Payment structures used in the health care industry 2 DQ 1


Diagnosing the Current Problems of the United States Health Care System Requires Examining the History of Health Reform by Thomas Kingsley

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MY FIRST PATIENT AS A MEDICAL STUDENT was a victim of the United States health care system. A fifty-year-old man who died of a heart attack shortly upon arriving at the hospital, this particular gentleman had been experiencing chest pain for over a year. But he had forgone a doctor’s visit because he had let his health insurance lapse due to its high cost. He is by no means alone. Sadly, the United States manages to leave 47 million Americans—about 17.7 per- cent of the country’s nonelderly population—uninsured.1 Of these uninsured Americans, 61 percent stated they either could not afford the cost of insurance or lost coverage after being laid off.2

Yet, remarkably, 55 percent of Americans do not approve of the Affordable Care Act (ACA).3 In 2010, the Demo- cratic Congress passed the ACA—better known as Obamacare—in an effort to increase coverage for those individuals without health insurance. The Republican House of Representatives has voted numerous times to repeal the law, and the GOP has made the legislation the central target of its partisan attacks. At first glance, this concerted opposition would appear to be the result of a lack of understanding on the part of the public, or merely political theatrics. Indeed, a Pew Research poll has indicated that, despite the displeasure with the ACA, 75 percent of Americans do not know how the law would impact them personally.4

However, is there, in fact, any real cause—beyond blind partisanship—to be dissatisfied with the ACA? Such an essential policy cannot be analyzed within the proverbial political echo chamber; policy makers and ordinary Ameri-


cans alike must objectively examine the merits and shortcomings of the law, several years after its passage. Without this more nuanced analy- sis, Americans resign themselves to blindly take sides in a partisan war that threatens the future of our health care system, our economy, and the well-being of American citizens. To adequately understand the suc- cesses and failures of the law, we need to return to the bill’s origins: Massachusetts, circa 2006.

This journey back in time reveals a truth that conforms to neither of the carefully cultivated liberal or conservative talking points: the ACA, modeled on Massachusetts health reform and facing similar political and practical constraints, largely addresses access to health care and quality improvements but does not sufficiently confront the out-of-con- trol growth of health care costs.

Under then-Governor Mitt Romney, Massachusetts discovered a successful recipe for universal cover-

age that would also satisfy important industry stakeholders.5 It is not sur- prising, then, that these same policy ingredients would reappear years later in the ACA. However, these policy choices do not necessarily rep- resent the best, most affordable solu- tion to providing increased health coverage; instead, they represent the policies that could both achieve expanded health coverage and also survive the Massachusetts political process. The ACA has many complex parts, including Medicaid expansion, Medicare reform, and incentives for

changing the current fee-for-service reimbursement method, but the legis- lation contains no direct measure to decrease the per-unit cost of medical services—unjustifiably higher in the United States than anywhere in the world.6

The ACA, like Massachusetts reform, accomplishes its primary objective: expand health care access in a politically constrained environ- ment. At the time, cost control was, by necessity, an ancillary concern. Yet the inability of the ACA to sufficient- ly address cost control will ultimately erode our health care system un- less future reforms are made. What, therefore, should be our focus? We must shift the conversation away from repealing the ACA and toward tackling the equally massive problem of excessive costs.

MASSACHUSETTS HEALTH CARE REFORM During the 2006 health care fight, Governor Romney had one primary goal: to ensure the passage of health care legislation that would effectively expand health coverage, even if that meant not addressing every aspect of the health care conundrum, particu- larly cost control. He and his allies in the legislature capitalized on a win- dow of opportunity to pass reform, utilizing valuable lessons from their predecessors who failed at the same task. Massachusetts’s health reform would ultimately prove a success because the politicos behind the bill provided a policy framework that managed to both expand coverage and also garner the support of key stakeholders, such as businesses and health care industries that had previ- ously opposed reform.

But it was precisely this push to satisfy key stakeholders that, while pivotal to the legislation’s passage, would also leave skyrocketing costs unsolved.

Romney’s interest in health care reform was driven by necessity. In



2004, a federal waiver for a Mas- sachusetts Medicaid program was up for renewal. This waiver provided $385 million annually to fund safety net hospitals and was to be renewed every five years by the U.S. Depart- ment of Health and Human Services (DHHS). Contrary to expectations, in the wake of President George W. Bush’s reelection, the DHHS denied renewal. The result was disastrous; the state would lose $1 billion in federal funding over the next three years.

Governor Romney and mem- bers of the Massachusetts legislature scrambled to find a solution. They eventually proposed to the DHHS that rather than use the waiver to support safety net hospitals, they cover 600,000 uninsured with the available funds. Essentially, they would create universal health care in Massachusetts with the aid of government subsidies. The DHHS, excited at the prospect, accepted their proposal.7

In the words of Dr. John Mc- Donough, former cochair of the Massachusetts Joint Committee on Health Care and former Senior Advisor on National Health Reform to the U.S. Senate Committee on Health, Education, Labor and Pen- sions: “Massachusetts put a financial gun to its head that made passage

of universal coverage legislation a policy, political, and financial neces- sity and the Bush administration provided the bullets.”8

Romney, who had shown little interest in universal coverage pre- viously, needed to find a path for covering Massachusetts’s uninsured, and he needed to do it quickly. The majority of the uninsured were between the ages of eighteen and sixty-four, comprising healthy young adults, individuals who could not afford coverage, and the poor, who were Medicaid-eligible but had not enrolled.9

Romney needed to target these uninsured groups through a com- bination of private marketplace re- forms and government assistance. He was not the first to attempt this bal- ancing act. In 1988, Massachusetts Governor Michael Dukakis tried but failed to pass a bill that would have dramatically expanded health coverage in the state. He attempted this partly through a policy called pay-to-play, in which employers with six or more employees would be mandated to provide health insur- ance, and infuriated business owners in the process.

Many of the individuals who had worked on the Dukakis health care reform still carried scars from the 1988 defeat. They did not want

to face a repeat experience. Nancy Turnbull, a professor at the Harvard School of Public Health, recounts the key lesson from the Dukakis health care push: without the support of business and other health care industries, reform efforts were bound to fail.10 Consequently, Romney’s health bill would need to cover Mas- sachusetts’ uninsured, be financially feasible, and also manage to gain the support of businesses. Additionally, he needed to achieve all of this with- out upsetting the national Republi- can Party and his future presidential aspirations.11

The lessons of previous attempts, and the incentives facing the health care industry, led the legislature to craft a bill standing on three main policy legs (see Figure 1). Each proved essential to the success of the plan—and would later appear in the ACA as well.12

The first leg involved systemic reform of health insurance in Mas- sachusetts. This had two major elements. One was guaranteed issue, which eliminated insurers’ ability to deny coverage based on preexisting conditions. The other element was the development of a marketplace— the Commonwealth Connector— where employers and individuals could buy coverage. The idea of an exchange was particularly popular among Republicans, who favored private competition in the health market.13

The second policy leg was an in- dividual mandate to purchase health coverage or pay a fine. Originally, the Heritage Foundation (a conservative think tank) and other Republicans had proposed the mandate as an alternative to President Bill Clinton’s failed health care bill in 1993.14 Romney worried that the mandate would be too radically conservative. However, the Urban Institute (a non- partisan economic and social policy research group) and other groups emphasized to him the perceived fi- nancial importance of the mandate.15

Universal Coverage

Subsidies for

Low-Income Residents

Sys- temic Health

Insurance Reform

Individual Mandate

Figure 1 — John McDonough’s three- legged policy to achieve universal health care coverage.


essential stakeholders. Overall, stakeholders believed this reform bill would benefit them.18 This story would largely repeat itself during the passage of the national health care bill, and the result would look remarkably similar.

Importantly, Massachusetts’s health reform can teach us a valu- able lesson relevant to the ACA as well: improving access, while politi- cally challenging, has proved easier than fixing cost. Today, 98 percent of Massachusetts residents have health coverage, but this increase in the in- sured population did not reduce the state’s health care costs—the highest health expenditures in the nation, at $9,728 per capita, compared to a median of $6,795.19 This high cost is not a result of the 2006 reform, but was not corrected by the legislation either (see Figure 2).

BIRTH OF THE AFFORDABLE CARE ACT IN 2010 Like Romney, Obama faced the challenge of expanding access while countering reluctant stakehold- ers. Consequently, it should be no surprise that the ACA shares similar characteristics and unaddressed is-

sues with the Massachusetts legisla- tion. This includes the lack of truly effective cost control.

Despite the public’s uncertainty regarding health care, many politi- cians in Washington understood the impact it was having on the economy and the well-being of many Ameri- cans. In illustration of this point, during the 2008 presidential election, even while the economy was head- ing into a recession, candidates from both parties discussed their plan to reform the health care system. With the election of Obama, and with Democratic control of both the House and Senate, the passage of national health care reform suddenly seemed possible.

Yet like Romney before him, Obama needed the support of key stakeholders. A wide array of com- peting interests had ensured that national health care reform had been discussed, attempted, and abandoned numerous times during the past cen- tury by presidents from both political parties, including Franklin Roosevelt, Richard Nixon, and, most recently, Bill Clinton.20 Since 1998, major health care stakeholders have spent over $5.36 billion lobbying Washing- ton, more than was spent in the same

Figure 2 — Massachusetts versus United States per capita health care expenditures. Source: Graph based on data from Health Care Expenditures per Capita by State of Residence, Kaiser Family Foundation.

Finally, the third policy element involved the passage of subsidies for individuals at 100 percent to 300 percent of the poverty level. This was partly made possible by an agreement between Romney and the DHHS. The annual $385 million previously dedicated to safety net hospitals would now support these subsidies and enable universal cover- age.16

Each of these legs would prove essential to the success of universal health coverage. Guaranteed issue without individual mandate would permit individuals to avoid purchas- ing insurance until they are sick, known as adverse selection. Several states, including Kentucky, New Hampshire, and Washington, saw health care premiums soar when they implemented guaranteed issue with- out a mandate as well.17 However, in theory, the combination of the man- date and guaranteed issue reduces adverse selection and stabilizes costs. To avoid punishing those individuals who cannot afford the coverage of- fered to them in the marketplace, the state must also provide subsidies for low-income individuals.

Crucially, this three-legged approach also had the support of


time period by the oil and defense industries combined.21 The pharma- ceutical industry was prepared to spend $200 million either fighting or supporting the national health care reform bill.22 For their part, the Clintons discovered the importance of these industries the hard way: the American public was in favor of health care reform when Clinton began his fight, but after months of negative advertisements supported by the health industry, opinions evolved, and health care passage failed.

Obama, eager to avoid Clinton’s mistakes, presented stakeholders with the opportunity to shape policy. In a meeting called by the Senate Task Force, a room of gathered stakehold- ers was provided with three options for health care reform, which had been given the names Constitution Avenue, Independence Avenue, and Massachusetts Avenue: respectively, undergoing a major overhaul (single payer, etc.) of the current system; implementing more limited reforms (possibly tax credits and smaller mar- ket reforms to incentivize purchasing insurance); and adopting the Mas- sachusetts reform as a template. After hours of discussion, the stakeholders voiced unanimous support for the Massachusetts Avenue approach. Faced with similar incentives on a national scale as in Massachusetts, public and private stakeholders sup- ported a bill that, not surprisingly, would achieve near-universal cover- age in a similar manner to Massachu- setts’s reform.23

After two years of work, the ACA would be voted into law in 2010. In total, the ACA has nine titles and one amendment. Title I of the two thousand–page legislation reflects the bill’s Massachusetts ori- gins, employing the same three policy legs to expand health coverage to the uninsured.24

Thus, the ACA came to be defined by the same characteristics that allowed Massachusetts’s health reform to successfully increase ac-

cess to health insurance. Foolishly, many Republicans tend to ignore the conservative bona fides of the ACA’s essential characteristics and ignore their role in allowing the legislation to grow insurance coverage. Repub- lican Senators Orrin Hatch (Utah), Tom Coburn (Oklahoma), and Rich- ard Burr (North Carolina) put the most recent repeal effort, in January 2014, forward. This proposal would repeal the individual mandate, the subsidies for the poor, and remove many of the protections against dropping care based on preexisting conditions.25 Such a proposal would, in effect, undermine precisely the pil- lars necessary for expanding health coverage. To make matters worse, their plan also cancels Medicaid for the working poor. People like my first patient would once again be faced with health coverage they could not afford.

Despite all its shortcomings, repealing the current iteration of the ACA is no solution to America’s health care needs. Rather, we need policy that builds on the successes of the ACA, while addressing the remaining problems unanswered by the current law.

THE FAILURE TO ADDRESS COST Massachusetts’s reform and the ACA—not to mention the various Republican suggestions—ultimately do too little to address the root cause of increasing health care cost: the unit price for health care services. Nor were they intended to achieve such a formable goal. Massachu- setts’s experience suggests that while an individual mandate is essential to maintaining basic financial feasibility, the policies that allow for expanded coverage are not going to fix the price tag of health care.

The ACA—and its Massachu- setts prototype—achieves only small victories in controlling costs. In the case of the ACA, these include





1 Garfield, Rachel, Rachel Li- cata, and Katherine Young. The Uninsured at the Starting Line: Find- ings from the 2013 Kaiser Survey of Low-Income Americans and the ACA. Henry J. Kaiser Family Foun- dation, 6 February 2014. 2 Henry J. Kaiser Family Founda- tion. Key Facts About the Uninsured Population. Henry J. Kaiser Family Foundation, 26 September 2013. 3 Jones, Jeffrey M. “Americans’ Ap- proval of Healthcare Law Declines.” Gallup, 14 November 2013. 4 Pew Research Center for the People and the Press. As Health Care Law Proceeds, Opposition and Uncertainty Persist. Pew Research Center, 16 September 2013. 5 McDonough, John E. Inside Na- tional Health Reform. University of California Press, 2012. 6 Anderson, Gerard F. et al. “It’s the Prices, Stupid: Why the United States Is So Different from Other Coun- tries.” Health Affairs 22(3): 89-105, May 2003. 7 McDonough, Inside National Health Reform. 8 Ibid. 9 Garfield, Licata, and Young, The Uninsured at the Starting Line. 10 Turnbull, Nancy. Lecture on Massachusetts Health Care Reform, John F. Kennedy School of Govern- ment at Harvard University, 5 Febru- ary 2014. 11 McDonough, Inside National Health Reform. 12 McDonough, John. Interview with the author on Massachusetts and the ACA, 15 January 2014. 13 McDonough, Inside National Health Reform.

port politicians through campaign donations and aggressive political adverting. Who suffers from this boundless profiteering? The Ameri- can public. One in three Americans report struggling to pay medical expenses. Those households strug- gling to pay for health insurance are the true fatality of this health care industrial complex.

If we are going to figure out how to address the cost of health care, however, Congress will not only need to relearn how to pass legislation, but also must do so without stake- holders blocking cost control efforts. At first blush such a task seems near impossible, foretelling a bleak future for the American health care system and economy.

Yet Massachusetts, enjoying the success of universal coverage and some of the best quality care in the country, is now beginning to study methods of aggressively address- ing rising health care costs and has passed three bills directly targeting this issue. Notably, in 2012 Mas- sachusetts set annual spending limits on health care costs. Vermont is also discussing ways to address cost by moving to a single payer system. Once more, the country may need to turn to a progressive state for inspiration.31

We have expanded health care access; the legislation is a success in achieving this main goal. But without addressing the projected growth in health care costs, our health system threatens to engulf our economy, cause premiums to rise to levels unaf- fordable to even the middle class, and add millions to the already substan- tial group of uninsured in America. It is time for Congress to place the needs of ordinary citizens above those of powerful businesses, build on the progress already made under the ACA, and pass truly transforma- tive legislation that will decrease the unit price of health care.

incentives for alternative payment methods, Medicare reforms, and penalties to hospitals for readmis- sion, but none of these will nearly be sufficient. Ultimately, we need to address why health care is so much more expensive in the United States than anywhere else in the world. The growth rate for health care costs in the United States is twice that of the general economic growth rate, and health care spending constitutes 18 percent of total gross domestic product (GDP). It is predicted that if this growth continues, by 2037 one in four American dollars will go to pay for health care, a proportion, the Congressional Budget Office argues, that is unsustainable.26

In contrast, Japanese citizens uti- lize their health care system twice as much as Americans, including almost three times the MRI usage, and are among the healthiest individuals on the planet. Japan also has universal coverage for its citizens.27 Simultane- ously, the nation spends a fraction of what we do for medications, medi- cal procedures, and diagnostic tests. Perhaps we get better-quality care for this high cost? In fact we do not; the deaths due to medical error dur- ing surgery is more than three times higher in the United States than in Japan.28

Stakeholders such as pharmaceu- tical companies, the health insurance industry, physicians, and hospitals have been making fortunes in the past three decades while Americans have watched their premiums con- tinue to rise as they struggle to afford health coverage. Unfortunately, filling the pockets of these wealthy indus- tries has made them powerful. The top five health insurance companies have been doing pretty well also, and in 2011 made $3.3 billion in prof- its.29 And lastly let us not forget the physicians, who make up the largest portion—27.2 percent—of all the top 1 percent of earners in the United States.30 This wealth translates into power when these profits help sup-

Thomas C. Kingsley is a joint 2014 MD/MPH Candidate at the Universi- ty of Massachusetts and the Harvard School of Public Health.


14 McDonough, Interview on Massachusetts and the ACA; Mc- Donough, Inside National Health Reform. 15 Turnbull, Lecture on Massachu- setts Health Care Reform. 16 Garfield, Licata, and Young, The Uninsured at the Starting Line; McDonough, Inside National Health Reform. 17 McDonough, Inside National Health Reform. 18 Turnbull, Lecture on Massachu- setts Health Care Reform. 19 Henry J. Kaiser Family Founda- tion. Health Care Expenditures per Capita by State of Residence. Henry J. Kaiser Family Foundation, 2009. 20 Altman, Stuart, and David Shactman. Power, Politics, and Universal Health Care: The Inside Story of a Century-Long Battle. Pro- metheus Books, 2011; McDonough, Inside National Health Reform. 21 Brill, Steven. “Bitter Pill: Why Medical Bills Are Killing Us.” Time, 4 April 2013, 16-55. 22 Cummings, Jeanne. “Wield- ing Influence in Health Care Fight.” Politico, 28 December 2009. 23 McDonough, Inside National Health Reform; McDonough, Inter- view on Massachusetts and the ACA. 24 McDonough, Interview on Mas- sachusetts and the ACA. 25 Jost, Timothy Stoltzfus. “Be- yond Repeal—A Republican Pro- posal for Health Care Reform.” New England Journal of Medicine 370(10): 894-896, 6 March 2014. 26 Congressional Budget Office. The 2013 Long-Term Budget Out- look. Congressional Budget Office, 17 September 2013; Congressio- nal Budget Office. The Budget and Economic Outlook: 2014 to 2024. Congressional Budget Office, 4 Feb- ruary 2014; Emanuel, Ezekiel et al. “A Systemic Approach to Containing Health Care Spending.” New Eng- land Journal of Medicine 367(10): 949–954, 2012. 27 Kondo, James. “The Iron Triangle of Japan’s Health Care.”

BMJ 330(7482): 55–56, January 2005; Babazono, Akira et al. “Does Income Influence Demand for Medi- cal Services Despite Japan’s ‘Health Care for All’ Policy?” International Journal of Technology Assessment in Health Care 24(1): 125-130, Winter 2008; Hashimoto, Hideki et al. “Cost Containment and Quality of Care in Japan: Is There a Trade-Off?” Lancet 378(9797): 1174–1182, 24 Septem- ber 2011. 28 Organization for Economic Co- operation and Development. Health Policies and Data. 29 Ubel, Peter. “Is the Profit Mo- tive Ruining American Healthcare?” Forbes, 12 February 2014. 30 White, Jeremy et al. “The Top 1 Percent: What Jobs Do They Have?” New York Times, 15 January 2012. 31 Mechanic, Robert E., Stuart H. Altman, and John E. McDonough. “The New Era Of Payment Reform, Spending Targets, and Cost Contain- ment in Massachusetts: Early Les- sons for the Nation.” Health Affairs 31(10): 2334–2342, October 2012.

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