Like many other industries in American, US healthcare system has its roots in war. We’ll cover the WWII era, Medicare and Medicaid, Health IT Policy, and The Affordable Care Act here but there are plenty of other policies that shaped American healthcare as we know it today.

WWII Era

• Kaiser Foundation Health Plans (1937) was founded to finance care for Kaiser construction company employees. This plan was the precursor to the many more that were founded due to the Stabilization Act.

• The Stabilization Act (1945) imposed wage and price controls during WWII but did not impose controls on employee-benefit plans which could be provided pre-tax. These benefits, like healthcare, became critical to attracting and retaining employees.

  • The US is one of the only countries where employers select and cover health insurance for their employees.

Medicare and Medicaid

• The Medicare and Medicaid Act (1965), also known as the Social Security Amendment of 1965, established Medicare, a health insurance program for the elderly, and Medicaid, a health insurance program for eligible low-income individuals.
• Medicare Modernization Act (MMA) (2004) provided prescription drug benefits for seniors, with the creation of Medicare Advantage (MA).
  • Medicare Advantage (MA) is administered by the private sector, with private health plans receiving a “per member per month” payment from the government for each beneficiary it enrolls.
  • Additionally, MMA explicitly barred the U.S. government from directly negotiating with drug companies to lower prices, while making private plans responsible for negotiating prices which ultimately promoted Pharmacy Benefits Managers (PBMs) and increased drug prices.

The American Recovery and Reinvestment Act (ARRA) (2009)

• One part of ARRA was the Health Information Technology for Economic and Clinical Health Act (HITECH) promoted and expanded the adoption of health information technology.
  • This act incentivized EHR use and contributed to the accelerated adoption of EHR technology, replacing paper processes and creating a certification process for EHRs.
    • The big winners in the ensuing land grab were the existing EHR vendors, and the resulting market saturation has made it difficult for newcomers/innovators to penetrate these closed loops until recently.
  • This act set a goal of meaningful use of interoperable EHR adoption in the health care system, also establishing ONC, Advisory Committee, etc.

Affordable Care Act (ACA) (2010)

• Health plans cannot reject applicants due to preexisting medical conditions.
• The Medical Loss Ratio was capped at 80% for small payers and 85% for large group insurers. Payers can only profit so much off of insurance premiums but can lose as much as they want.
  • Medical Loss Ratio (MLR) is a ratio calculated by dividing total medical expenses paid by an insurer by the total insurance premiums it collected. A lower ratio likely indicates higher profitability for the insurer, as it signifies a larger amount of premiums left over after paying customer insurance claims.
  • There were some negatives consequences to this cap:
    • Payers often inflate costs to keep MLR at 80-85% and maximize revenue.
    • This law makes it difficult for new players to enter the health plan space because it takes a lot of money and/or profit to start a health plan. This act reduces that profit.
    • Because plans can only make so much off of insurance, they look to other arms, including their physician groups and PBMs, to generate revenue.
    • Learn more from Scott Gottlieb on Obamacare here.