Figure A Sources of Healthcare Funding

Professor Arthur A. Daemmrich and Research Associate Elia Cameron prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2010, 2011, 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800- 545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

A R T H U R A . D A E M M R I C H

E L I A C A M E R O N

U.S. Healthcare Reform: International Perspectives

Gold that buys health can never be ill spent. — Thomas Dekker, Westward Ho, 1607

On March 23, 2010, president Barack Obama signed into law a major healthcare reform act passed

by the U.S. Congress after nearly a year of contentious debate, vociferous public demonstrations, and intensive lobbying by insurers and healthcare industries. Only impassioned speeches by Obama and complex negotiations led by House Speaker Nancy Pelosi and Senate majority leader Harry Reid resulted in the legislation’s passage after it had stalled repeatedly. The law was of historic significance because healthcare reform had failed under Franklin D. Roosevelt in 1934, Harry S. Truman in 1945, John F. Kennedy in 1962, and William J. Clinton in 1993. Democrats claimed that American social policy now aligned with other developed countries whose welfare offerings included universal access to health insurance alongside retirement, unemployment, and education benefits.

The Patient Protection and Affordable Care Act (ACA) required every U.S. citizen to hold health insurance through their employer; through government-run Medicare, Medicaid, or the Veteran’s Administration; or from a private plan. Insurance firms were prohibited from denying coverage because of pre-existing conditions, limits were restricted, and plans were subsidized for those unable to obtain insurance by other means. It was expected that these changes would result in coverage for most of the 49 million Americans who were uninsured in 2010.1 Lack of affordable health insurance made the United States an international anomaly and contributed to the early deaths of 45,000 Americans every year.2 Even Americans with insurance found out-of-pocket costs difficult to pay;

over 60% of bankruptcies in 2007 stemmed from medical debts.3

However, it was not clear that expanding coverage would resolve the dilemma of rising costs for insurance and care. In 2010, spending on healthcare was over 17% of U.S. GDP, some 60% higher than in other advanced economies. According to the Obama administration, ensuring universal health insurance would “increase economic well-being by roughly $100 billion a year” through

greater employee mobility and improved international competitiveness of U.S.-based firms.4 Critics worried that expanded insurance coverage would drive up costs and result in a complete government takeover of healthcare with attendant rationing by bureaucratic fiat.

Policymakers responsible for implementing the law considered lessons from other systems that delivered quality outcomes at lower cost. But moves to cut spending attracted few supporters in the fragmented U.S. system. Furthermore, some argued that a high level of medical spending was inevitable in a diverse country and that healthcare contributed to GDP, rather than limiting growth.

For the exclusive use of M. Alsalem, 2016.

This document is authorized for use only by Muneera Alsalem in Advanced Topics in International Business taught by Christian Teeter, Ed.D., HE OTHER from August 2016 to December 2016.

710-040 U.S. Healthcare Reform: International Perspectives

2

Comparing Healthcare Systems

Over the course of the 20th century, three broadly different healthcare systems were developed in advanced industrialized countries. In Germany and across much of continental Europe, social security plans dominated, with a coordinated network of “sickness funds” providing insurance and governing the delivery of care largely independent of government control. The impact of rising costs on the public was tempered by coordination among social partners and through price negotiations with hospitals and drug and device companies. In the United Kingdom, Nordic countries, and Italy, Spain, and Canada, healthcare was primarily state-run and publicly financed; market forces were minimized. The United States combined private insurance with public financing of Medicare and Medicaid, while the delivery of care was free from formal controls. Costs were largely unconstrained, although Medicare set reimbursement levels and private insurers negotiated reimbursements with healthcare providers.

, Top 20 OECD countries