2013

Sarah DeCloux

Webster University

7/10/2013

Research Proposal: Rising Cost of Health Care.

Has the Government Contributed to Rising Cost?

1

Table of Contents Introduction....................................................................................................................................2

Relevance.......................................................................................................................................3

Research Question ..........................................................................................................................3

Structure of Research Proposal ........................................................................................................4

Literature Review ...........................................................................................................................4

Hypothesis and Methodology ..........................................................................................................7

Data ...............................................................................................................................................9

Expected Outcome ........................................................................................................................ 10

Bibliography................................................................................................................................. 12

2

Introduction

On March 21, 2010 the Patient Protection and Affordable Care Act, otherwise known as ACA or

Obamacare, was passed. This legislation will provide all Americans with health insurance by

2014, regardless of health or age, employed or unemployed status; dissolving the issues of not

being able to obtain treatment. The bill provides for a government insurance option in order to

keep private insurances honest and it also offers insurance to those who cannot afford it.

In the United States, people around the country are becoming aware and concerned about the

intense increase in health care costs, namely the dramatic increases in health insurance

premiums. Americans were promised a decrease of close to $2,500 per family for health

insurance as a result of health care reform, but instead are facing a $3,000 increase of their health

insurance costs.1 In a recent article from the Huffington Post, health insurance premiums are

predicted to increase from 25 to 116% across the country for some people.2 Although these are

only predictions we have already seen that Ohio has reported an increase of 88% of health

insurance premiums from 2013 – 2014.3 This is only one example of the states that are

experiencing this sharp acceleration of cost. This phenomenon has caused wide speculation as to

1 Merrill Matthews and Mark E. Litow, "ObamaCare's Health-Insurance Sticker Shock," The Wall Street

Journal, January 13, 2013,

http://online.wsj.com/article/SB10001424127887323936804578227890968100984.html.

2 Jeffrey Young, "Health Insurance Premium Increases Vowed By Companies For 2014," The Huffington

Post, March 22, 2013, accessed June 19, 2013, http://www.huffingtonpost.com/2013/03/22/health-

insurance-premium-increases_n_2932704.html.

3 Avik Roy, "Ohio Dept. Of Insurance: Obamacare To Increase Individual-Market Health Premiums By

88 Percent," Forbes, June 10, 2013, accessed June 19, 2013,

http://www.forbes.com/sites/theapothecary/2013/06/10/ohio-dept-of-insurance-obamacare-to-increase-

individual-market-health-premiums-by-88-percent/.

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what has prompted the rise in cost. Premiums have continued to rise at a more significant rate

than in the 80s and 90s, and even the early 2000s, which makes one wonder, why?

Relevance

My research question is based on observations and articles I have read as I have followed health

care reform through the different stages of implementation. The purpose of this project is to

determine if government involvement has had a substantial impact on increasing health care

costs. If a correlation between the rise in health care costs and the government’s prized ACA bill

can be made, it will show that the government’s reform is ultimately responsible for putting an

additional burden of unnecessary health costs on Americans and that the United States has failed

to meet the standard of what other western democratic health systems already offer.

Research Question

My research question is: Has the US government played a role in the rising cost of health care in

the United States? By stating the question in this way it leaves the answer open ended. My

question is not a statement that the government is to blame, but is worded as such, to suggest a

different line of thinking from what has been pressed upon in the past. For the purpose of this

project, the US government’s role will be defined as the key driver of the Affordable Care Act,

and the rising cost of health care will be viewed as increasing annual health insurance premiums.

To further clarify, let us make the distinction between health care expenditures, which refer to

the dollar amount attached to health services provided; and health insurance premium, which is

the dollar amount that citizens must pay out of pocket, which is simultaneously, the cost that will

be referred to throughout this proposal.

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Structure of Research Proposal

This research proposal will show which studies and information are currently available on this

topic, how this project was planned, how the research will be conducted, what data will be used,

possible complications with the research, and what the expected results are. Each section will

address the role it will play in this research project and how the research design is setup.

Literature Review

The content of this Literature Review will encompass several different approaches which try to

explain increasing health care costs, as well as, views regarding the correlation between rising

health care costs and the Affordable Care Act.

In order to form a basis of different theories, we will first look at existing, potential explanations

for increases in health care cost. Altman and Levitt, both of whom work for Kaiser (one of the

largest health insurance providers in the US), say the reason we are experiencing continuing

increase of medical costs all comes down to greedy American people. Their demand for better

treatment, the latest technology, and consumerism has forced insurance companies to increase

their prices.4 While in some instances this approach may be true, they do not rule out any

additional reasons which raise just as many concerns about increased costs, for example, the

increased need of medical care for the “baby boomer” generation. Furthermore, common citizens

do not control or regulate the prices of medical expenditures which have been known to increase

cost in the past. Therefore, how are they to be held liable for the rules and policies which are

already set in place? Another approach which has been studied in an article by Bates and

4 Drew E. Altman and Larry Levitt, "The Sad History Of Health Care Cost Containment As Told In One

Chart," Health Affairs, February 23, 2002, accessed June 25, 2013, doi:10.1377/hlthaff.w2.83.

5

Rexford provides that the U.S. is affected by a theory called Baumol's cost disease. Ultimately,

their study states that health care costs increase when wages are increased beyond the rate of

productivity and that unbalanced growth is the true determinant factor.5 This theory provides a

reasonable possibility; however, they state in their paper that the result of their research may

possibly change when applied to different industries in health care such as pharmaceuticals or

medical technology. If this is the case, their indicators are not stable enough to produce

consistent results, thus it does not make sense to consider this as a reliable explanation. In yet

another approach, Bodenheimer takes the time to look over all possible explanations for the

rising costs of healthcare. He suggests that the pharmaceutical industries and health

administration are the main causes of this quickly growing cost.6 Yet, he does not continue to ask

why these two sectors have produced the greatest increase in health care costs.

Next we will look at authors, who have identified a correlation between the ACA and rising

health care costs, but are purely speculative and are based on estimations of the future. One

analysis looks at California rates specifically. It is useful to note that the authors provide a

statistical evaluation which confirms that health costs have been directly linked to the ACA.

Their research gives examples of what specific factors have been identified as producing

increased costs and what factors can be disregarded. It is also interesting to note that this report

was paid for by the new California Health Exchange which was established as a result of the

5 Laurie J. Bates and Rexford E. Santerre, "Does the U.S. Health Care Sector Suffer from Baumol's Cost

Disease? Evidence from the 50 States," Journal of Health Economics 32, no. 2 (March 2013), accessed

June 21, 2013, http://www.sciencedirect.com/science/article/pii/S0167629612001877.

6 Thomas Bodenheimer, "High and Rising Health Care Costs. Part 1: Seeking an Explanation," Annals of

Internal Medicine 142, no. 10 (May 2005), http://annals.org/article.aspx?articleid=718406.

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implementation of the ACA.7 While this paper is consistent with the research I will be

conducting, the scope of the report remains limited to California alone and does not encompass

the entirety of the United States. This will be discussed further in the methodology section of this

proposal. An assessment by Sarah Kliff cites several sources that confirm prices will increase

notably as a result of the ACA. She suggests two factors are responsible for this increase,

namely: additional mandated benefits and the influx of new customers to the insurance market.8

Kliff provides sound reasoning, but is only speculating about what may come in the future.

Matthews and Litow make it explicitly clear, in their article from The Wall Street Journal, that

insurance companies are the prime source of premium increases as a direct result of ACA. They

note three requirements of the Affordable Care Act and note how the insurance companies have

responded. Throughout their explanation they show eight different states that have tried a similar

form of health coverage to the ACA, and how these failed to reduce cost. They also site Mark

Bertolini, the CEO of Aetna (one of the largest health insurance companies in the United States),

who confirms that insurance companies are increasing premiums up to 100% of what they would

normally.9 Even the insurance companies won't deny they are a major contributor to increasing

costs. While this article is aimed directly at the center of my research, it does not assess the

7 Robert Cosway and Barbara Abbott, Factors Affecting Individual Premium Rates in 2014 for

California, report, March 28, 2013,

http://www.healthexchange.ca.gov/Documents/Factors%20Affecting%20Individual%20Premiums%20FI

NAL%203-28-2013.pdf.

8 Sarah Kliff, "How Will Obamacare Hit Premiums? Let’s Break down the Numbers.,"Washington Post,

March 29, 2013, http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/29/how-will-obamacare-

hit-premiums-lets-break-down-the-numbers/.

9 Merrill Matthews and Mark E. Litow, "ObamaCare's Health-Insurance Sticker Shock," The Wall Street

Journal, January 13, 2013, section goes here,

http://online.wsj.com/article/SB10001424127887323936804578227890968100984.html.

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difference between rate increases before and after the Affordable Care Act was passed in 2010

and concentrates mainly on futuristic expectations. In a summary of the Patient Protection and

Affordable Care Act, from the Kaiser Family Foundation, they explain the government's role in

health care and show what is now expected of health insurance companies. This document also

states how the government prescribes to pay for the cost of this new health care. Their

proposition is less than exciting, when the government says that increased taxes will cover a

mere 3% of this cost over ten years.10 In addition, the contents, of the Private Health Insurance

State Oversight of Premium Rates report to congress, address the increasing premium rates

across the country. These increases are provided for in the ACA, stating that rates which increase

by more than ten percent are subject to government review and approval. The report establishes

that these reviews have only been successful 35% of the time. Thus the provision, by the

government, to keep insurance costs down has failed; further solidifying the government’s

ineffective role in controlling health care costs.

Hypothesis and Methodology

My hypothesis states that the greater the involvement of the government in health care, the

greater the rate of increase in health care costs. More simply stated, the greater the involvement

of government; the higher the cost of health care will be. This hypothesis does not provide a list

of possible outcomes. Rather I will find my hypothesis to either be proved right or wrong. In

order to prove or disprove my hypothesis it will be tested through regression analysis.

10 Kaiser Family Foundation, "Focus on Health: Summary of New Health Reform Law," Center for

Personal Assistance Services, April 15, 2011, Coverage and financing,

http://www.pascenter.org/publications/item.php?id=1064.

8

The approach I will use for this research will be an empirical-analytical approach. The method

applied will include an experimental, quantitative study of data through regression analysis. This

form of analysis is usually easy to interpret and also widely used. Therefore, it will allow others

researchers to follow the same model and also, to control my results at the same time. In order to

receive accurate results, I have limited the scope of the research. The time frame of data is set

from 1994 till 2011. This time frame allows us to look at increases or decreases in insurance

premiums over several years using the Affordable Care Act as the main shifting point in time.

Although this topic has the potential to warrant speculation regarding future predictions, I have

limited the time frame to include data up till 2011 in order to remain within the boundaries of the

intended experiment. Currently, since data is not yet available, I am unable to gather present day

resources. Though, if it becomes accessible in the future, it would have a strengthening effect on

the research. This study will focus on the United States specifically, and will include all 50 states

in order to show if this phenomenon occurs nation-wide.

For the purpose of conducting the regression analysis, the dependent variable will be the cost of

health care. More specifically, I will examine the percentage of change in annual insurance

premiums. Accordingly, the independent variable will be the US government’s role in health

care reform [see illustration below]. This method allows me to see if the impact of implementing

health care reform via the ACA, is in fact, a cause of the rapidly rising cost of health insurance

for Americans.

IV DV

Government Cost of Health care

ACA – March 21, 2010

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Data

From my pre-research I have established that several of my sources have verified the correlation

between increase in health insurance costs and the continual implementation of the ACA.

However, no study has been conducted to look at the difference in insurance premium increases

before and after the ACA was passed. Current opinions on the increasing health care costs look

only at the health expenditures of Americans, the physicians, and hospitals. No approach, I have

found thus far, points to the government or the health insurance companies as an explanation for

these rapid rate increases. Conversely, the approach I have suggested takes both of these into

account and builds a new case. Looking at the governmental impact on health insurance costs is

a unique way to explain this phenomenon. In light of the broad scope of standing approaches, I

have attempted to illuminate the ultimate factor for why health costs have grown so quickly in

the past few years.

The data I will be using will come from the Medical Expenditure Panel Survey.11 This website

provides governmental data on insurance premiums for the years 1994 - 2011. It allows the

researcher to create the necessary variables in a graph, based on the information they have

collected in their database. The data is easily available in Excel format, thus making it ideal for

conducting regression analysis. I will also be verifying this data with data from “Federal Health

Reform: State Implementation Entities, Reports, and Research.”12 This website provides sound

11 Medical Expenditure Panel Survey Home, Agency for Healthcare Research and Quality, U.S.

Department of Health and Human Services, accessed June 25, 2013, http://meps.ahrq.gov/mepsweb/.

12 "Federal Health Reform: State Implementation Entities, Reports, and Research," Health Reform: State

Implementation Entities, Reports, and Research, accessed June 21, 2013, http://www.ncsl.org/issues-

research/health/state-implementation-entities-to-implement-the-aca.aspx.

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state-by-state reports, data, and analysis of the implementation and impact that ACA has on each

individual state. While this data is not available in Excel format, I will be able to confirm that the

raw data used is accurate by using more than one source. All of the data I have found is open to

the public. The data is limited to the United States and the time frame is set from 1994 through

2011. The data I will be collecting is regularly updated and checked for accuracy by the website

sponsors.

In the next section, I will look at some possible challenges related to data collection, namely:

access, reliability, validity, and replication. Firstly, the sources I have listed previously are open

and accessible to any person or institution. Secondly, I have found data from two reliable

sources thus far, and will continue to look for a third source. This is important in order to

triangulate the accuracy of the data. Thirdly, by using the percentage of increase or decrease in

insurance premiums over several years I will be able to show whether the ACA has had an effect

thus providing validity. The percentages measured year-to-year, before and after the bill was

passed will show if any significant change has occurred. As data following 2010 becomes

available and more accurate, this research project will only become stronger; assuring that

replication of this experiment is possible.

Expected Outcome

In conclusion, I expect to find that there is a direct connection between the government and the

rising cost of health care. In effect, the government can be said to have produced this impact

since they are responsible for reforming health care in the United States. The government must

be vigilant in their monitoring of insurance companies to protect the welfare of the American

people and states should fine tune this legislation according to the needs of their individual

populations. Although this research project will offer a good indication as to the role of the

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government, in order to provide a stronger argument in terms of time after the bill was passed,

further research is needed.

12

Bibliography

Altman, Drew E., and Larry Levitt. "The Sad History Of Health Care Cost Containment As Told In One

Chart." Health Affairs. February 23, 2002. Accessed June 25, 2013. doi:10.1377/hlthaff.w2.83.

Bates, Laurie J., and Rexford E. Santerre. "Does the U.S. Health Care Sector Suffer from Baumol's Cost Disease? Evidence from the 50 States." Journal of Health Economics 32, no. 2 (March 2013): 386-91. Accessed June 21, 2013.

http://www.sciencedirect.com/science/article/pii/S0167629612001877.

Bodenheimer, Thomas. "High and Rising Health Care Costs. Part 1: Seeking an Explanation." Annals of Internal Medicine 142, no. 10 (May 2005): 847-54. http://annals.org/article.aspx?articleid=718406.

Cosway, Robert, and Barbara Abbott. Factors Affecting Individual Premium Rates in 2014 for

California. Report. March 28, 2013. http://www.healthexchange.ca.gov/Documents/Factors%20Affecting%20Individual%20Premiums%20FINAL%203-28-2013.pdf.

"Federal Health Reform: State Implementation Entities, Reports, and Research." Health Reform: State

Implementation Entities, Reports, and Research. Accessed June 21, 2013. http://www.ncsl.org/issues-research/health/state- implementation-entities-to- implement-the-aca.aspx.

Kaiser Family Foundation. "Focus on Health: Summary of New Health Reform Law." Center for

Personal Assistance Services. April 15, 2011. http://www.pascenter.org/publications/item.php?id=1064.

Kliff, Sarah. "How Will Obamacare Hit Premiums? Let’s Break down the Numbers." Washington Post, March 29, 2013. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/29/how-will-

obamacare-hit-premiums- lets-break-down-the-numbers/. Matthews, Merrill, and Mark E. Litow. "ObamaCare's Health-Insurance Sticker Shock." The Wall Street

Journal. January 13, 2013. http://online.wsj.com/article/SB10001424127887323936804578227890968100984.html.

Medical Expenditure Panel Survey Home. Agency for Healthcare Research and Quality. U.S.

Department of Health and Human Services. Accessed June 25, 2013.

http://meps.ahrq.gov/mepsweb/.

PRIVATE HEALTH INSURANCE State Oversight of Premium Rates. Report. Washington D.C.: GAO: Government Accountability Office, 2011. Accessed June 21, 2013. http://www.gao.gov/assets/330/322333.pdf.

Roy, Avik. "Ohio Dept. Of Insurance: Obamacare To Increase Individual-Market Health Premiums By

88 Percent." Forbes. June 10, 2013. Accessed June 19, 2013.

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http://www.forbes.com/sites/theapothecary/2013/06/10/ohio-dept-of- insurance-obamacare-to-

increase-individual-market-health-premiums-by-88-percent/.

Young, Jeffrey. "Health Insurance Premium Increases Vowed By Companies For 2014." The Huffington

Post. March 22, 2013. Accessed June 19, 2013. http://www.huffingtonpost.com/2013/03/22/health-insurance-premium-

increases_n_2932704.html.