Fu n d a m e n t a l h e a l t h c a r e r e f o r m

for the United States

President Obama’s health care reforms are the most controversial that the United States has ever seen. Proponents
and opponents portray them in radically different terms. Here, Jonathan Gruber explains why statistics from
­previous experience are of only partial use; and on page 124, Jasjeet Singh Sekhon looks at the uncertainties and
false inferences that have been ignored by commentators on both sides.

On March 23rd, 2010, President Obama signed “bend the cost curve” and save the United States typically can access fairly priced insurance that
into law the most significant piece of social pol- from fiscal ruin. they view favourably. Moreover, employer-spon-
icy legislation in almost fifty years. The Patient Will it work as the reformers hope, providing sored insurance in the US is tax-free, a tax break
Protection and Affordable Care Act (PPACA) will health cover to many of those at present without worth $250 billion per year that encourages the
ultimately provide health insurance coverage to it, and limiting soaring health costs? Reviewing provision of generous coverage.
32 million of the nation’s uninsured, and improve the history of how this significant reform arose, But those who do not have access to employ-
the security of insurance for millions more who we can compare it to the experience of Massa- er-sponsored insurance face a harsh non-group
are one accident away from losing coverage. It chusetts and their pioneering reform experiment insurance market where in most states insur-
does so in a fiscally responsible fashion by actu- in 2006. It offers a guide, but only a partial ers can discriminate against those who are ill
ally reducing the deficit by over $100 billion in guide, to the likely implications for the nation by denying them insurance, excluding their
the first decade and over $1 trillion in the next. going forward. pre-existing coverage, by charging them prices
And it includes a host of innovative ideas for which are a large multiple of the prices charged
cost control that offer our best chance to date to the healthy. Thus, even among those 10–15 mil-
Background: the problems and the policy lion Americans who rely on this market, there
divide is no security that their insurance will actually
be there should they get sick. Imagine the out-
Experts throughout the political spectrum have rage there would be over a life insurance policy
for years derided the failings of the US health that could be revoked upon death; yet this is
care system. These failings are in two primary the situation facing many individuals who try to
areas. The first is the enormous disparities in purchase insurance on their own.
health care access and outcomes. For high-in- The second major problem is the rapidly ris-
come insured families, the US health care system ing costs of health care. US health care spending
is among the best in the world. But for lower- has more than tripled as a share of the economy
income and uninsured families, limited access is since 1950, and now stands at 17.1% of GDP.
associated with particularly poor outcomes. For This is twice the GDP share of countries such as
example, the white infant mortality rate in the the United Kingdom or Japan which have compa-
US is 0.7%, which compares very favourably with rable health outcomes among insured citizens.
other developed nations. But the black infant For the past several decades, efforts to ad-
mortality rate is twice as high at 1.4%, which is dress these problems have been stuck between
somewhat higher than the infant mortality rate extremes on the left and the right. The solution
in Barbados (1.1%). The share of non-elderly favoured by those on the left is a single payer
US residents without health insurance stands at insurance system such as that in Canada. Such
18%, which is particularly embarrassing when a system would guarantee universal coverage
compared to the universal insurance coverage of insurance, and holds out the potential for
provided by all other industrialised nations. much more fundamental cost control through
These disparities largely reflect a bifurcation national budgeting of health care costs. How-
in our health insurance system. The primary ever, this solution is clearly politically unfea-
source of insurance coverage for the non-elderly sible. First of all, the majority of Americans,
comes through employers, and those who have particularly those working for large firms with
© iStockphoto.com/Leah-Anne Thompson access to employer-sponsored health insurance choice of plans, are quite content with their

122 september2010 © 2010 The Royal Statistical Society

private health insurance. It would be very dif- Of course, it is neither morally correct nor po- did Massachusetts in taking on the issue of cost
ficult to convince them to give up that insur- litically feasible to mandate that all individuals control and “bending the curve”. As with the
ance so that a minority of Americans can get obtain insurance without helping to offset the Massachusetts reform, the legislation includes an
covered. Second, the private health insurance costs for the lowest-income families. A typical exchange through which insurance will be com-
industry in the United States is a massive en- family health insurance policy in Massachusetts petitively sold, hopefully increasing transparency
tity with more than $800 billion in claims paid costs more than $13 000 per year, which is more and price competition in non-group insurance.
annually. It is impossible to conceive of a day than 50% of the family income of those at the But the federal legislation includes four additional
when that industry could be legislated out of poverty line. As a result, the third leg of the tools to control health care cost growth:
business. stool was extensive subsidies for those below
The solution favoured by those on the right three times the poverty line (about $66,000 per • A “Cadillac tax” on the most expensive
is to expand access to private health insurance, year in income for a family of four). health insurance plans which scales back
for example by giving individuals tax credits to The results of this reform have been impres- the tax break to employer-provided insur-
purchase health insurance from private vendors. sive. By any metric, this mandate has been a ance and should induce individuals in those
The problem with this approach is that it does success: expensive plans to seek more cost-effective
nothing to address the underlying failure in non- care.
group insurance markets which leads to individu- • In the very first year of this new regula- • An independent board which will endeav-
als being unable to obtain fair insurance that tion, 98% of tax filers complied with the our to depoliticise the process of rate set-
they can keep even if they get sick. Providing mandate. ting for Medicare, public insurance for the
individuals with more resources, but not giving • Within a year of the mandate, the rate of elderly.
them a place to take those resources to buy fairly uninsured in the state had fallen by 60%. • Research into the cost effectiveness of
priced insurance, is simply throwing good money • The share of the population with a main- alternative treatments for medical illness.
after bad. Moreover, such an approach cannot stream source of medical care rose signifi- • Dozens of pilots for new ways to organise
provide anywhere near universal coverage. cantly. the reimbursement of medical care.
• About half of the increase in coverage was
due to a rise in private coverage. Rather Second, the experience of Massachusetts may
The Massachusetts solution than “crowd out” private insurance cov- not tell us much about the key political issue
erage, this programme appears to have going forward: the popularity, or lack thereof, of
Into this chasm came an innovative solution “crowded in” private coverage, with em- the individual mandate. There are a number of
proposed by Mitt Romney, the Republican Gover- ployer insurance rising faster in Massachu- reasons to think that the mandate might be more
nor of Massachusetts. Romney’s approach might setts than in the rest of the US. popular in Massachusetts. First, it is binding on
be labelled “incremental universalism”: getting • The average cost of a non-group insurance a much smaller share of the population than in
to universal coverage by filling the gaps in the policy, which nationally rose by 14% from the US as a whole. Second, this law was passed
existing system, rather than ripping up the sys- 2006 to 2009, fell by 40% in Massachu- with virtually universal support; there were only
tem and starting again. As originally crafted by setts. two dissenting votes in both houses of the leg-
Romney and ultimately passed by the Massachu- • The health reform remains highly popular, islature. As a result, public officials were able
setts legislature in April 2006, the Massachusetts with 74% of the public supporting reform to engage in a massive social marketing cam-
reform relied on a “three-legged stool” to sup- and only 15% opposed. paign with no significant resources invested in
port reform. The first leg was insurance market • The costs of reform have been roughly “counter-advertising”. This social marketing may
reforms, disallowing insurers from denying cover- equal to what was projected by analysts have been central to both the success and ac-
age, charging based on health status, or exclud- when the law was passed. ceptance of the mandate. In other states the ac-
ing pre-existing conditions. This leg was actually ceptance of the mandate is likely to be much less
put in place over a decade ago, in 1996, and the widespread. If this requirement is not explained
effects on the non-group market of these reforms From Massachusetts to the nation clearly and marketed appropriately it may not
mimicked what happened in other states which be widely accepted by the public. Moreover, the
undertook these reforms: the market collapsed The Massachusetts reform provided a template various opponents of the legislation may provide
and prices rose enormously, so that by 2006 Mas- for federal reform. The PPACA follows the same counter-advertising which will impede the suc-
sachusetts had a tiny non-group market and the “three-legged stool” approach. By the full imple- cess of the mandate.
highest non-group premiums in the US. mentation date of 2014, insurers will no longer Finally, unlike in Massachusetts, new revenues
Romney’s insight was to add two other legs be able to discriminate on the basis of health or were required to fund the national reform. These
to make the stool stand up. The first was an in- exclude pre-existing conditions. A mandate will revenues are raised partly through reductions in
dividual mandate, a requirement that individuals be in place for all individuals, with individuals Medicare spending and partly through new taxes,
purchase insurance coverage if it was deemed paying a penalty of up to 2.5% of income if they primarily on high-income families.
affordable (which is defined as the costs of in- are uninsured, so long as they have available to
surance relative to income being below a given them insurance which costs less than 8% of their
level). By mandating universal coverage, Romney income. And there will be an expansion of public The effects of fundamental reform
brought healthy individuals into the insurance insurance and large tax credits which subsidise
pool, significantly lowering costs. The plan also insurance for all families below four times the There is an enormous amount of uncertainty in-
involved the establishment of a “connector” poverty line. New “exchanges” in each state will volved in predicting the impacts of reform that
which allowed for a transparent marketplace in replicate the Massachusetts “connector” in pro- is this transformative. Our best projections are
which individuals could effectively shop across moting insurance market competition. based on results from the non-partisan Congres-
their non-group insurance options, promoting While the Massachusetts reform was a template sional Budget Office (CBO) which was in charge
competition and price reduction in this market for the national reform, the PPACA is a much more of evaluating this legislation. The CBO estimates
(interested parties can see this model in action ambitious piece of legislation. First and foremost, that the bill will, by 2019, reduce the number of
at www.mahealthconnector.org). the federal legislation goes much further than uninsured by about 60%, from 55 million pro-

september2010 123
jected uninsured to 23 million. These individuals that the cuts and revenue increases are rising legislation. Thus, while the bill is not guaranteed
remain uninsured for two reasons. First, the leg- faster over time than are the new spending ob- to lower cost growth, it incorporates virtually all
islation explicitly excludes undocumented aliens ligations. These are very imprecise projections, of the leading-edge thinking about the types of
from coverage, and this group comprises about however, particularly after the first decade reforms that might have that effect. I strongly
one-sixth of the uninsured. Second, many indi- The bigger question is what the effects will be suspect that this is the first round of at least a
viduals will either be exempt from the mandate on health care costs in the US in the long run. To two-round process, and that the next round will
on affordability grounds, or will choose to pay address this question, it is critical to distinguish take on cost control more seriously.
the penalties rather than sign up for insurance. between effects on the level of health care spend- To summarise, the success of any legislative
This bill is projected to have little impact ing and its growth. The US is projected to spend effort such as this one depends on what one
on group insurance premiums. The larger effects an unsustainable 38% of GDP on health care by views as a politically realistic goal. While the
will be on premiums in the non-group market. 2075. Suppose that reform were able to cut the bill falls short of universal coverage, covering
The CBO predicted that, for a fixed non-group costs of insurance by 7% through the various the majority of the uninsured and reducing the
policy, premiums would fall by about 10% after interventions proposed in the legislation. Given deficit in the process is well beyond what most
implementation. Overall, the CBO predicted that that health care costs rise by 7% per year on aver- reformers thought was possible. The scorecard
non-group premiums would rise, but this reflects age, this simply means that we will spend 38% of for cost control is more mixed, although in fact
the fact that individuals will be choosing more GDP on health in 2076, rather than 2075! Clearly, there is no consensus on what else should have
generous non-group products after reform. Of the key to the long-run viability of this system is been done to fundamentally control costs. The
course these findings ignore the substantial to control the rate of health care cost growth. long-run viability of the US health care system
heterogeneity that will result from this change. So will this legislation achieve that goal? This will depend on whether this is the first step to-
Older and sicker individuals will clearly see a is unclear. There is no compelling evidence that wards fundamental reform or the last.
large reduction in their non-group premiums, any of the cost controls in this legislation will
while younger and healthier individuals may see “bend the cost curve”. At the same time, health
an increase in the short term. policy experts cannot really say for sure how we Jonathan Gruber is a Professor of Economics at MIT
and the Director of the NBER Program on Health Care.
The bill is projected to reduce the US federal should best go about slowing cost growth. In
He has written widely on health economics and other
government deficit over the next decade by more such an environment of uncertainty, the best public policy topics. He helped develop and is on the
than $100 billion, and by more than $1 trillion in response is to try a number of approaches and implementing board for Massachusetts health care re-
the decade after that. These estimates reflect the to see what works. This “spaghetti approach” form. During the development of the PPACA he was a
fact that the cuts in Medicare and tax increases (throwing a bunch of things against the wall to paid technical consultant to the Federal Department
exceed the spending on the newly insured, and see what sticks) is exactly what is pursued in this of Health and Human Services.

Statistics, false inferences and

unacknowledged uncertainties
The problems, says Jasjeet Singh Sekhon, are not the false claims but the true facts that may be interpreted in
many ways, and that do not imply what people think they do.

It is strikingly difficult to resolve basic ques- and managing the US health care system is the Texas has an uninsured rate of about 25%. These
tions about the health care system in the United equivalent of managing and regulating all of stark differences made, and continue to make,
States. This means that is it also difficult to the goods and services produced in the UK, the the politics – and the evaluation – of national
evaluate the Obama administration’s health care world’s sixth largest economy. reform difficult.
reforms. The issues of inference are complex, far Not only is the US health care system mas- The debate on national health care reform
more complex than usually portrayed in media sive, it is also exceedingly diverse. For example, was heated. Many false and outlandish claims
coverage, Congressional testimony and govern- the health care system functions very differently were made – for example, that “Obama care”
ment reports. in a state like Massachusetts than it does in a would lead to “death panels”. These have been
Professor Gruber has reviewed the background state like Texas. Massachusetts is known for its amply discussed and discredited by the media.
to the legislation. Before delving into the chal- academic medical centres, biomedical research, But it has been common for other claims to make
lenges of inference, it is important to highlight and high-quality health care, and it is a state the media rounds that may not imply what it is
the size and complexity of the task of reform- in which only about 9% of the population was generally believed they do. To put it another
ing the US health care system. The health care uninsured before it enacted its own health care way, the most problematic ideas in the health
system takes up 17.1% of the GDP of the United reform in 2006. Since this reform, universal care debate are not the obviously false ones, but
States, which is equivalent to the total GDP of coverage has almost been achieved, with 97% arguments based on true facts that do not imply
the United Kingdom. By this metric, regulating of all residents covered as of 20091. In contrast, what people think they do. One of these is the

124 september2010
often cited statistic that although the US spends
the most on health care, its health outcomes
are poor relative to those of other industrialised
countries. Another is that there are easy policy
interventions that can reduce both costs and
improve health because states and hospitals
that spend more on health care get nothing in
return.

Low life expectancy in the United States:

Is the health care system culpable?

One of the most frequently reported facts in

the health care debate was that the US spends
a greater proportion of its GDP on health care
than any other country, while life expectancy in
the US is relatively low. These statistics led many
commentators to conclude that the US health
care system delivers not only expensive but also
substandard care. Some went on to argue that
since the extra money must be going somewhere,
it is going to excessive health insurance and © iStockphoto.com/webking
drug company profits.
The first problem with these claims is that of additional years: 19.0 in the US and 18.9 in The rate for blacks is a national tragedy. Even
only a small portion of health care expenditures the UK. But from 65 onwards the gap in favour more disturbingly, the infant mortality rate of
can be accounted for by health insurance and of the US grows. Seventy-five-year-olds are ex- middle-class blacks with medical insurance is also
drug company profits. Health insurance profits pected to live half a year longer in the US than in significantly higher than that for whites. But the
account for only 1% of total health care expen- the UK, which is remarkable given that at birth question at hand is whether the health care sys-
ditures and drug company profits only account Americans are expected to live 1.4 years less tem is to blame for these differences, or whether
for 1.3%2. Excluding both health insurance and than individuals in the UK. they stem from other social phenomena.
drug company profits, the US spends 16.7% of The temptation is to give this table and these For example, some argue that social inequality
its GDP on health care. The absolute expendi- figures a simplistic interpretation. The most is linked with higher rates of disease and lower
tures are large, but the relative expenditures are commonly reported interpretation is that the US life expectancy, and the US has more income in-
small, and these profits cannot account for why health care system provides worse care than the equality than other industrialised countries. The
the US spends more on health care than other UK system because of lower life expectancy at evidence based on human studies is only sugges-
countries. birth. Alternatively, one could argue that medi- tive, but the effect has been observed in experi-
By way of comparison, the UK spends cal care in the UK for the elderly is poorer than ments with social animals such as primates6–8.
about 8% of its GDP on health care and has a it is in the US. This may be a reason to pay attention to the
life expectancy of 79.7 years. In contrast, the Such interpretations should be resisted. It is distribution of income in the US, but one should
US spends 17.1% of its GDP and has a life ex- impossible to make any valid inferences about not judge the health care system by outcomes
pectancy of 78.3 years. Table 1 presents the life the comparative performances of health care caused by other social structures.
expectancy of different age cohorts in both the systems from such a table. There are simply too The act of evaluating a health care system
US and the UK. Note that life expectancy in the many factors that differ too profoundly between by making comparisons of the sort presented
UK exceeds that of the US for every age cohort the two countries: the behaviour of people, their in Table 1 reached its logical limit in the World
until age 65. Sixty-five-year-olds in both coun- demographics, and social phenomena such as Health Organization’s (WHO) report on national
tries can expect to live about the same number income inequality and poverty rates. health systems. This 2000 report received exten-
For example, the United States had the high- sive media coverage, especially the result that in
est per capita cigarette consumption rate in the a performance ranking of the health care systems
Table 1: Life expectancy by age cohort, US and UK.
developed world3. One study estimated that if of 191 nations, the US ranked 37th.
The table shows that a US citizen aged 70 can expect
a further 12.1 years of life; a similar UK citizen can deaths attributable to smoking were eliminated, The WHO study actually presents two dif-
expect to live only another 11.6 years the ranking of US male life expectancy at age ferent rankings. The first is based on ‘overall
50 among 20 OECD countries would improve attainment’(OA) and the second on ‘overall
Age US UK from 14th to 9th, while US women would move performance’ (OP). Both rankings use the same
from 18th to 7th4. And as is frequently reported, data, but the OP ranking is adjusted to reflect
0 78.3 79.7 obesity rates are unusually high in the United a country’s performance relative to how well
20 59.2 60.3 States5. it could theoretically have performed. The US
40 40.3 41.0 The demographics of the US are different from ranked 15th in the OA rankings but 37th in the
those of other countries. And health outcomes OP ranking.
60 22.8 22.9
vary greatly across demographic groups. The The WHO ranking consists of five different
65 19.0 18.9 African-American infant mortality rate is 13.7 types of measures: health level (disability-ad-
70 15.4 15.1 per 1000 live births, while the rate for whites in justed life expectancy); responsiveness (meas-
75 12.1 11.6 the US is 5.7. The infant mortality rate for whites ures a variety of health care system features,
compares favourably with other OECD countries. including speed of service, protection of privacy,

september2010 125
choice of doctors, and quality of amenities); the internationally comparable data for the actual health care system appears to be operating bet-
distribution of responsiveness across population incidence of diseases. Disease incidence is not ter than those of peer nations.
groups; and financial fairness. In the report, the the same as disease detection. Disease detection
US ranks first in the responsiveness measure. is a combination of both disease incidence and
What drags the US down to 15th is the relatively the mechanics of identification. A country with Easy cost savings?
low life expectancy and unequal distribution of a good health care detection system may appear
access and costs. And what makes the ranking to have a higher disease incidence, when in fact Some claim that easy savings can be made
go from 15th to 37th is the high cost of the US it does not – it just detects the disease more through increased efficiencies. An often debated
system. efficiently. Moreover, incidence could be less the issue is whether Medicare, the universal govern-
These details were rarely reported. The de- result of the health care system and more the ment health care program for the elderly, is more
tails matter because preferences for equality are result of other social factors. efficient than private health insurance providers.
embodied in the WHO study. But it is well docu- Because of these problems, Preston and Ho This would appear to be a simple question, but
mented that American voters prefer a greater evaluate health care systems by measuring their it is not. One of many complications is that there
degree of inequality than European voters9. And ability to diagnose diseases in a timely fashion is a cross-subsidy from private insurance patients
the WHO report concedes that the responsiveness and to then treat them. These two factors are to Medicare patients. Hospitals lose money on
of the US medical system (for those who have ac- core elements of what we expect a health care Medicare patients, and they recover that loss
cess) is second to none. It is a political, ethical system to do, and they are less prone to be influ- from patients with private insurance. The losses
and philosophical question how responsiveness enced by social factors. The authors investigate can be large. For example, the Mayo Clinic, one
should be traded off against equality. It is not a the comparative mortality trends for prostate of America’s premier hospitals which is held up
scientific question. cancer and breast cancer, in part because effec- by the Obama administration as an exemplar of
We are left with a conundrum. The US has tive methods of screening for these diseases have excellent and cost-effective care, reports that it
poor health outcomes but arguably the world’s been developed recently so their rates of adop- lost $840 million on Medicare patients in 2009.
most responsive health care system for those tion can be measured. They find that the new The Obama administration often refers to
with access to it. Are there ways of evaluating diagnostic methods have been deployed earlier studies by researchers at Dartmouth College
the US health care system that are independent and more widely in the US than in the industrial- that show the correlation between health care
of social factors? ised countries they used for comparison11. And expenditures and patient health outcomes to
Researchers have begun to make progress. For since effective methods are being used to treat be zero or even negative12,13. The Dartmouth
example, Preston and Ho10 propose a promising these diseases at higher rates than elsewhere, researchers examined how much hospitals across
approach. They focus on how particular diseases the US has had a significantly faster decline in the country billed Medicare for patients with a
are identified and then treated across countries. mortality from these diseases than comparison chronic illness who were in their last six months
This is a difficult task because there are no countries. For these diseases at least, the US to two years of life. Although the studies show

© iStockphoto.com/Dr. Heinz Linke

126 september2010
that health care costs vary greatly across the Doyle’s design relies on the assumption that not acknowledging the uncertainty, and dismissing
country, the studies cannot show why. For exam- these medical events are unforeseen, so people opponents as irrational if the evidence does not
ple, by their measures, the Mayo Clinic is shown do not select their vacation destination because convince them, poisons the political debate no
to be cheap while the University of California of the expected quality of medical care. He com- less than making charges of “death panels”.
at Los Angeles (UCLA) Medical Center is shown pares the health outcomes for destinations that
to be expensive. But why? Many things differ are demand substitutes for tourists but that have References
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compares patients who are on vacation far from of internists in the US, it is unclear how to fix Chronic Illness. Lebanon, NH: The Dartmouth Institute
for Health Policy and Clinical Practice. 2008.
home when they have a health emergency. He this problem. This is not to argue that extending
14. Doyle, J. (2010) Returns to local-area
shows that out-of-state tourists in higher spend- health care was not the proper policy. The point healthcare spending: using health shocks to patients
ing parts of Florida who experience unexpected is that it is difficult to predict the consequences far from home. Working Paper.
health shocks – such as heart attacks, strokes, of such policy interventions, and it would be 15. American College of Emergency Physicians.
and hip fractures – have significantly lower helpful if analysts and politicians acknowledged http://www.acep.org/MeetingInfo.
mortality rates than tourists in lower-spending that uncertainty. aspx?id=46812 (accessed June 10th, 2010).
areas. High-spending areas provide greater in- To put it bluntly: evidence that would be insuf-
tensive care unit services, a higher likelihood of ficient to approve a single drug is being marshalled Jasjeet S. Sekhon is Associate Professor of Political
treatment provided in a teaching hospital, more to change the entire medical system. This, in and Science and Director of the Center for Causal Infer-
surgical procedures, and higher staff-to-patient of itself, is not an argument for doing nothing: de- ence and Program Evaluation at the University of Cali-
ratios. cisions must be made even under uncertainty. But fornia, Berkeley.

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