The Current State of U.S. Health Care

A look at the crisis in 10 charts Joan C. Barrett

Photo: istock.com/wildpixel

The United States fares unfavorably relative to comparable countries in health care spending, quality and access. Although many have been able to manage quite well under the current system, the situation always has been nothing short of a crisis for those without access to affordable health care. At the height of the COVID-19 pandemic, many realized that, even if they could afford health care, essential resources may not be available—making this is a crisis for the U.S. health care system as a whole.

Some combination of the U.S. system’s structure, prices charged for services, the delivery system and disease burden have driven this crisis. Efforts are underway to address each of the drivers, but success will not come easily—nor will it come quickly. After all, health care is complicated, no matter which country you live in. In all countries, people living in rural areas struggle with a lack of provider access. And every country must deal with the “balloon in the box” problem: balancing costs and demand. Health care in the United States has an additional layer of complexity, because unlike comparable countries such as the United Kingdom and Germany, the United States does not have a single health care system.

I have always found that the more complicated something is, the more important it is to try to summarize and explain the key drivers, challenges and opportunities. This article—in which I compress the many dimensions of health care into just 10 charts—is my humble attempt to do this for health care in the United States. My primary criteria for including a chart is how well the chart describes an important aspect of the U.S. health care system and the availability of data. Of course, half the fun in preparing any list is being challenged about what it is included and what is not. I look forward to those discussions.

We can expect many changes over the next few years as new data sources emerge, clinical practices evolve and new financing methods take hold. Actuaries will, of course, continue to play a key role in recommending and implementing changes to the system. After all, we are the ones who convert reams of data into actionable plans for key stakeholders like health plans and provider organizations. These changes will, however, require us to continually update our tools and techniques to keep pace.

Health Care Spending

The United States spends almost double what comparable countries spend on health care on a per capita basis—18 percent of the gross domestic product (GDP) in the United States goes toward health care, compared to roughly 11 percent of GDP in comparable countries, as shown in Figure 1. U.S. spending patterns are much closer to comparable countries when both health care and social safety net spending, like cash assistance to the poor, are considered. In part, this spending discrepancy may be attributed to the degree of income inequality in the United States.1

Figure 1: 2017 Health Consumption Expenditures per Capita, U.S. Dollars, PPP Adjusted

Hover Over Image for Specific Data

Source: Sawyer, Bradley, and Cynthia Cox, How Does Health Spending in the U.S. Compare to Other Countries? Peterson-KFF Health System Tracker, December 7, 2018 (accessed June 12, 2020).

One can look at Figure 1 and conclude that the United States is spending too much on health care and not enough on other worthy efforts, like education. Others may look at this chart and conclude that the United States is not spending enough on health care given issues like the high number of uninsured people. Regardless of the interpretation, it is clear that health care is unaffordable to many Americans. The question is, can the United States reduce its health care costs, improve quality and reduce the number of uninsured?

Quality

There are countless ways to define quality and countless ways to categorize and rank the measures. Regardless of the methodology, the United States tends to fare poorly relative to comparable countries. Arguably, amenable mortality, which refers to death rates considered preventable by timely and effective care, is one of the more telling measures. As Figure 2 shows, the United States ranks last on amenable mortality based on the Healthcare Access and Quality (HAQ) Index. The HAQ Index uses age- and risk-standardized mortality rates for 32 causes of death. In this index, the lower the index number, the lower the quality.

The United States ranks more favorably than others on some measures, especially those that reflect the country’s approach to preventive care, care coordination and patient engagement. Conversely, the United Kingdom, which generally ranks very high on most scales, does not rank as high on outcome-related measures like amenable mortality and the cancer five-year survival rate.2

The Uninsured Rate

Countries comparable to the United States have universal coverage for their populations.3 More than 10 percent of the U.S. population is uninsured, as shown in Figure 3. The uninsured rate has fallen considerably since the key provisions of the Patient Protection and Affordable Care Act (ACA) were implemented on Jan. 1, 2014. This decline can be attributed to a low unemployment rate and two key features of the ACA: Medicaid expansion and a subsidized marketplace for individuals without employer coverage. The majority of the remaining uninsured fall below 250 percent of the federal poverty level (FPL). This population is disproportionately Hispanic and Black. There is no information available yet on the impact of the COVID-19 pandemic on the uninsured rate.4

Health Care System Models

There are four major types of health care system models globally, as shown in Figure 4. The primary differences in the models include the funding methods, government control of providers and the degree of regulation for cost and quality. Each system experiences some issues with balancing demand and costs. For example, the U.K.’s National Health Service has exceeded its budget several years in a row.

Elements of the U.S. health system fall into each of the categories. One advantage of this type of system is that it allows for more flexibility and innovation. On the other hand, there is duplication of effort. According to the Center for Medicare & Medicaid Services’ (CMS’) national health expenditure data, only about 8 percent of all expenditures result from insurance-related activities like premium collection and paying claims. That number, however, does not reflect the additional administrative burden a provider’s office incurs for billing, reporting quality measures and so on. Those numbers are not generally reported on a regular basis, and some researchers have estimated that those costs are in the 20 percent to 30 percent range.

Figure 4: Health Care System Models Around the World

Model Description Applications Approximate Percentage of U.S. Population
Bismarck Model
  • Private payers
  • Nonprofit only
  • No preexisting conditions
  • Government cost control
  • Germany and Japan
  • U.S. commercial, except for nonprofit requirement and government cost control
47%
Beveridge Model
  • National program
  • Most doctors are government employees
  • United Kingdom
  • U.S.: Native Americans, military personnel and veterans
6%
National Health Insurance
  • National program
  • Providers are private entities
  • Canada
  • U.S. Medicare and Medicaid
38%
Out-of-Pocket
  • Most services paid out of pocket
  • India, most third-world countries
  • U.S. uninsured
9%

Sources:Reid, T.R. 2009. The Healing of America, Chapter 2. Penguin Group: United States. Health Care Cost Trends Research. Society of Actuaries (accessed June 12, 2020).

One effort underway to reduce the administrative burden on providers is the implementation of the Interoperability Roadmap. The Interoperability Roadmap is a federal plan for the implementation of electronic health records (EHRs). Phase 1, which is scheduled for completion in 2024, deals strictly with the interchange of clinical information, like the physician’s orders, test results and so on. In Phase 2, administrative information, like identifying a patient’s benefit package, will be made available. After Phase 2 is implemented, it might be possible to develop a personal “smart card,” which would allow easy access to all the information contained in the EHR and should increase administrative efficiency. They already are used in places like France and Taiwan.

Similarly, the National Quality Forum and other organizations are working to build a consensus for improving health care quality by administrating a voluntary system to analyze and measure quality. There is still more research to be done regarding the impact of each measure and how to optimize the choice of measures.

One final note: Consolidating programs does not guarantee an improvement in quality. The Government Accountability Office (GAO) has declared both Medicare and Medicaid as high-risk programs, citing the size and complexity of the systems as the main drivers.5

Prices, Prices, Prices

Several studies indicate that price is one of the key drivers in U.S. health care spending. For example, the paper titled “It’s Still the Prices, Stupid”6 concludes that price is the main reason the United States pays more for health care than comparable countries. Certainly, price has been a key driver in health care costs over the period from 1970 through 2017. As shown in Figure 5, the personal health care expenditures per capita have grown at an average annual rate of 7.5 percent—and most of the 7.5 percent can be explained by the 5.8 percent increase in prices as measured by the medical consumer price index (CPI) for urban consumers.

After looking at these numbers, one might conclude that the United States would benefit from more price regulation like in other countries. Regulation is certainly associated with lower prices, but it also is associated with other problems like rationed care, long wait times and provider dissatisfaction. In 2006, physicians in Germany protested in the streets for higher wages.

As an alternative to regulation, the United States is slowly moving toward the use of alternative payment methods (APMs), or value-based reimbursement methodologies. Traditionally, most health expenditures have been reimbursed using the fee-for-service (FFS) methodology. Under a FFS model, the provider’s income is based exclusively on the services performed, without regard to the quality of care or outcomes. APMs, on the other hand, hold the provider responsible for quality and/or efficiency by putting some or all of the provider’s income at risk based on defined measures.

The specific quality and efficiency measures vary by payer and, to some extent, the provider type or even the specific provider. By now, most payers have an extensive portfolio of such measures to draw from in any given situation. That said, there is still a lot of work to be done to quantify the financial and clinical impact of a given measure and to optimize the choice of measures for a specific situation.

Not all payers will benefit equally from APMs or any other reimbursement methodology. Several studies, most notably a 2019 RAND Corporation study,7 show that privately insured patients pay considerably higher prices than Medicare patients for comparable services. Providers have always had to factor this difference into revenue projections and negotiation analytics, and these analytics will be even more challenging as the prevalence of APMs grows.

The Health Care Delivery System

The cost and quality of health care is dependent not only of the funding model used, but also on the structure and efficiency of the underlying delivery system. One key element of a delivery system is the number of providers available to perform needed services. Historically, the United States has had fewer physicians than other comparable countries, as shown in Figure 6.

Similarly, the United States has fewer hospital beds per 1,000 (2.8) than most comparable countries, with three exceptions: Canada (2.6), the United Kingdom (2.6) and Sweden (2.3).8 Hospital bed supply has been dropping over time, and it reached crisis levels during the height of the COVID-19 pandemic when ad-hoc field hospitals had to be set up in some cities. This situation will only get worse since many hospitals suffered significant financial losses during the pandemic, primarily because many elective services were deferred. In recent years, rural hospitals have not fared as well as urban hospitals. Before the pandemic, more rural hospitals closed than urban hospitals. Today, more rural hospitals are at risk of closing than urban hospitals as a result of the pandemic. This will only exacerbate the access to care issues for people in rural areas.

In recent years, there has been a movement away from the traditional hospital/physician model of delivery. For example, CVS, Walgreens and Walmart are building up their in-store delivery models with an emphasis on digital care, primary care and even chronic disease care. In addition, there has been a significant increase in the use of telehealth as a result of the pandemic. At this point, it is unclear if these models will be effective in providing additional access to quality care and what, if any, impact there will be on overall costs.

The Disease Burden

In the United States, people with one or more chronic conditions account for 90 percent of the total health care spend, as shown in Figure 7. Although the definition of a chronic condition varies, it usually includes medical and mental health conditions expected to last at least three months. The most prevalent condition is hypertension, followed closely by lipid disorders such as high cholesterol.9

Figure 7: Distribution of U.S. Population and Spending by Number of Chronic Conditions

Hover Over Image for Specific Data

Source: Buttorff, Christine, Teague Ruder, and Melissa Bauman. Multiple Chronic Conditions in the United States. RAND Corporation, 2017 (accessed June 12, 2020).

The major risk factors for chronic diseases include age, smoking and obesity. As Figure 8 shows, the U.S. population is younger than comparable countries and smokes less, but the obesity rate is almost double that of comparable countries.

Figure 8: Key Risk Factors in the United States as a Percentage Difference From Comparable Countries

Hover Over Image for Specific Data

Source: Kamal, Rabah, Cynthia Cox, and Eric Blumenkranz. What Do We Know About Social Determinants of Health in the U.S. and Comparable Countries? Peterson-KFF Health System Tracker, November 21, 2017 (accessed June 12, 2020).

In 1964, smoking was very much a part of American culture. It was allowed in public, and cigarette ads were prominent on television. In that same year, the U.S. Surgeon General released a report indicating that smoking cigarettes was harmful to one’s health. A number of broad-brush measures were taken, including banning cigarette advertising on television and prohibiting smoking in public. In addition, there were a number of personal measures, such as smoking cessation programs and medications, that came about. As a result, the smoking rate among U.S. adults in 2017 is 14 percent, a 67 percent drop since 1965.10

Although the adverse health consequences of obesity are well-known, the United States has seen a 39 percent increase in obesity rates over a 20-year period, as shown in Figure 9.

Figure 9: Obesity Prevalence Among U.S. Adults

Hover Over Image for Specific Data

Source: Hales, Craig M., Margaret D. Carroll, Cheryl D. Fryar, and Cynthia L. Ogden. 2020. Prevalence of Obesity and Severe Obesity Among Adults, United States: 2017–2018. NCHS Data Brief, no. 360.

There has been much speculation about why this increase in obesity is occurring. Possible reasons include the added sugar in processed foods, more fast food consumption and a lack of exercise. Certainly, marketing has called attention to each issue, which could lead one to the conclusion that we need to do more research on determining the best diet and exercise plan that meets the financial, social and medical needs of individual patients. With the advent of new telemonitoring techniques, like a continuous glucose monitoring system, we should see a trend in this direction.

No discussion of chronic conditions is complete without mentioning differences by ethnicity. As Figure 10 shows, Blacks are more likely than whites to have asthma, and both Blacks and Hispanics are more likely to have diabetes. The actual prevalence of these diseases may be higher than those reported because, as noted earlier, Blacks and Hispanics have less access to care than whites. This disparity put minorities at much higher risk of infection during the COVID-19 pandemic.

Figure 10: Percentage of U.S. Nonelderly Adults With Selected Health Conditions, 2018

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Source: Artiga, Samantha, Rachel Garfield, and Kendal Orgera. Communities of Color at Higher Risk for Health and Economic Challenges due to COVID-19. Kaiser Family Foundation, April 7, 2020 (accessed June 12, 2020).

The Role of the Actuary

Every practicing actuary relies directly or indirectly on in-depth analyses and projections of the cost of health care. The results of this work may be used, among other things, for financial reporting, setting premium rates or product development. This process is rapidly becoming more and more complicated. Part of the problem stems from the fact that change is happening quickly and, often, unexpectedly. That was certainly the case this year with the sudden growth in telehealth services as a result of the COVID-19 pandemic.

Similarly, so many things are changing at one time that it is often difficult to determine the net impact of all of the changes, and it is difficult to estimate the value of any one change based solely on its own merits. The bottom line is actuaries are going to need to up their game both in terms of simply keeping up with the changes and in terms of their underlying analytical techniques.

The work of the health actuary complements the work of near professions, like health economists, who tend to examine one issue at a time in depth. While many actuaries also conduct in-depth analytics, the focus of most actuaries is on the net impact of changes using the actuarial control cycle. This focus provides actuaries with a unique perspective in terms of what is working and what is not.

While most actuaries apply their expertise to the needs of their employers and clients, this expertise also can be used to take a broader look at health care. For example, the Society of Actuaries (SOA) ACA@10 Strategic Initiative provided valuable insights into the strengths and weaknesses of two key elements of our health care financing systems—Medicaid and the exchange marketplace—which can be of use to policymakers.

Joan C. Barrett, FSA, MAAA, is a consulting actuary with Axene Health Partners LLC.

References:

  1. 1. Kamal, Rabah, Cynthia Cox, and Eric Blumenkranz. What Do We Know About Social Determinants of Health in the U.S. and Comparable Countries? Peterson-KFF Health System Tracker, November 21, 2017 (accessed June 15, 2020).
  2. 2. Schneider, Eric C., Dana O. Sarnak, David Squires, Arnav Shah, and Michelle M Doty. Mirror, Mirror 2017: International Comparison Reflects Flaws and Opportunities for Better U.S. Health Care. The Commonwealth Fund, July 14, 2017 (accessed June 15, 2020).
  3. 3. Kamal, Rabah, Cynthia Cox, and Eric Blumenkranz. What Do We Know About Social Determinants of Health in the U.S. and Comparable Countries? Peterson-KFF Health System Tracker, November 21, 2017 (accessed June 15, 2020).
  4. 4. Houchens, Paul, Lindsy Kotecki, and Hans Leida. Fifty States, Fifty Stories: A Decade of Reform Under the ACA. Society of Actuaries, March 2020 (accessed June 12, 2020).
  5. 5. High Risk List. U.S. Government Accountability Office (accessed June 12, 2020).
  6. 6. Anderson, Gerard F., Peter Hussey, and Varduhi Petrosyan. 2019. It’s Still the Prices, Stupid: Why the U.S. Spends So Much on Health Care, and a Tribute to Uwe Reinhardt. Health Affairs 38, no 1.
  7. 7. White, Chapin, and Christopher Whaley. Prices Paid to Hospitals by Private Health Plans Are High Relative to Medicare and Vary Widely. RAND Corporation, 2019 (accessed June 15, 2020).
  8. 8. Kamal, Rabah, Nisha Kurani, Daniel McDermott, and Cynthia Cox. How Prepared is the U.S. to Respond to COVID-19 Relative to Other Countries? Peterson-KFF Health System Tracker, March 27, 2020 (accessed June 12, 2020).
  9. 9. Buttorff, Christine, Teague Ruder, and Melissa Bauman. Multiple Chronic Conditions in the United States. RAND Corporation, 2017 (accessed June 12, 2020).
  10. 10. Centers for Disease Control and Prevention. Cigarette Smoking Among U.S. Adults Lowest Ever Recorded: 14% in 2017. Centers for Disease Control and Prevention, November 8, 2018 (accessed June 15, 2020).

Copyright © 2020 by the Society of Actuaries, Schaumburg, Illinois.