Health Care Expenditure and Financing in the U S

Transcription

1 RP10/PLC Health Care Expenditure and Financing in the U S 24 June 1998 Prepared by Ms Eva LIU Ms S.Y. YUE Research and Library Services Division Provisional Legislative Council Secretariat 5th Floor, Citibank Tower, 3 Garden Road, Central, Hong Kong Telephone: (852) Facsimile : (852) Website : library@plc.gov.hk

2 C O N T E N T S page Acknowledgments Executive Summary Part 1 - Introduction 1 Background 1 Objective and Scope 1 Methodology 1 Part 2 - The US Health Care System 2 Introduction 2 Role of Public and Private Sectors 2 The Role of Government 2 The Role of Private Sector 2 The US National Health Care Structure 3 The US Health Care Delivery System 3 Hospitals 3 Physicians 5 Long Term Care Institutions 6 Part 3 - The US Health Care Financing Arrangements 7 Development of the Health Care Financing Arrangements 7 Managed Care 8 Health Maintenance Organization 9 Financing Methods 10 Public Health Care Financing Methods 12 Financing Methods in the Private Sector 16 Part 4 - Analysis of 17 Total 17 Total Health Care Expenditure 17 Total Health Care Expenditure by Type 19 Total Health Care Financing The Provisional Legislative Council Secretariat welcomes the re-publication, in part or in whole, of this research report, and also its translation in other languages. Material may be reproduced freely for non-commercial purposes, provided acknowledgment is made to the Research and Library Services Division of the Provisional Legislative Council Secretariat as the source and one copy of the reproduction is sent to the Provisional Legislative Council Library.

3 Public Expenditure and Financing on Health Care 24 Public Expenditure on Health Care 24 Public Expenditure on Health Care by Type 25 Public Financing on Health Care 33 Discussion 37 Private 38 Private Health Care Expenditure 38 Private Health Care Expenditure by Type 39 Health Care Financing Arrangements in the Private Sector 45 Discussion 48 Part 5 - Analysis 49 Analysis of the US Health Care Financing Arrangements 49 Private Health Insurance System 49 Public Health Insurance System 50 Managed Care 51 and Health Outcome and 51 Hong Kong Health Care Expenditure and Hong Kong 51 Health Care Financing and Hong Kong 53 Health Outcome 53 Concluding Remarks 54 References 55

4 ACKNOWLEDGMENTS We gratefully acknowledge the assistance given to us by many people in the preparation of this research paper. More specifically, we would like to thank Ms Katherine R. Levit, Director, National Health Statistics Group of the Health Care Financing Administration under the US Department of Health and Human Services. Ms Levit has supplied us with useful information and articles on the health care expenditure and financing arrangements. We also wish to thank Ms Margaret A. Hamburg, MD, Assistant Secretary for Planning and Evaluation of the US Department of Health and Human Services. She has provided us with useful addresses of websites of the US government.

5 EXECUTIVE SUMMARY 1. Total health care expenditure has more than doubled during the years between 1986 and 1996 and amounted to $1,035.1 billion in The growth of health care expenditure has slowed down as a result of various costcontainment measures and has stabilized around 13.5% of GDP in recent years. 2. The share of public funding to total health care financing has increased from 41.2% in 1986 to 46.7% in During the same period, the share of private health care financing has decreased from 58.8% in 1986 to 53.3% in Public expenditure on health care amounted to $483.1 billion in 1996 which has more than doubled that in Hospital care, physician services and long term care are the main items of spending which accounted for 45.6%, 13.8% and 13.7% of public expenditure on health care respectively in A large part of the spending on hospital care and long term care was for beneficiaries of Medicare and Medicaid. 4. More than 70% of the government funding for financing health care comes from the federal government. A high proportion (more than 80% in 1996) of the federal funding was for financing health care services through Medicare and Medicaid. 5. State and local government funding accounted for 27.4% of public financing on health care in Nearly 40% of the funding was for financing health care services through Medicaid. 6. Private health care expenditure amounted to $552 billion in 1996 which has doubled the amount in Spending on the two major items, hospital care and physician services, accounted for 25% and 24.5% of private health care expenditure respectively in Spending on drugs and other medical nondurable products and administration cost of health insurance accounted for 14.2% and 8.3% of private health care expenditure respectively in Individuals and organizations in the private sector finance health care mainly by insurance. In 1996, 187 million individuals were covered by private health insurance and 87% of them were covered by employment-based insurance. The proportion of health insurance to private health care financing has increased from 51.7% in 1986 to 61.1% in The share of direct payment to private health care financing has decreased from 39.9% in 1986 to 31% in Other private funds such as that comes from philanthropy accounted for 7.9% of private health care financing in 1996.

6 HEALTH CARE EXPENDITURE AND FINANCING IN THE US PART 1 - INTRODUCTION 1. Background 1.1 The Provisional Legislative Council (PLC) Panel on Health Services requested the Research and Library Services Division (RLS) to research into expenditure and financing of health care in Hong Kong and overseas countries. This research paper which discusses the health care expenditure 1 and financing arrangements in the United States (US) is one of the series of reports on overseas systems. The research paper entitled in Hong Kong (RP06/PLC) was issued in January Objective and Scope 2.1 The objective of this research is to analyze the expenditure pattern and financing arrangements of the US health care system. 2.2 The scope of the research is as follows : 3. Methodology describe the health care system ; describe and analyze the health care expenditure pattern ; and describe and analyze the health care financing arrangements in the US. 3.1 This study involves a combination of information collection, literature review and analysis. 3.2 Letters were sent to various health-related government organizations in the US. The (HCFA) of the US Department of Health and Human Services has co-ordinated response from various sections within the department and provided useful information to RLS. In addition, information was collected through the Internet and books borrowed from local academic libraries. 1 The unit of money in this paper refers to US dollars unless otherwise stated.

7 PART 2 - THE US HEALTH CARE SYSTEM 4. Introduction 4.1 The US government does not have a policy on health care, according to the. The US government has made no attempt to co-ordinate efforts of various parties within the system. The present US health care system is the product of interactions among different groups pursuing their own interests. 5. Role of Public and Private Sectors The Role of Government 5.1 Apart from providing health care services for the military, the US government has a limited role in direct provision of health care. The US government s major roles are as follows: monitoring and regulation of private health insurance companies and health care providers; provision of public health insurance programmes, Medicare and Medicaid, for the elderly, the disabled, and the poor; provision of public health activities such as vaccinations, disease screening programmes and health education etc.; provision of primary health care at public clinics and hospitals; and financing medical research and education. The Role of Private Sector 5.2 The private sector plays an important role in both the provision and financing of health care services. Most hospitals are owned by private non-profit or for-profit institutions and most physicians are in private solo-practice. 5.3 The majority of the US population is covered by private health insurance voluntarily provided by the employers or purchased by individuals themselves. In 1996, health care services of 68% of the population or 187 million people were financed by private health insurance. Research and Library Services Division page 2

8 6. The US National Health Care Structure 6.1 The main national structure for delivering and financing health care concerns the public health insurance programmes, Medicare and Medicaid 2. Figure 1 - The US National Health Care Structure US Department of Health and Human Services Medicare Medicaid Source : 7. The US Health Care Delivery System 7.1 In the US, health care services are provided in a loosely-structured delivery system organized at the local level. Most providers are private operators responsible for their cost and revenue. Hospitals 7.2 Hospitals are classified according to length of stay: short-stay (less than 30 days) and long-stay (over 30 days). Short-stay hospitals are called community hospitals and long-stay hospitals are called non-community hospitals (Table 1). Hospitals are also classified into federal and non-federal ones. 2 Please refer to section 10 for details of Medicare and Medicaid. Research and Library Services Division page 3

9 Table 1 - Classification of Hospitals Classification of hospitals Type of care Population served Type of provider Nonfederal hospitals Community hospitals (shortstay < 30 days) Non-community hospitals (longstay > 30 days) Federal hospitals acute and special care Acute care general public For profit; Non-profit; Government Psychiatric care, general public For profit; care of specific Non-profit; diseases such as Government tuberculosis, alcoholism, drug abuse etc. military Government personnel, veterans, or native Americans Source : 7.3 Table 2 shows that the discharge rate 3 for community hospitals decreased from per population in 1980 to per population in 1995, indicating a drop in utilization. Patients also tended to leave hospitals sooner than before. The average length of stay in hospitals dropped from 7.1 days in 1980 to 5.2 days in The occupancy rate of community hospitals dropped from 75% in 1980 to below 60% in Facing decreasing occupancy rate, some hospitals have closed down or merged with others to reduce cost. The number of hospitals decreased from in 1975 to in The number of hospital beds dropped from 1.3 million to 1.08 million during the same period. 7.5 To broaden revenue base, some hospitals expand their lines of business to provide more than just in-patient and out-patient hospital care. They use excess bed capacity for rehabilitation, skilled nursing or sub-acute care facilities. 3 Information on admission rate is incomplete. Discharge rate is used here as an alternative indicator for utilization of the community hospitals. Discharge rate includes records for persons discharged alive or deceased and institutionalized, and excludes newborn infants. Research and Library Services Division page 4

10 Table 2 - Community Hospital Utilization Rates Year Discharges (per population) Average length of stay (day) Occupancy rate (%) n.a. n.a. n.a. n.a. n.a. n.a. n.a. <60 Source : Health, United States, Physicians 7.6 Most physicians are in private solo-practice and paid on a feefor-service basis. They see patients in their offices and admit them to hospitals where they continue to treat them. 7.7 People consult physicians more often than before (Table 3). The rate was 5.4 per person in 1987 and rose to 6 per person in Table 3 - Rate of Physician Contacts* Year Physician per person contacts Remark : A consultation with a physician in person or by telephone, for examination, diagnosis, treatment, or advice. Place of contact includes office, hospital out-patient clinic, emergency room, telephone, home, clinic, health maintenance organization, and other places located outside a hospital. Source : Health, United States, There has been an increase of 44% in the number of physicians relative to the US population over the past two decades from 1.6 per population in 1970 to 2.3 per in There were physicians in Over the past two decades, the physician population has become increasingly dominated by specialists. The ratio of specialists to general practitioner was about seven to one. Research and Library Services Division page 5

11 Long Term Care Institutions 7.10 In the US, long term care is mainly provided through nursing homes and home health agencies. Nursing homes provide medical and personal care to those who need sophisticated, labour-intensive and 24-hour skilled supervision. Home health agencies provide less intensive care at the home of patients, under the supervision of a physician The demand for long term care as a whole increases as the population ages. In 1995, there were an estimated 34.2 million people aged 65 years and over (12.5% of the population). This number is expected to increase to 52.8 million 4 (16.4% of the population) by the year The health care burden on the working population would also be heavier as more people are getting old. The elderly dependency ratio expressed as the number of persons 65 years and above per 100 persons 18 to 64 years was 20.9 in The projected ratio is 21.2 in 2010 and 36 in Social Security Administration, 1996 Research and Library Services Division page 6

12 PART 3 - THE US HEALTH CARE FINANCING ARRANGEMENTS 8. Development of the Health Care Financing Arrangements 8.1 Health care services are mainly financed by insurance (public or private). In 1996, more than 80% of the population were covered by health insurance, 25% public and 68% private (figures do not add up since many people are covered by more than one insurance scheme). Under the traditional financing arrangements, insurance companies reimburse health care service providers retrospectively for the volume of services consumed. Such arrangements are increasingly replaced by managed care 5 where insurance companies pre-pay service providers a fixed amount per client for delivering comprehensive health care services to their clients throughout the year. 8.2 During the 1960s, the provision of health care services expanded rapidly and health care expenditure escalated. The main reasons for the phenomenon were the growing economy and the introduction of public insurance programmes, Medicare and Medicaid, in The public insurance programmes increased demand on health care services since they extended health insurance coverage to those who did not enjoy protection before. 8.3 The US government began to implement various measures to contain health care expenditure in the 1970s as a result of slow-down in economic growth. Both the government and the private sector stepped up their effort in reducing health care expenditure during the 1980s and 1990s. Various measures are introduced to decrease utilization of health care services thought to have marginal value. The main measures are as follows : introduction of Prospective Payment System (PPS) for hospital expenditure. Under PPS, hospitals are given a fixed payment for each patient with a particular diagnosis. If a hospital s costs are more than the fixed rate, the hospital absorbs the loss; if they are less, the hospital keeps the difference; introduction of resource-based relative value scale (RBRVS) for Medicare physician services. The new system sets a price for each physician procedure based on the amount of resources required to perform the procedure; and introduction of managed care. 5 Please refer to section 9 for details of managed care. Research and Library Services Division page 7

13 8.4 In addition to the problem of escalating health care expenditure, the US government also faces the problem of a growing size of uninsured population. About 15.2% of the population or 41.7 million people were uninsured in The uninsured have to pay for their own health care expenses, use limited services at public hospitals or go without health care services. In 1993, President Clinton tried to introduce a bill to extend health insurance to all Americans and to constrain the increase in costs. The bill however did not get enough support in the Congress since some members of the Congress feared that the bill would restrict freedom of choice in health care providers. They were also worried that the measures to contain health care expenditure would lead to inadequate health care for the sick. 8.5 In 1998, President Clinton announced another proposal to provide protection to the uninsured. Under the new proposal, uninsured individuals aged between 55 and 64 years would be allowed to buy into the Medicare programmes. 9. Managed Care 9.1 The term managed care refers to a variety of insurance models which combine the financing and delivery of health care in the same contract and which aim to eliminate unnecessary and inappropriate health care and to reduce expenditure. Managed care insurance schemes can be applied to both private and public insurance schemes. 9.2 Before the introduction of managed care, insurance companies reimbursed health care providers according to the volume of services consumed (feefor-service) after services were provided. Providers reimbursed on a fee-for-service basis have a financial interest in treatment decisions. They have incentives to provide more treatment or suggest more expensive treatment, regardless of what was necessary or beneficial to the patient. This reimbursement method has contributed to the rapid increase in health care expenditure. Research and Library Services Division page 8

14 9.3 Under managed care insurance schemes, health care providers would receive a fixed per capita pre-payment for the delivery of a range of health care services to enrollees. Under this pre-payment system, providers would not provide unnecessary care since they would suffer financial loss if the amount and cost of treatment exceeds the payment pre-paid to them. Managed care insurance schemes have the following characteristics: contractual relationship between insurance companies and health care providers; lower average premium - managed care insurance companies negotiated rate discounts with providers in return for access to large groups of patients. The insurance companies in turn charge enrollees an average premium for managed care insurance schemes which is lower than that for traditional insurance schemes; emphasis on preventive services - under managed care schemes, primary care physicians act as the gate-keepers and control referrals to specialists, hospitalization and emergency out-patient care. Enrollees have to pay the bill for services not authorized by the primary care physicians; and more comprehensive coverage of services - managed care insurance schemes provide more comprehensive coverage of services than feefor-service insurance schemes and would include preventive services such as routine physical examinations, immunizations etc. in addition to hospital care, physician services, laboratory testing, prescription drugs etc. Health Maintenance Organization 9.4 Health Maintenance Organization (HMO) which is a pre-paid health insurance scheme is the oldest form of managed care first established during the 1970s. It delivers comprehensive care to members through designated providers who receive a fixed periodic payment for health care services. 9.5 Some long-established HMOs would employ physicians and build their own hospitals and clinics to serve their enrollees. In this case, the roles of insurance companies and health care providers are integrated into the same organization. Other HMOs contract with a network of solo-practice physicians and hospitals to provide the services. Research and Library Services Division page 9

15 Figure 2 - Share of Managed Care in Employment-Based Health Insurance Schemes Percentage Fee-for-service Managed care Source : Health Care Financing Review/Fall 1996/Volume 18, Number Financing Methods 10.1 Financing in this paper refers to financing for health care services, medical research and construction of health care facilities from the point of view of health care providers. There are three main sources of financing : directly from the government, directly from individuals and organizations in the private sector and indirectly through insurance companies Figure 3 describes the flow of funds from various financing sources to health care providers in return for services provided to individuals. Financing of health care by the government directly and indirectly through insurance schemes is classified as public financing on health care. Financing by individuals or organizations in the private sector directly and indirectly is regarded as private financing on health care. Research and Library Services Division page 10

16 Figure 3 - Health Care Financing Individuals Tax ($) Premium ($) Direct payments ($) Government Insurers Health care services Government allocation ($) Claims payment ($) Health care providers Research and Library Services Division page 11

17 Public Health Care Financing Methods 10.3 The federal, state and local governments finance health care services with funds raised from the following sources: taxes; insurance premium; user charges; and others The government may finance the provision of health care services directly. It may also allocate funds to various public programmes such as Medicare and Medicaid to finance services offered by different kinds of health care providers. The major government programmes are described below. Medicare 10.5 Medicare is a major public health insurance programme. It provides insurance to the elderly aged 65 years or above, the disabled and people with permanent kidney failure. This public insurance programme covered 35 million people or 12.7% of the population in Medicare gets funding from the federal government. Funding allocated to Medicare but not needed for current spending will be accumulated and invest on US Treasury securities. Accumulated assets will be drawn when spending exceeds federal funding Medicare has two trust funds 6, Hospital Insurance (HI) and Supplementary Medical Insurance (SMI). HI provides coverage to in-patient hospital services, skilled nursing facilities, home health services and hospice care. SMI pays for the cost of physician services, out-patient hospital services, medical equipment and supplies and other health services and supplies The beneficiaries of Medicare need to share cost in one form or another e.g. by paying premium, paying a fee when using the services or paying a certain percentage of the service charges etc. 6 Trust funds describe those funds required by the law to be accumulated separately and used only for specified purposes. Research and Library Services Division page 12

18 Figure 4 - Health Care Financing through Medicare Individuals Tax ($) Government Government allocation ($) Government allocation ($) Hospital Insurance Trust Fund Supplementary Medical Insurance Trust Fund Claims payment ($) Claims payment ($) Cost-sharing ($) Health Care Providers Cost-sharing ($) Health care services Beneficiaries Research and Library Services Division page 13

19 Medicaid 10.9 Medicaid is a public insurance programme jointly-funded by the federal and state governments for low-income and needy people. It covered 31 million individuals or 11.3% of the population in Medicaid provides a minimum set of services including hospital, physician and nursing home services. States have the discretion of providing coverage to an additional 31 types of service including prescription drugs, hospice care and personal care to their Medicaid beneficiaries In recent years, states have been forced to bear an increasingly larger share of Medicaid s spiralling costs. In 1996, federal contributions ranged from 50 to 79%; and state contributions ranged from 21% to 50% Since the beneficiaries are predominantly poor, the government limits cost-sharing to $1 per visit. Research and Library Services Division page 14

20 Figure 5 - Health Care Financing through Medicaid Individuals Tax ($) Federal and State governments Government allocation ($) Medicaid Cost-sharing ($) Claims payment ($) Health care providers Health care services Beneficiaries Research and Library Services Division page 15

21 Other Government Programmes The US government also finances health care services for its staff and native Americans through a number of programmes which include the following: Federal Employees Health Benefits Programmes (FEHBP) - provides voluntary health insurance coverage for about nine million federal government employees and their dependants.; Civilian Health and Medical Programmes of the Uniformed Services (CHAMPUS) - provides medical care to all active military personnel, retired personnel and their dependants, plus the dependants of deceased personnel; Veterans Administration (VA) - provides medical care for those who served honorably in the armed forces; and Indian Health Services - provides medical care and health services for more than one million native American Indian and Alaskan natives. Financing Methods in the Private Sector Private insurance is an important mechanism through which individuals and employers finance health care services. About 68% of the population or 187 million people had some form of private insurance in Among them, about 87% of the private health insurance schemes were employment-based and provide coverage to employees, retired employees and their dependants Private individuals pay for their health care services out of their pockets if they do not have health insurance or if the services are not covered in their insurance schemes Another major financing source in the private sector is philanthropy. Philanthropic support may be direct from individuals or may be obtained through charitable organizations. Research and Library Services Division page 16

22 PART 4 - ANALYSIS OF HEALTH CARE EXPENDITURE AND FINANCING 11. Total Total Health Care Expenditure 11.1 Total health care expenditure has more than doubled during the years between 1986 and 1996 and reached $1,035.1 billion in 1996 (Table 4). Total health care expenditure is the sum of what the government, individuals and organizations in the private sector spend directly or indirectly on health care services, administration of health insurance programmes, health education, medical research and construction of health care facilities etc The growth rate of total health care expenditure was at a high of 12.1% in 1990 and dropped to 4.4% in The growth rate in 1996 was the lowest in more than three decades. The slow-down in the growth of health care expenditure can be attributed to the various cost containment measures introduced by the government and the private sector. Table 4 - Total Health Care Expenditure and GDP Year US$ in billion Total health care expenditure (a) ,035.1 GDP (b) 4,422 4,692 5,050 5,439 5,744 5,917 6,244 6,558 6,947 7,265 7,636 Population in million Population (c) % Growth rate of (a) n.a Growth rate of (b) n.a Growth rate of (c) n.a (a)/(b) US$ Per capita health care expenditure Research and Library Services Division page 17

23 11.3 Health care expenditure has grown faster than the GDP for most of the years between 1986 and The difference in growth between the two narrowed as the increase in total health care expenditure slowed down. Figure 6 - Trend Growth Rates of Total Health Care Expenditure and GDP 15 Growth rate of national health expenditure GDP growth rate Percentage Year 11.4 The US government spent about 10.4% of its GDP on health care in 1985 and around 13.5% in recent years. However, the US still ranks first among OECD countries in terms of the percentage of GDP spent on health care. Table 5 - Health Care Expenditure as a Percentage of GDP Country Australia Canada France Germany Netherlands Switzerland USA OECD Research and Library Services Division page 18

24 Total Health Care Expenditure by Type 11.5 Tables 6 and 7 show that a high percentage of total health care expenditure has been spent on hospital care. In 1996, hospital care spending at $358.5 billion accounted for 34.6% of total health care expenditure and has doubled that in Hospital care is defined to cover all services provided by hospitals to patients. Thus, hospital care spending includes room and board charges, ancillary charges such as operating room fees, charges for the services of resident physicians, in-patient pharmacy charges, charges for hospital-based nursing home care, and fees for any other services billed by the hospital Spending on physician services has accounted for around 20% of total health care expenditure. Spending on physician services was at $202.1 billion in 1996 which has more than doubled that in Physician services refer to services rendered by physicians at various settings such as clinics and hospitals etc. The main types of services offered by physicians include patient care (both in-patient and out-patient services), laboratory services, X-ray services and provision of prescription drugs etc Spending on long term care which includes that on home health care and nursing home care has been on the rise. In 1996, long term care spending reached $108.7 billion and accounted for 10.5% of total health care expenditure. Long-term care refers to residential care for the aged and infirm. Nursing homes provide medical and personal care, and residential care to those who need sophisticated, labour-intensive and 24-hour skilled supervision. Home health care agencies provide less intensive care at the home of patients, under the supervision of a physician. Research and Library Services Division page 19

25 Table 6 - Total Health Care Expenditure by Type (US$ in billion) Year Total health care expenditure Health services and supplies Personal health care* , , Hospital care Physician services Long-term care Dental services Other professional services Drugs and other medical non-durable Vision products and other medical durable Miscellaneou s personal health care Programme administration and administration cost of private health insurance Public health activities Research and construction GDP 4,422 4,692 5,050 5,439 5,744 5,917 6,244 6,558 6,947 7,265 7,636 Remarks : Numbers may not add to total because of rounding. * Personal health care refers to therapeutic goods or services rendered to treat or prevent a specific diseases or condition in a specific person. Research and Library Services Division page 20

26 Table 7 - Percentage Distribution of Total Health Care Expenditure by Type (%) Year Total health care expenditure Health services and supplies Personal health care* Hospital care Physician services Long-term care Dental services Other professional services Drugs and other medical non-durable Vision products and other medical durable Miscellaneous personal health care Programme administration and administration cost of private health insurance Public health activities Research and construction Remarks : Numbers may not add to total because of rounding. * Personal health care refers to therapeutic goods or services rendered to treat or prevent a specific diseases or condition in a specific person. Research and Library Services Division page 21

27 Figure 7 - Components of Total Health Expenditure in 1996 Other personal health services 14.2% Other spending 12.3% Drugs 8.8% Long term care 10.5% Hospital care 34.6% Physician services 19.5% Remarks : Other personal health services include dental services, other professional services, vision products and other durable medical products, and other miscellaneous personal health care. Other spending covers programme administration and administration cost of private health insurance, public health activities, and research and construction. Total Health Care Financing 11.8 Table 8 shows that the government is bearing an increasing share in health care financing. Public financing on health care accounted for 41.2% of all the financial resources for health care in The percentage increased to 46.7% in A total of $483.1 billion of government revenue were for financing health care in that year Private financing on health care has accounted for a decreasing share in total health care financing in recent years. They together paid $552 billion for health care in Private sources of financing accounted for 53.3% of total health care financing in that year. Financing from private individuals and organizations accounted for a bigger share (58.8%) of total health care financing in Research and Library Services Division page 22

28 Table 8 - Total Health Care Financing Year US$ in billion Total health care financing (a) Public financing on health care (b) Private financing on health care (c) , GDP (d) 4,422 4,692 5,050 5,439 5,744 5,917 6,244 6,558 6,947 7,265 7,636 Growth rate (%) (a) n.a (b) n.a (c) n.a (d) n.a Distribution (%) (b)/(a) (c)/(a) (b)/(d) (c)/(d) Figure 8 - Share of Public and Private Funds in Financing Health Care Services Percentage Public funds Private funds Year Research and Library Services Division page 23

29 12. Public Expenditure and Financing on Health Care Public Expenditure on Health Care 12.1 Public expenditure on health care amounted to $483.1 billion in This represented 2.5 times over the expenditure level at $189.9 billion in As a percentage of GDP, public expenditure on health care has increased from 4.3% in 1986 to 6.3% in Public expenditure on health care is the sum of government funding allocated to various public programmes for health care services, administration of government programmes, medical research, construction of health care facilities, provision of preventive care and public health activities etc Health care expenditure has consumed an increasing share of government resources. Health care expenditure as a percentage of total public expenditure has increased from 12.6% in 1986 to 18% in An increasing amount of public resources has been spent on health care since the population of Medicare and Medicaid beneficiaries has been growing very fast. In addition, most of the Medicare beneficiaries are elderly who tend to consume hospital care and long term care which are more expensive than ambulatory care. Table 9 - Public Expenditure on Health Care Year US$ in billion Public expenditure on health care (a) Total health care expenditure (b) ,035.1 GDP (c) 4,422 4,692 5,050 5,439 5,744 5,917 6,244 6,558 6,947 7,265 7,636 Distribution (%) (a)/(b) (a)/(c) Growth rate (%) (a) n.a (b) n.a (c) n.a Research and Library Services Division page 24

30 Public Expenditure on Health Care by Type 12.3 Spending on hospital care has been the largest item among all types of public expenditure on health care. Hospital care spending at $220.6 billion accounted for 45.6% of public expenditure on health care in The second largest item of public health care spending was physician services which stood at $66.5 billion and accounted for 13.8% of public expenditure on health care in The government has also spent an increasing share of its resources on long term care. The percentage of long term care spending to public expenditure on health care has increased from 10.3% in 1986 to 13.7% in In addition to expenses on the above-mentioned items, the US government also allocates money for medical research, construction of health care facilities and provision of public health activities such as disease screening, vaccination and health education. Figure 9 - Public Expenditure on Health Care in 1996 Other personal health services 9.4% Drugs 2.8% Other spending 14.7% Long term care 13.7% Physician services 13.8% Hospital care 45.6% Remarks : Other personal health services include dental services, other professional services, vision products and other durable medical products, and other miscellaneous personal health care. Other spending covers programme administration and administration cost of private health insurance, public health activities, and research and construction. Research and Library Services Division page 25

31 Table 10 - Public Expenditure on Health Care by Type (US$ in billion) Year Public expenditure on health care Health services and supplies Personal health care* Hospital care Physician services Long-term care Dental services Other professional services Drugs and other medical non-durable Vision products and other medical durable Miscellaneous personal health care Programme administration Public health activities Research and construction Remark : * Personal health care refers to therapeutic goods or services rendered to treat or prevent a specific diseases or condition in a specific person. Research and Library Services Division page 26

32 Hospital Care 12.5 Hospital care refers to all services provided by hospitals to patients. In 1996, the government spent $220.6 billion on hospital care. This accounted for 61.5% of total hospital care spending in that year. Public spending accounted for a lower percentage of the hospital care spending during the 1980s. For example, public spending accounted for 55.4% of total hospital care spending in A high percentage of public spending on hospital care is allocated for Medicare and Medicaid beneficiaries. In 1996, spending on hospital care for Medicare beneficiaries amounted to $118.3 billion or 53.6% of public spending on hospital care. About $53 billion or 24% of public spending on hospital care was for Medicaid beneficiaries in the same year. The two public insurance programmes accounted for 70% of public spending on hospital care in The growth rate of public spending on hospital care was at a high of 12.9% in The growth slowed down to 4.8% in The slow-down in growth can be attributed to the new payment system, the Prospective Payment System, of Medicare. The in-patient hospital payment of Medicare is diagnosis-based and predetermined, regardless of length of stay. Another reason is that a growing number of beneficiaries under Medicare and Medicaid have enrolled in managed care insurance schemes which employ various measures to reduce in-patient services which are unnecessary or of marginal value. Table 11 - Public Spending on Hospital Care Year Public spending on hospital care (a) Total spending on hospital care (b) Public expenditure on health care (c) US$ in billion Distribution (%) (a)/(b) (a)/(c) Growth rate (%) (a) n.a (b) n.a (c) n.a Research and Library Services Division page 27

33 Figure 10 - Distribution of Spending on Hospital Care in 1996 Private spending 38.5% Medicaid 14.8% Other public spending 13.7% Medicare 33.0% Physician Services 12.8 Physician services refer to all services delivered by physicians in various settings such as their offices and clinics. Public spending on physician services amounted to $66.5 billion in This amount was more than doubled that in 1986 (Table 12). Public spending has accounted for about one-third of the total spending on physician services. The rest of the spending on physician services has been made by individuals and organizations in the private sector A large part of the spending on physician services is spent on beneficiaries of the two public insurance programmes. In 1996, $42.6 billion was allocated to Medicare and $15.1 billion to Medicaid for physician services. They together accounted for 86.8% of public spending on physician services in that year. In 1985, 82% of government spending on physician services was allocated to Medicare and Medicaid Public spending on physician services was growing very fast at an average rate of over 12% per annum during the 1980s. The growth slowed down in the 1990s and the growth rate was down to 5.1% in The slow-down in growth can be attributed to the new Medicare physician payment system (resource-based relative value scale) which sets a price for each treatment or procedure. Under the new payment system, physicians have an incentive to keep the amount and cost of treatment within the set price to avoid financial loss. Another reason for the slow-down in growth is that an increasing number of Medicare and Medicaid beneficiaries have enrolled in managed care insurance schemes which require primary care physicians to screen out unnecessary services or referrals to specialists and in-patient services. Research and Library Services Division page 28

34 Table 12 - Public Spending on Physician Services Year US$ in billion Public spending on physician services (a) Total spending on physician services (b) Public expenditure on health care (c) Distribution (%) (a)/(b) (a)/(c) Growth rate (%) (a) n.a (b) n.a (c) n.a Figure 11 - Distribution of Spending on Physician Services in 1996 Medicaid 7.5% Medicare 21.1% Other public spending 4.4% Private spending 67% Research and Library Services Division page 29

35 Long Term Care Public spending on long term care which includes that on nursing homes and home health care for the aged and infirm amounted to $66.2 billion in This amount was three times the level in Table 13 shows that more than half of spending on long term care was for beneficiaries of public programmes. In 1996, Medicare paid $22.5 billion and Medicaid paid $41.6 billion for long term care for their beneficiaries. They together accounted for 96.8% of public spending on long term care in that year. In 1991, 97% of public spending on long term care was for beneficiaries of Medicare and Medicaid Public spending on long term care grew rapidly during the late 1980s and early 1990s. The growth rate reached a high of 21% in 1991 and slowed down to 8.3% in The rapid growth can be attributed to the fact that Medicare has relaxed its conditions for coverage and payment for long term care. In addition, nursing homes have converted some of the beds into sub-acute care units to better accommodate the intensive care needs of patients discharged from hospitals. Such sub-acute care cost the government more money since they require more skilled, better trained and more costly personnel and more expensive high-technology equipment. Home health agencies, which provide less intensive care at the home of patients under the supervision of a physician, also seek to develop sub-acute care for patients discharged from hospitals to homes. Figure 12 - Distribution of Spending on Long Term Care in 1996 Private spending 39.1% Other public spending 1.9% Medicare 20.7% Medicaid 38.3% Research and Library Services Division page 30

36 Table 13 - Public Spending on Long Term Care Year US$ in billion Public long term care spending (a) Total spending on long term care (b) Public expenditure on health care (c) Distribution (%) (a)/(b) (a)/(c) Growth rate (%) (a) n.a (b) n.a (c) n.a Drugs and Medical Non-durable Products In 1996, the government spent $13.3 billion on drugs and medical nondurable products which include prescription and non-prescription drugs and medical sundries purchased from retail outlets. This accounted for 13.7% of the total spending on drugs and medical non-durable products in that year. Spending by individuals and organizations in the private sector accounts for most of the spending on drugs and medical non-durable products Medicaid is the largest public spender on drugs and medical non-durable products. In 1996, the government allocated $10.9 billion or 82% of public funds on drugs and medical non-durable products to Medicaid. During the same year, 5.3% of public spending on drugs and medical non-durable products or $0.7 billion was for Medicare beneficiaries The growth rate of spending on drugs and medical non-durable products fluctuated during the years between 1986 and The growth rate for this spending item was at a high of 22.6% in 1990 and dropped to a low of 7.8% in The growth rate in 1996 was 13.7%. Research and Library Services Division page 31