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The U.S. health care system is the subject of much polarizing debate. At one extreme are those who argue that Americans have the “best health care system in the world”, pointing to the freely available medical technology and state-of-the-art facilities that have become so highly symbolic of the system.

At the other extreme are those who berate the American system as being fragmented and inefficient, pointing to the fact that America spends more on health care than any other country in the world yet still suffers from massive uninsurance, uneven quality, and administrative waste.

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Understanding the debate between these two diametrically opposed viewpoints requires a basic understanding of the structure of the U.S. health care system. This primer will explain the organization and financing of the system, as well as place the U.S. health care system in a greater international context.

As with all other countries, there are both private and public insurers in the U.S. health care system. What is unique about the U.S. system in the world is the dominance of the private element over the public element.

Public Health Insurance

Medicare:

Medicare is a federal program that covers individuals aged 65 and over, as well as some disabled individuals. Medicare is a single-payer program administered by the government; single-payer refers to the idea that there is only one entity (the government) performing the insurance function of reimbursement.

Medicare is financed by federal income taxes, a payroll tax shared by employers and employees, and individual enrollee premiums (for parts B and D). Medicare Part A covers hospital services, Medicare Part B covers physician services, and Medicare Part D offers a prescription drug benefit. Medicare Part C refers to Medicare Advantage – HMO’s that administer Medicare benefits.

There are many gaps in Medicare coverage, including incomplete coverage for skilled nursing facilities, incomplete preventive care coverage, and no coverage for dental, hearing, or vision care. Because of this, the vast majority of enrollees obtain supplemental insurance. Overall, seniors pay about 22% of their income for health care costs despite their Medicare coverage. (“Medicare at a Glance”, 2003)

Medicaid:

Medicaid is a program designed for the low-income and disabled. By federal law, states must cover very poor pregnant women, children, elderly, disabled, and parents. Childless adults are not covered, and many poor individuals make too much to qualify for Medicaid. States have the option of expanding eligibility if they so choose.

For example, states can choose to increase income eligibility levels. The states and the District of Columbia are responsible for administering the Medicaid program; as such, there are effectively fifty-one different Medicaid programs in the country. Medicaid is financed jointly by the states and federal government through taxes.

Every dollar that a state spends on Medicaid is matched by the federal government at least 100%. In poorer states, the federal government matches each dollar more than 100%. Overall, the federal government pays for 57% of Medicaid costs.

Medicaid offers a fairly comprehensive set of benefits, including prescription drugs. Despite this, many enrollees have difficulty finding providers that accept Medicaid due to its low reimbursement rate. (“Medicaid: A Primer”, 2005)

Other public systems:

S-CHIP:

     The State Children’s Health Insurance Program (S-CHIP) was designed in 1997 to cover children whose families make too much money to qualify for Medicaid but make too little to purchase private health insurance. S-CHIP and Medicaid often share similar administrative and financing structures. (Bodenheimer and Grumbach)

VA:

The Veteran’s Administration is a federally administered program for veterans of the military. Health care is delivered in government-owned VA hospitals and clinics. The VA is funded by taxpayer dollars and generally offers extremely affordable (if not free) care to veterans. (Bodenheimer and Grumbach)

Private Health Insurance

Employer-sponsored insurance:

Employer-sponsored insurance represents the main way in which Americans receive health insurance. Employers provide health insurance as part of the benefits package for employees. Insurance plans are administered by private companies, both for-profit (e.g. Aetna, Cigna) and non-for-profit (e.g. Blue Cross/Blue Shield).

A special case is represented by companies that are “self-insured” – that is, they pay for all health care costs incurred by employees directly. In this case, the company contracts with a third party to administer the health insurance plan. Self-insured companies tend to be larger companies such as General Motors. (Bodenheimer and Grumbach)

 Employer-sponsored insurance is financed both through employers (who usually pay the majority of the premium) and employees (who pay the remainder of the premium). In 2005, the annual private employer-sponsored insurance premiums averaged $4,024 for single coverage and $10,880 for a family of four. (“Employer Health Benefits 2005 Annual Survey”, 2005)

Benefits vary widely with the specific health insurance plan. Some plans cover prescription drugs, while others do not. The degree of cost-sharing (co-pays and deductibles) varies considerably.

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