A relatively minor but intriguing component of the landmark Patient Protection and Affordable Care Act (ACA) has featured prominently in the news lately. The Community Living Assistance Services and Supports (or CLASS) act repeatedly stumped attempts to design a fiscally solvent implementation plan, and the Obama administration quietly tabled it two weeks ago. The demise of the program has scented out an enormous amount of dialogue attempting to draw dire conclusions about what happened; it is crucial to understand fundamentally what this program was, why it was important, and why it failed.
Long-term care typically refers to extended patient stays at nursing homes, or Skilled Nursing Facilities (SNFs). Often, disabled, elderly, or particularly poorly-off patients will be discharged to long-term care after extensive hospital procedures for the duration of their recovery. More problematic, however, is the protracted utilization of such facilities in a pseudo- or pre-hospice fashion by the disabled and elderly once their health deteriorates beyond the care capacity of their families. Medicaid, a program whose enrollment is primarily the working poor, spends a disproportionate amount of its outlays on long-term care. Medicare offers only limited coverage, requiring many elderly individuals to exhaust large amounts of their private savings until they qualify for Medicaid, a phenomenon known as “spend-down.” Suffice it to say that the prohibitive expense of long-term care, coupled with the inadequacies of existing public insurance, makes the status quo devastating.
To make matters worse, a robust market for private insurance to bridge the gap does not really exist. The problem is that insurance only works if companies can spread the losses they take on individuals who actually end up in long-term care over individuals who pay into the program but never end up needing it. Unfortunately, individuals tend to have a much better idea of their own prospects for ending up in a nursing home than insurers do, even when insurers make prospective subscribers submit detailed histories and undergo a physical exam. Inevitably, nursing home-bound individuals flock to long-term care plans while those with better prospects choose to save their money, and the market for insurance falls apart pretty quickly as insurers find themselves paying out high costs for an unacceptably large proportion of their subscribers,a process called “adverse selection”.3 Comments
We’ve all seen the unpromising statistics that indicate a dismal prognosis of our country’s health-care system. Medical expenditures currently consume 17.3% of the nation’s annual GDP and, at the current growth rate of health-care spending, will account for 19.3%—almost a fifth—of overall GDP by the year 2019.1 But where are these costs coming from?
Contrary to popular thought, the vast expenses are not a result of high physician salaries or hospital profits. In fact, hospitals and physicians usually get government compensation for a fraction of the price of the services they are required to extend to all patients. Unnecessary expenses do result, however, from other factors such as government policies that limit eligibility for illegal immigrants to receive support from national aid programs, such as Medicare and Medicaid. Such restrictions force hospitals to provide care to the large base of ineligible patients without compensation. The most recent piece of legislation that will have this effect is Obama’s “Patient Protection and Affordable Care Act,” which intends to cut Medicare spending by over $400 billion.2 The increased rates of medical malpractice liability coverage for physicians further add to the cost of health-care delivery. Physicians have been known to practice “defensive medicine” as opposed to “appropriate medicine” for fear of lawsuits, resulting in expensive and unnecessary testing and hospital stays. Some patients also repeatedly abuse the hospitals’ and physicians’ responsibility to entertain any complaint the patient makes, whether or not it merits expensive care.
A recent article in the New York Times called “Stuck in Bed, at Hospital’s Expense” sums up one of the major flaws in the U.S. health-care system that strains hospitals and leads to excessive spending. 3 Reporter John Leland follows the story of Mr. Fok, who was rushed into New York City’s Downtown Hospital after suffering a stroke and collapsing on a subway platform. Specialists treated Mr. Fok appropriately, expecting him to be discharged within seven to ten days and sent him to a rehabilitation center. However, Mr. Leland interviews Mr. Fok nineteen months after his arrival at the hospital, where he is still laying in a bed that costs the hospital $2,000 per day to maintain. Mr. Fok’s illegal immigrant status makes him ineligible for government health coverage plans and therefore unqualified to stay in a less costly rehab center. For nineteen months, government legislation caused Mr. Fok’s immigrant status to drain the hospital of resources that were medically unnecessary; in reality, he required little more than the equipment stocked in a nursing home that would cost $350 a day in New York City. Instead, Mr. Fok’s treatment cost the hospital $1.4 million, which must eventually be subsidized by taxpayer money, raising Americans’ tax costs for health-care. Essentially, a government plan built to cut costs ends up raising the burden for American taxpayers. The result? Caring for one patient who could have been treated equally well for a fraction of that price.