccrtaint"Ji surrounding the Administration's intention to continue making Cost Sharing Reduction or 

"CSR" payments to insurers. 

I. Please explain the rei at ionship between CSR payments and market stability. 

CSR payments are paJTnents madcfi·om to insurance ill return/(Jr 

reduced cost-sharing plans for indiriduals 100-250% olrhe l'orerty Level 

fVithoutlhesc payments. insurers could lose as much as SIO hi/lion in 2018 and SI6 billion hy 

2027, leading insurance to sign(ficanr/y rai,1

;e premiums /o makf upj(;r the cost, or pull out (~l 

!he individual market fJIIrH'''"'"r 

2. How is the uncertainty surrounding CSR payments currently affecting the individual market? 

/v[osl insurance companie.s have 2018, 

ruimhurscment as a primwy cause. to !eare insurance markers· 

in ]018 because <!(continued poli(v uncer1ainty at the federal !ere!. 

3. Would the CSR payments mandatory have any effect on the stability of the individual 

Yes. manda!my 

prefiliwns. 

11·il/ keep commiunents. 

certainly to insurers, 

they are working with 

them to decrease their 

federal partner !hat 

4. Are there additional mechanisms for stabilizing the individual insurance market that we should 

consider'? 

The gorernmcn! should comrnit to making C 'S'R JH~)'llzt'!lls, et?lorcc the indil'idua! mandate, conduct rohust 

marketing outreach Jo enroll the remaining uninsurr:d, rc-e,_<.,·tah!ish a reinsurance program, 

provide incentives fo insurers in rural arcos, am/fix !he 'famifr glitch" 

The ACA - Covcraoe and Gw 

Although there are still gaps in coverage in the current system of health insurance in the United 

States. the uninsured rate the flrst three months of2017 was at an all-time low with only 8.8 percent of 

Americans uninsured, according to the Centers for Disease Control and Prevention. The AtTordable Care 

Act is far fi·mn but it has made health insurance accessible for millions of Americans who 

otherwise 

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5. Is there a benefit to providing access to health care insurance to as many people as possible? 

Yes. Cienera!ly. ivhether health care or not, they slilluse re.vources. such us hospitals 

and clinics·. Given thai everyone uses health care .\)'.\'I em. providing acces·;.i ro health insurance helps 

avoid prcvemable conditions and more efficiently !real existing condirions. Furthermore, 

familicsfromjinancial hcmil"llip and Cl'C!l personal btmkruptcy ill case of a11 wzcxpccled 

5. \Vhat arc the economic reasons for providing access to comprehensive coverage to as many 

people as possible'' 

and even 

an episode. Access to coverage also enables 

nr.''"''l11lveservice/;,· and a1·oid llJ(Jre acu!e (and f4iell more e.\penshv) cmuiitions. 

nnnul'nti"n and thus a heal!lder workforce. 

Expanding access to health core rage is also an important drirrr t~f economic activity and employmt!n! in 

thousands qfcommunitics across the country. People ll'ho have insurance coverage are ab!e 

hospital, doctor. and other providers'j()r health care services they receive. In !urn, 

those p(~rments their employee/.,, and hn.v good'>' and ser\'ices. ?11is can have a 

the economic (~la comrmmi!y. as r!Jo.\·e employees use their income !o purchase 

consumer guods. 

7. is not strictly an economic argument. Can you provide this Committee 

that support the need for more people to have access to 

Countless studie.s· hare demonstrated that lack to health insurance corerage leads to poorer 

health outcomes disahili~v Cmn·crse~y, e}.pmzdinK 

to :·;erviccs and heller outcomes·, For e:rmnp!e, ,vincc the .ACA, the percent 

that they didn 'I see a doc/or or jill a prescrip1ion because they muldn 't affiml it declined by more 

than mu!-third Furlin'!'. more people are reporting that !hC'J' hare a primm~r care doctor or had a checkup in file las/ 12 months. 

The research to dale also slronglv suggests that /ead1· to bertcr health 

outcomes. For example. studies (~j'rhc rc:fbrms in upon !he ACA H'as modeled, hare 

jhwul that coverage expansion in that state led to reported improvements in phy"'~ical and mental heal!h, 

as well reductions in mortality. The early data on changes in ltea/th outcomes due to !he ACA 's 

coverage expansion\' are consistent .. rith these findings. 

various administrations have succeeded in passing incremental reforms to fill gaps left by 

our based !\.1cdicare and Mcdicnid provide insurance to the elderly as well as 

tile poor and respectively. CHIP extended Medicaid coverage to children. However. 

there arc still millions of Americans without any health care coverage. and millions more who have 

insufficient coverage and high dcductiblcs that preclude them fi·om accessing health care services. 

8. What are the largest gaps that remain under our current system? Arc there ccr1ain holes left by 

the employer-based system that the Affordable Care Act does not address? 

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Accurding to the Kaiser Family Foundation, the !argcsl gaps ;n insurance rates in our current .'lystem are 

most~v nvnch'er(t' adults in H'orkingf(mu'fies "H'flh lmr incomes. _~.\lost unins·ured 1 cmain in the South and 

West due to lack of,Vcdicaid percent of'tlze uninsured in 2016 had 

at lew·i'f onejlt/1-thne H'orker in and ll percent part-time 1t'orkcr in theirfamil_v. Thf'se 

fan:ifies either do no! receive emp!oyC?r-sponsored insurance, m· cannot qf/(_)rd their share t?flhi! 

premiums. 

9. Arc there steps that we, or our counterparts on the state leveL can take to increase coverage? 

States can 

current!r 

giving access to cm•erage to lmr-incomefami!ics in tht!ir state.)· that are 

l'OVeJ·m,•JeJ!Ishould enforce the individual 

the remaining unin1·w·ed, provide incentives 

to keep insurers in rural areas. 

states: ··[tlhe current health care debate is centered on misguided, 

health care coverage to as many uninsured Americans as possible. 

1.>:1\'eragc may be viewed as a laudable goal, it one of the 

problems within the current US health care system-the cost 

I absolutely agree that costs n~cd.s to he contained. \VC must also ~ontinuc to strive to provide 

access to health care c ... wcrage tc every 1\merican. 

10. Can you explain ho\v access to comprehensive health care coverage um provide economic 

stability to a patient facing a serious medical event? 

Comprehensive coverage is a critica/loo!f(;rfinancial securily, particulari:v in the l!ren! (?{a large, 

unanticipated medical expens·e. Health care in this cowl! I)' is expensive. For ext!mp!e, the cos! qf 

a MRJ todav is S I, 119. An uncomplicated hospital-hascd labor and dcli1·cr1' costs an 

h1hile a C-section 1ri!l average overS 16,000. One course 

roughlv bctH'CC/1 521,000 and 552,000. Yet abnost report that that/hey would 

not be ahle to aff'ord to pav)ust $-!00 m cashfi>r anzmanticipated medical crcn/. 

ll !s there recent data on the number of LnniJics who say they arc lmv;ng problems payiPg medical 

bills? 

Yes. Survey data show that the number who say they're medical bills 

has fallen dramatical~v since 2013, among lm!'- and Otlu:r studies 

have demonstrated thai the ACA 's A1edicaid expansion has led to reductions· in the ammmt of debt sent to 

col!cction ap;encies and improvements in credit score:·,·, 

J 2. Arc there studies demonstrating how Medicaid expansion has impacted medical debt? 

An in Health A./fairs in.Tulv 2017 shows that Medicaid expansion reduced unpaid 

m:Hiical and increa.vedjlnancialsecurity. One swc~r shows lvfedicaid eJ]JW1iS'ion states having 

significant reductions in bills, suggesting that the financial protection from insurance 

!eao'i,, to hetrcrfinancia! An(lther stt!L(V shows a decrease innml-medical debt scnr to"",.''-"""",. 

collection agencie.'l· in lmr-income areas in sf ales that t!Xpcmdcd ;\[edicaid f.ast~v, another 

Jmr-income adults in ,ytules that t.\]Hmdcd Jledicaid ltadfeH'er issue with paying and H'OrtJhtg 

medical bills. 

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13. Can explain the bendits of coverage expansions related to hospital-based uncompensated 

cxtxm.r·dons decrease the amount (luncompensated care, saFing moneyjhr hospita/_v and 

""'"111"''"" consumers. The Commomrealth Fundji!llnd 2013-20!5, wiwml·'""·'u,,w 

burdcnsfdlfi'mn 3. 9% to 2.3% ol operating costs in slates expanded 

billion in sm·ings. 

Explanation of Premium Increases 

Many critics of the current state of the health care system assign blame on increased costs to greater 

coverage. ln the staff memo distributed at the last hearing, you included a chart that shmvcd that 

increases in premium costs enactment of the /\lfordablc Care Act. 

I note that this inflxmation only related to the primary cost drivers for premiums in the individual health 

insurance market. 

This chart sho\vs that there was an increase of 45 percent due to guaranteed issue. 

14. Explain \\hat "guaranteed issue" is and \\hy it was included as a market reform in the 

Affordable Care Act 

The guara!llced availabi/ily provision of' the ACA requires indiridual market insurers to 

indiridual1rho applies during open enrollment or special enrollment if eligihle. lt went into mr 

JanuwT !, 201-1. Prior to the ACA, insurers in most .vtates engaged in underwriting. in would 

indiridua! market to undergo a health sc:reenin!-{ befbre to issue them a 

A :!0 I 1 report hy the that, on cn·erage, 19 percent H'cre d('nied a policy 

to their health status, hut varied H"idu(yfrom market to 6 percent to .:10 

percent (~fapplicanfs. This meant individuals 1rith pre-e:risting condilions 1-vcre often unable to obruin 

insurance corerag<:. meaning that their health condition either went untreated or they lt'L're forced to JX(V 

out-o;:pockcr. 

The chart shows an increase of 35 percent due to 

15. \Vhat do "age bands" mean and why was 

bands being 3 to I 

an important market reform? 

Age hands represent a which insurers can char;..;c 

yol!nger consumers to corer increasi.!d medical costs 

ration, most ,vtutes a!lmred a j.· I ratio, meaning an insurance 

up to Jive times as much as a yotmgcr cof!swner. 17u! purpose 

cquitahfv spread hcalih caru costs. 

older conswm.!rs over 

l!o,rml.utums Before lire ACA 's 3:1 

could charge an older consurner 

The chart shows an increase of 17 for essential health benefits. 

16. What are "essential henctits" and why was this a necessary reform included in the 

Affordable Care l\ct'i 

Esse/Ilia! Health Benefits (E!JBs) ore ten categories ol henlth care services that individual and smallgroup market are required to cover. ,)'tate_v are to choOS'C a uu<u·'"''", 

fl·om exi.'-;ting in their state. The l:'f!B:-; were in/he ACA to cnvure that all 

plans core red a hasic set r~lmedical services, modeled on a (rpical employer group policy. Prior to the 

ACA. many critical .verrh ... ·es were excludedfrum health phm bcnejlts, such as materni(y care, mental 

health, pre·;cription drugs, and substance usc rrealment. 

The chart shows an increase of nine percent for actuarial value. 

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17. Vihat ··actuarial value''" ls this a market rd(mll under the An<1rdablc Care Act, or some kind 

of cost driver separate li·mn health reform'' 

Actuarial valw! is the percentage of medical .vervices that an insurance plan will co1·er. For example, a 

''silver" plan on the indiria'ual market has an actuarial value (?f ?0%, meaning the insurer 1vi!! cover, on 

arera;;c 70'% of health care expcnscsfiJr an indiridual enrolled in such a plan. The actual e.1penditurc 

nu~r VClT depnuhng on !he particular need\' q/the enrollee. 

Under the ACA. individual and small-group market insurers arc 

minimum actuarial value 

en rollers· costs. These are 

Recent Cost Drivers 

offer plans that hal'e a 

insurer covers 60 percent '!l 

There are a number of cost drivers that arc currently causing health care costs to rise 

not based on the insurance markets. OYer the last two decades, the health care industry has ~"n"n"n"<"rl 

significant consolidation. 

18. !low much has the cost of hospital care increased'' 

Accordillf' to the CMS. hospiral expenditures grew 5. 6% to S 1.036.1 billion in ]i)J 5,fitster than the 4.6% 

;;rmrrh i11 ]()f./. 

19. l!as hospital consolidation resulted in increased cclsts'' 

Reseurchji·omthe Robert WoodJolmson Fmmdationfinds that hospital consolidation increases prices. 

anJ can cau5N.:' a price incn.!as·e exceeding 20% in alrca(~)! concentrated nwrkets. 

20. How can we as policymakcrs address hospital consolidation to decrease costs'' 

E~f'crts recommend robust anti-trust enfi>rcemcnt atthefederal and slate len:/. Additionally, 

,,.,.,,~.,,.,. shnu!d consider state licensing that rnay limit new rnarkct entrants and/or 

r!r<cmur.wP health to theirfii/1 and expertise, restrictions on 

the use contracf.'i' I hat increase: 

consumer costs or hinder payment re_Fwm or 

21. To what extent has decreased competition among health care providers contributed to higher 

health care cosls for consurncrs'? 

amrmg providers has been documented to increase price,,· paid by insurance 

to higher premiums for convun1crs (/lld other purchase!\\'. 

22. How can we relorm payments lor physician services to contain costs'' 

Experts recommend .sh{fiing awayfjy;mfce-for-5>'£'1'\'icr.: reillJhw·s·emcJJt, stm·ting with Afedicare and 

Medicaid 

23. How docs the cost ol'prcscription drugs impact overall health spending'' 

than any other health care sector. PresYTiprion drugs 

expenditures, or S315 billion. in20!5. 

24. What steps can we take to control the high cost of prescription drugs'' 

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Kc_v polhy solu!ions include: 

Greater trmlsparelzcy 

federal government 

including a drug's unit price and tlw pn?jected cost to the 

FDA ilJ!J'roml. 

Annual rr!ports" on increases in a drug's list price. 

Disclosure research and derelopment cos·tsfor drugv, including how much was 

dollars, such as thmugh NIH 

lmprot1ing competition by speeding i·DA approral qf generic alturnath:e,s and reducing 

monopolies h_v encouraging new market entrants. 

,)'upport independent, ohfectit·e research that asscss·ec'1' a drug ·.~;w.Jiue relative to its price. 

h~-rJHmd ~'alue-bast!d pricing in public programs 5,·uch m·: ;\~Iedicare and Jfedicaid 

11 istorical Cost Drivers 

The original Blue Cross Blue Shield insurance providers were non-profit organizations that generally 

offered health care coverage at a ·'community rate" and provided coverage to all members of the groups 

rcgr~rdlcss of the emrloyccs' ages or hralth status. 

25. How did the adoption of"expcricnce rating" and "underwriting" by lor-proilt insurance 

providers change the risk pool for the insured groups? 

Before the ad1·ent of the non-profit Blue Cross/Blue Shield plans, tradirional commercial insurers had not 

he en in health insurance husines5; because (~ltheir concerns ahout adrerse selection In the only 

people H·i!lin{{ to payfor ,<,'uch insurance Wt're those lFith high hea!rh care costs. Also, 

cos/,'> qfsd!ing insurance directly to individuals H'as 1\>t~v high. 

Rlue Cros5" plans demonstrated that {lyou could target the corerage to employer s;roups, you could make 

health insurance a viable busin(~ss Targeting larRe meant creating a 

natural!}/ an coverage H'as tied to not their needfor 

came H'ith lower nlLtrketing costs. 

As other important insurance 

were non-proj/t 

organi:::ations and in general at a enmnn"""·' rate, meaniNg thai all emplo:ver groups 

paid the same price, rcgard/er;s qfthe age or ltealth status employee,'J'. 

Bur 

rlzcy 

commercial insurers entered the market 

Thn· 1Fould offer cer/ain a lower rwc ifthel' 

they used health .•;talus to "experience rate· emplo:ver custouwr.';. 

S~hield H'as lejt with sicker emplo_vee group.s, am! ultimately adopted their competitors' 

rating practices in order to i>'lfrvive. 

lNfore the ACA, insurersfmmd they could makt: money btl he indiridua! market ~lthey enRaged 

in status "underH-Tifing, "or the enrollment of individual_<;· con•ddered to 

pose a heulth risk ll1ese tactics pre-existing condition benefit 

excht;.;·ions, and premium surcharge5; ba5;ed onf(;ctors such as health status, age, and ,f!,ender. 

26. llow did this change in the risk pool affect the costs of health care coverage'> 

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