Chapter 5: Economics of US Health Care Delivery

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Welcome back to The Deep Dive, the place where we take the most complex stacks of information and distill them into actionable, unforgettable knowledge.

Today, we are really going to dive into something that, well, it affects every single American wallet and really every single health outcome we see.

We're talking about the economics of U .S.

health care delivery.

It's a huge topic, and it's particularly vital for anyone focusing on population health, for community and public health nurses understanding how this whole system is financed.

It's not optional.

It's not an extra credit kind of thing.

No, it's the infrastructure.

It is the infrastructure you operate within, the policy decisions, the financial choices.

They are what drive health care disparities.

They dictate who gets care and who doesn't, and they determine whether CPHNs even have the funding to effectively advocate for prevention.

Absolutely.

Our mission today is to really pull back the curtain on this multi -trillion dollar industry.

We're going to define the economic landscape,

trace the four incredible developmental eras of the U .S.

system.

Which is a fascinating story in itself.

It really is.

Then we're going to break down how care is financed publicly, privately, and maybe most importantly, how the providers actually get paid.

Because that right there, that's what drives all the incentives.

Exactly.

This is foundational knowledge you need to be an effective advocate and practitioner.

To set the stage, let's just quickly frame the problem with some necessary terms.

We're always talking about health care disparities.

What we mean are these observable differences in the availability, the access, and the quality of care that you see across populations.

You see it based on economic status, race, where you live.

And these aren't random.

Oh, not at all.

They are very often the direct results of economic policy choices.

And that's tied to this central idea we keep coming back to, investment in public health.

Yes.

The idea that spending money on population level prevention, things like clean water, education, immunization programs, it's not just a moral good.

It is an economic strategy.

It improves health status,

and crucially, it reduces those huge catastrophic long -term costs down the line.

And when economists look at this, they're using metrics like economic growth, efficiency, are we using resources in the best way possible, and effectiveness, which is are we actually getting the health results we want.

Okay.

So let's jump right into the one statistic that I think frames this entire discussion.

It tells you everything you need to know about where we are right now.

It's a striking one.

So in the US, we spend approximately 97 % of all health care dollars on individual,

acute, and often very late stage care.

97%.

97%.

Only about 2 .5 % is spent on population level health.

That includes government public health efforts and any private prevention spending.

So 97 % on the tow truck after the crash, and 2 .5 % on the oil change to prevent the breakdown in the first place.

That's the perfect analogy.

We are funding an incredibly sophisticated reactive emergency service rather than a preventative maintenance program for the whole population.

That 97 % to 2 .5 % split is the single greatest economic indicator of why our costs are soaring, why the US lags in global longevity, and why prevention efforts are always, you know, fighting for scraps of funding.

Okay.

So to understand how we got here, we have to start with the fundamentals, the different ways of thinking about economics itself.

Right.

We have to define the disciplines at play because they each look at resources differently.

So economics, just broadly, is the science of how we use scarce resources, how we decide on production, distribution, consumption of goods and services.

Simple enough.

And then we narrow that down for our field with health economics.

Which focuses specifically on how those scarce resources affect the mass of healthcare industry.

So hospitals, pharma companies, device manufacturers, it's often looking at things like market failures and efficiency within the delivery system itself.

But the lens that's most important for our listeners, for the CPHN, is a little different.

It is.

It's public health economics.

And this discipline shifts the focus away from, you know, individual transactions and looks at the whole population.

Its main concern is how to distribute limited public resources, tax dollars, grants, community funds to maximize life saving or increase the quality of life for everyone.

So it's about optimization for the collective good.

Exactly.

And this kind of strategic evaluation is essential when public health nurses are, say, writing grants or presenting funding proposals to policymakers.

You have to be able to speak that language of population level return on investment.

And that focus on the collective immediately brings us to this link between poverty and health outcomes.

It creates what the source calls a truly vicious cycle.

It's not just a social problem.

It's a huge economic drag.

The evidence is just overwhelming.

Poverty leads directly to poorer health outcomes.

We're talking higher rates of chronic disease, higher infant mortality, increased disability.

And when a population is less healthy, that obviously has economic consequences.

Profound ones.

It translates to reduced educational outcomes.

Sick kids miss school.

It means lower productivity in the adult workforce.

And overall, you get unstable economic growth.

We are talking about a fundamental loss of human capital.

So the argument is, if a government wants a healthy economy, it actually has to invest in health equity.

It absolutely does.

You know, historically,

these links might have been explained away by things like poor housing or malnutrition.

Simple factors.

Right.

Today, we recognize how systemic this problem is.

To improve health status and foster real economic health, policies have to focus on achieving a greater degree of equality and living standards for everybody, especially those in the working poor category.

Without stable housing, a reliable income, access to education,

a healthy life is just, it's not really possible.

So the government has tried to tackle this.

Let's talk about the ACA, the Patient Protection and Affordable Care Act of 2010.

There was a real mandate for public health investment that came out of that.

The ACA was historic.

I mean, beyond just expanding insurance access, it made a major philosophical shift.

It mandated a significant emphasis on access, prevention, and population health.

And to put money behind that mandate.

Right.

They created the Prevention and Public Health Fund, or PPHF.

This was part of a later Appropriations Act in 2016, but it was designated money, specifically designed to invest in community public health, chronic disease prevention, and wellness programs.

So this was the attempt to start rebalancing that 97 to 2 .5 ratio, at least a little bit.

Exactly.

And it did increase total state funding, which sounds great on the surface, but we have to have some perspective here.

It's never enough.

It still falls way short of the actual need.

I mean, we're dealing with the massive pressure of the opioid crisis, the exponential growth of the aging population, and the constant threat of emerging infectious diseases, whether it's Zika or COVID -19.

Public health infrastructure has to be constantly maintained, and yet the funding just remains so volatile.

And speaking of volatility,

the economic promise of the ACA itself started to hit some headwinds pretty soon after it was passed.

Yeah, we saw immediate political pushback.

The service material points to the attempted full repeal with the American Health Care Act, the AHA, in 2017.

Right.

And while the major parts of the ACA survived, the tax bill in late 2017 included a really key provision.

It repealed the individual mandate penalty.

And that was the stick, right?

The financial penalty meant to encourage everyone, especially the young, healthy people, to buy insurance.

So what happens when you take that stick away?

Well, the whole insurance market relies on a healthy risk pool.

You have to have those younger, healthier individuals paying premiums to help subsidize the costs of the older, sicker individuals.

Makes sense.

So without the penalty, those younger, healthier people have a strong financial incentive to just opt out.

And that means the pool of people who are insured is expected to be in poorer health overall, which directly drives up the cost of coverage for everyone else, especially for people buying plans on the state marketplaces.

And the source material was really clear that this disproportionately hit the working poor.

Why them specifically?

Because the premium subsidies in the ACA were designed to help with high costs.

But if the base cost of all the plans goes up because the risk pool is sicker, the subsidies, even though they still exist, they just can't keep pace.

So the working poor, the people who earn just a little too much to qualify for Medicaid, they suddenly face these crushing monthly costs.

The gains we saw, that dramatic drop in the number of uninsured people, they started to reverse almost immediately.

Okay.

So let's shift from the policy mechanics to the actual human cost.

Let's look at what these economic shifts mean for the uninsured landscape, because before that pushback, the ACA did have a massive positive impact.

It was remarkable.

In just three years, between 2013 and 2016, the number of uninsured people dropped from about 41 .7 million, that's 13 .3 % of the population, down to 28 million or 8 .7%.

And that was because of those core provisions.

Yes.

Guaranteed coverage, regardless of pre -existing conditions, letting young adults stay on their parents' plans until 26, the Medicaid expansion in many states, and that subsidy structure we just talked about.

But 28 million people is still a huge number of people without insurance.

Who are they?

Why did they remain uninsured, even with these new options?

The profile of the uninsured has remained stubbornly consistent over the years.

They are often the working poor, so individuals in low -paying jobs, part -time jobs, temporary work, or jobs at small businesses that just aren't required to offer benefits.

They are also disproportionately minorities, particularly Hispanic and black Americans, and young adults in that 19 to 25 age range.

And the number one reason people gave for not having insurance, even with the ACA marketplace,

it was cost, high cost, 45 % cited cost in 2017.

And when that cost barrier is so high, it leads directly to this gap we see in socioeconomic status and mortality, which is frankly a moral emergency.

It is a devastatingly clear inverse relationship.

Poor Americans,

those with incomes below the poverty level, have mortality rates that are several times greater than middle -income Americans.

And this isn't just about lifestyle choices.

No.

The data holds true even after you control for traditional health factors like age, sex, education, substance use.

The impact of poverty is structural.

It's pervasive.

So what are the characteristics that make this group so vulnerable?

It's really a cumulative set of risk factors.

You have individuals with low educational levels, people who are unemployed or have low occupational status.

The elderly, children, and members of minority groups all face these overlapping disadvantages.

And we have to mention mental illness here as a huge risk factor.

The mentally ill often die 15 to 30 years earlier than their counterparts without mental illness.

It just highlights the desperate need for integrated and accessible mental health services.

So for the people who do manage to get insurance and try to access care,

what are the primary access barriers they run into beyond just that initial cost?

Oh, they are logistical nightmares.

I mean, besides the obvious financial barriers, not being able to afford the deductible or finding out a necessary service isn't covered, we see these huge physical and logistical hurdles.

Like what?

Think about a single mother working two minimum wage jobs.

She might not have reliable, affordable transportation.

She can't find childcare during appointment hours.

The specialist who takes her insurance is an hour's drive away.

And then you get there and wait for two hours.

Exactly.

Long office wait times that force them to miss work.

And then there are critical communication problems, often because there's a lack of congruent care providers or services in their preferred language.

These barriers just stack up until seeking care becomes almost impossible.

And what about the persistent Medicaid challenges?

I mean, it's designed to be the safety net, but it seems to have some pretty big holes.

It definitely does.

So while Medicaid recipients have much better access than the completely uninsured, they really struggle to get certain specialty services, primarily mental health care and dental services.

Why is that?

It's economics.

It's the low reimbursement rates.

Medicaid often pays providers significantly less than Medicare or private insurance.

So many physicians and specialists are discouraged from serving this population.

This forces clients to wait months or travel huge distances for necessary appointments.

And that brings us to the system's big financial loophole, the ER safety net.

When the regular system fails, the emergency room becomes the default primary care doctor.

That's a completely rational choice for the client, but it's an incredibly costly behavior for the system as a whole.

Right, because by law, they have to treat you.

Federal law requires emergency departments to stabilize every single client, regardless of their ability to pay.

And because the co -payments in the ER are often modest or even waived for the uninsured, and because it's open 2004, it's convenient for people working day jobs.

So they use it for things that are definitely not emergencies.

Exactly.

The uninsured and Medicaid clients use it for basic primary care, for wound checks, for medication refills.

And this just increases systemic costs exponentially, because the ER is the most high -tech, expensive setting possible for routine services.

So when specialists refuse Medicaid patients, or when the wait time for a procedure is six months, because the system is just overwhelmed, we are talking about rationing health care.

And stripped of all the political jargon, it just means reduced access and a potential decrease in quality for certain groups of people.

It happens subtly, but it happens constantly in the US system.

So it's rationing when a provider says, I'll only take 10 new Medicaid patients this month.

Yes, or when they limit the appointments available for those payment types.

And when the standard market fails like that, the public health system, so federally qualified health centers, they have to step in to make sure essential clinical services are available, especially in rural areas.

So did the ACA eliminate rationing, or did it just sort of formalize it?

That's a great way to put it.

It structured it.

The ACA, by necessity, created these distinct levels of coverage, bronze, silver, gold, platinum, and catastrophic plans.

These plans came with different premiums, different deductibles, different out -of -pocket maximums.

People got subsidies based on their income, but they were still choosing a plan based on a cost -benefit trade -off.

If you choose a bronze plan, you get a lower premium, but a much higher deductible.

You are essentially self -rationing.

You're choosing to avoid care until you meet that high -cost barrier.

Rationing is, unfortunately, just deeply embedded in the economic DNA of US health care.

Okay, so we've established that the system is basically designed for expensive late -stage intervention.

Let's pivot and look at the economic solution, prevention.

It turns out medical services are actually the least important factor in determining how long and how well we live.

That's the core of the human capital argument.

When you break down the major factors that affect our health,

so personal biology and behavior,

environmental factors like clean air and water, social networks, and the health care system itself,

medical services are credited with having the least effect on long -term longevity and illness development.

The least.

The least.

Behavior, lifestyle, environment, and biology account for the greatest effects.

So if 97 % of our money goes toward the thing that has the least effect,

what's the economic goal of primary prevention?

The goal is to preserve and maximize what economists call human capital.

This means investing in primary prevention and public health efforts that reduce the overall burden of disease and disability.

So everything from workplace safety campaigns and fall prevention for the elderly to mass immunization efforts and promoting breastfeeding, every illness you avoid is capital you've preserved.

That sounds good in theory, but does it actually pay off?

What's the demonstrable return on investment, the ROI, for this kind of spending?

The evidence is really compelling, and this is data CPHNs have to know when they're advocating for funding.

The Trust for America's Health documented that if we invested just $10 per person in community -based prevention programs, focused on increasing physical activity, improving nutrition, and preventing smoking, the country could save $5 .60 for every $1 invested.

Within five years.

Within five years.

That's a 560 % return on investment in half a decade, just by shifting resources upstream.

That's a powerful argument.

So let's look at the three levels of economic prevention strategies and how a nurse actually applies them in practice.

Right, we can connect these directly to the CPHN role.

So primary prevention strategies are proactive.

This is a nurse working with legislators and insurers to make sure there's comprehensive ACA coverage for health promotion services, like smoking cessation or dietary counseling.

They're advocating for policies that reduce risk before a disease even starts.

Okay, and then secondary prevention.

Secondary prevention is about early detection and intervention to stop a disease from progressing.

A perfect example is encouraging pregnant clients to participate in prenatal care and WIC.

This is a huge economic strategy because it directly reduces the high costs that come with preterm babies and pregnancy complications, which are just enormous burdens on the acute care system.

And tertiary.

Tertiary prevention aims to prevent deterioration or complications after a disease has already occurred.

For example, implementing home visits to at -risk mothers.

This provides agitation and guidance, and it's been shown to reduce costs related to child abuse and neglect by ensuring stability and reducing emergency interventions.

So given that massive ROI, it seems baffling that primary prevention still faces such big challenges in investing.

I mean, if it saves so much money, why doesn't the private market just jump all over it?

The primary challenge is really a temporal misalignment.

The results from prevention can take years, sometimes decades, to show a full return on investment.

A hospital, on the other hand, sees revenue immediately from a procedure.

Right, short -term versus long -term thinking.

Exactly.

And systemically, providers face uncertainty about which clients need which services.

They often lack the information or even just the time to deliver them.

And most critically, prevention services get less, or often zero, reimbursement compared to curative, acute services.

So the traditional fee -for -service system was designed to reward intervention.

Reducing the need for services was actually bad for business.

That is the structural flaw we're finally trying to fix with a shift in incentives.

And this shift is being driven by capitated health plans or managed care.

Under this model, the provider gets a fixed amount of money per patient for a set period.

If that patient needs expensive hospital care, the provider loses money.

So the entire financial incentive just floats on its head.

It does.

Providers are now financially incentivized to keep their clients healthy and reduce unnecessary utilization.

By aligning the client's interest, which is staying healthy with the financial interest of the industry reducing costs, primary prevention is finally starting to get the priority it deserves.

Okay, so to really understand why our system is built this way, we have to trace its evolution.

Before we get into the different eras, let's define the basic framework for health services delivery that every system relies on.

Right.

Regardless of how it's financed, health service delivery is structured around four basic interacting components.

You've got one, service needs and intensity, two, facilities like hospitals and clinics, three, technology, so devices and drugs, and four, labor, the workforce.

And the key variable there is intensity.

Intensity is the key.

It's the extent of use of all those technologies, supplies and services.

The history of US healthcare is really a story of how we financed and controlled that intensity.

So let's detail the developmental framework.

The four eras, starting with the earliest one.

Okay, the pre -industrial era from 1800 to 1900 was completely dominated by infectious epidemics.

Cholera, typhoid, yellow fever.

Medicine was a very loose profession.

Technology was minimal.

The doctors' black bag didn't have much of proven scientific value, and hospitals were seen as unsafe, dirty places that you avoided if you could.

And how was care paid for?

By individuals, through bartering, or by charity.

But what's really significant is that this era saw the rise of the first county health departments around 1908, a realization that collective health demanded collective action.

Then the next phase saw medicine really professionalize.

That's the post -industrial era from 1900 to 1945.

The focus here shifted to controlling acute infections and trauma.

This period had tremendous public health strides.

Better sanitation, purified water, better housing.

All of that dramatically cut infectious disease rates.

Doesn't technology started to make a real difference?

Huge breakthroughs.

You had insulin in 1922, sulfa drugs in 1932, and then penicillin in the 1940s.

A key moment was the 1910 Flexner Report, which forced medical and nursing education onto a rigorous science -based college model.

And politically, the Social Security Act of 1935 signaled the federal government's first real interest in social welfare and population health.

So then the post -industrial era enters this boom period that really shaped the costs we're dealing with today.

The era of unlimited resources.

That's the phase from 1945 to 1984.

The focus shifted irrevocably to chronic diseases, heart disease, cancer, stroke -driven by lifestyle, and people living longer.

Facilities exploded,

clinics, long -term care, community health centers.

Technology became durable, expensive, and widespread.

CT scanners, organ transplants, critical care units.

And then came the game changer.

The landmark event that defined the era.

The passage of Medicare and Medicaid in 1965.

This created guaranteed federal funding for two huge populations, the elderly and the poor, which led the system to operate under the assumption of virtually unlimited resources.

Costs could just rise unchecked because the government was now footing the bill.

And that runaway spending is what triggered the final shift toward containment.

Exactly.

Welcome to the corporate era from 1984 to 2019.

The health problems were still there.

New and old, infectious diseases, the chronic burden.

But the defining characteristic of this era was cost containment, aimed specifically at Medicare spending.

This led to the introduction of the Prospective Payment System, PPS, and Diagnosis -Related Groups, DRGs, in 1983.

Let's pause on that because this is the mechanism that really changed the incentives.

It did.

Before 1983, the longer a patient stayed in the hospital, the more tests they got, the more money the hospital made.

That's retrospective fee for service.

After DRGs, the payment for a specific illness, like a heart attack, was fixed up front.

All of a sudden, the hospital was financially rewarded for providing high quality care efficiently and getting the patient safely out of the hospital faster.

This shift was monumental.

This era also saw the rise of managed care and these massive corporate integrations.

Yes.

The financial pressures led to huge mergers.

Hospitals buying other hospitals, which is horizontal integration, and hospitals buying nursing homes and clinics, which is vertical integration.

Care delivery shifted strongly out of the expensive hospital and into the community and the home.

And technology.

Technology also exploded.

Telemedicine, widespread computerization, which, paradoxically, drove costs up even further.

This era was also characterized by intense turf battles as cost -cutting measures incentivized replacing high -wage workers like RNs with lower -wage personnel.

And we saw nurse practitioners starting to replace physicians in some primary care roles.

And that brings us to the 21st century challenges from 2020 onward.

Well, now we're fighting a two -front war.

New and re -emerging communicable diseases right alongside a colossal chronic disease burden.

Seven out of 10 deaths are related to chronic disease, and half of all Americans have at least one chronic condition.

And technology continues to intensify.

Absolutely.

AI diagnostics, 3D printing, advanced electronic health records, labor gets more and more specialized to support this tech, and critically, poverty continues to make chronic illness worse.

The future really requires this deliberate shift toward primary care teams, public health integration, and advanced practice DNP programs to manage all this complexity, even as public health funding like the PPHF faces renewed political cuts.

Okay, let's try to quantify the economic monster we've built.

Looking at the spending crisis figures, the trajectory of national health expenditures or NHE is just terrifying.

The sheer scale is hard to grasp.

NHE hit $3 .3 trillion in 2016, and was projected to reach $5 .7 trillion within a decade.

And this isn't just a big number.

It's consuming a massive and growing share of our entire economy.

What does that mean in terms of GDP?

In 2016, health care was 17 .9 % of GDP.

It was projected to get close to 20 % by 2026.

This means that nearly $20 of every $100 spent in the entire US economy is allocated to health care.

It does.

In 2017, per capita spending reached over $10 ,000 per person, and it was rising faster than general inflation.

This leads to the painful paradox.

The US spends far more per person than any other developed nation, yet we consistently do not have greater longevity or superior health outcomes compared to nations that spend half as much.

So where exactly is all that money going?

What are the primary expenditure categories?

Historically, the biggest buckets have always been hospital care and physician services.

But because of that corporate -era shift to community care and the aging population, we're now seeing a dramatic projected rise in home health care expenditures.

That category is expected to exceed physician services in terms of overall spending.

And that reflects the reality that more complex care is happening at home.

Exactly.

And CPHNs have to be ready to manage that.

So economists attribute this massive cost escalation to three main factors.

Right.

They're all intertwined, but they are distinct.

Inflation, so the general rising costs, dramatic changes in population demographics, specifically the aging population, and the introduction of expensive technology and intensity of services.

Let's focus on demographics, the aging population.

This is a slow -motion structural crisis.

It's unavoidable.

The 65 -plus population was 15 % of the US population in 2016.

It's projected to reach 25 % by 2060.

And even more concerning from a fiscal standpoint is the 85 -plus group, which is expected to double by 2035.

What's the specific impact of this huge cohort on the system?

Well, older adults consume disproportionately large financial resources.

They typically have multiple chronic and degenerative conditions at the same time, which leads to higher hospital admission rates, longer stays, and greater reliance on specialists.

The 78 million -strong baby boomer generation is rapidly straining our core federal entitlement programs, Medicare, and Social Security to the breaking point.

And that financial strain is quantifiable.

The projections are stark.

Spending on Medicare alone is projected to reach 4 % of GDP by 2035.

This is fueling intense debate over policy options, like raising the eligibility age for Medicare, implementing means testing, and creating more incentives for prevention and long -term care coverage to offload some of those acute care costs.

The second major factor is technology and intensity.

It's innovative, but it's also a massive cost driver.

Technology is a real double -edged sword.

New drugs, complex devices, sophisticated EHRs, telemedicine, they all enhance care quality, but they inherently increase costs.

This is due to a few things.

The high initial investment, the need for specialized personnel to operate the tech, and relentless client demand for the newest, most advanced treatment.

And federal policy has actually played a role in steering this adoption of technology over time.

Oh, absolutely.

If you look back, policy created the environment for this growth.

The Hill -Burton Act of 1946 provided funding for hospital construction, which encouraged expansion.

Then in 1972, the Social Security Act amendments expanded Medicare to cover high -cost technologies like end -stage renal disease treatment, essentially guaranteeing payment for high -tech, chronic care.

The only real policy intervention to try and control that intensity was the 1983 establishment of DRGs.

And finally, the pervasive chronic illness burden drives the majority of our spending.

This is the $3 .6 trillion problem we're facing.

Chronic disease accounts for 70 % of US deaths, and the vast majority of our healthcare spending.

And this problem is intensified by the interplay of disease -like HIV clients now living longer, but developing chronic lung disease and socioeconomic factors.

Poverty accelerates it.

It does.

When poverty forces families to consume cheaper, nutrient -poor, high -fat, high -sugar foods, it accelerates conditions like diabetes and heart disease.

So the chronic disease burden becomes heavily concentrated among the poor, trapping them in this feedback loop of worsening health and economic instability.

So we have the costs.

Now, let's identify the paymasters.

Let's start with the evolution of public support.

Government involvement in financing isn't new at all.

It actually dates back to the Marine Hospital Service in 1798.

It's considered the first national health insurance plan created for sick sailors.

This eventually evolved into the US Public Health Service, but today the system is dominated by Medicare and Medicaid.

These two programs fundamentally underpin the entire financial ecosystem.

And they're both overseen by CMS.

Right.

The Centers for Medicare and Medicaid Services, or CMS, it's the massive federal regulatory agency that monitors overseas and project spending for both programs.

And under their umbrella, we've seen the emergence of new structures like accountable care organizations or ACOs.

So how does an ACO work and why should a CPHN care about this model?

An ACO is a new provider type that's incentivized by Medicare.

It's a group of doctors, hospitals, other providers who voluntarily come together to give coordinated high quality care to their Medicare patients.

But the CPHN cares deeply because ACOs operate under a shared risk model.

Meaning if they save money, they get to keep some of it.

Exactly.

If the ACO meets specific prevention goals and treatment targets for their patient panel, meaning the patients stay healthier and costs go down, the providers share in those savings.

This directly elevates the CPHN's role in managing chronic care, promoting prevention, and ensuring timely follow -up to reduce hospital readmissions.

Let's break down the big two.

Medicare and Medicaid.

They get confused all the time, but they serve very different populations and functions.

They do.

So for recipients, Medicare is generally for people 65 and older, the permanently disabled, or those with specific catastrophic illnesses like ALS or end -stage renal disease.

Medicaid is for specified low income and needy individuals, including children, the aged, blind, or disabled, all based on income thresholds.

And the type of program is different.

Very different.

Medicare is social insurance.

You or your employer paid into it over your working life.

Medicaid is public assistance based on financial need.

Okay, what about funding and coverage?

Medicare is federal.

Part A is funded by a payroll tax.

Part B is voluntary and funded by premiums and general revenue.

Medicaid is a joint federal state program.

For coverage, Medicare has its parts.

Part A for inpatient, B for outpatient, C for managed care plans, and D for prescription drugs.

Medicaid's mandatory coverage includes crucial services like hospital care, physician services, and home health.

Let's do a deep dive into Medicare details.

The sustainability of Part A is a huge policy concern, right?

It absolutely is.

The Part Hospital Insurance Trust Fund relies on payroll tax revenue.

As the baby boomers retire, the ratio of workers paying in versus beneficiaries taking out is shrinking, which threatens the fund's long -term stability.

This is exactly why Congress mandated the Prospective Payment System, PPS, back in 1983 for hospitals.

Let's clarify PPS and DRGs again because this is such a critical structural change.

The change was philosophical.

It was moving from paying for time and services, which is retrospective, to paying for a case, which is prospective.

PPS uses diagnosis -related groups, DRGs, to classify illnesses into payment categories.

A hospital gets a fixed amount based on the patient's DRG, regardless of how long they stay.

So it incentivized efficiency.

Exactly.

It rewarded hospitals for providing the same quality of care in less time and using fewer unnecessary resources.

In Part D, the prescription plan has the infamous doughnut hole.

The doughnut hole is the coverage gap.

After a beneficiary and their plan spend a certain amount on prescriptions, the beneficiary suddenly has to pay a much higher percentage of their drug costs until they hit the threshold for catastrophic coverage.

This places a huge financial strain on chronically ill seniors.

The ACA included provisions to accelerate the closing of that gap.

Now the deep dive into Medicaid details.

How much of the population does this program actually cover?

It's huge.

Enrollment was around 66 million people in 2018.

The expansion under the ACA in the states that adopted it significantly reduced uninsured rates and helped fund home and community -based services.

And states have some flexibility here.

Yes.

They have to provide mandatory services, but they can apply for waivers to use Medicaid funds creatively for other health care reforms.

And crucially, Medicaid is the single largest payer for long -term care services, accounting for over half of all dollars spent in this area, with a growing emphasis on shifting care out of expensive nursing homes and into home and community -based care, another massive opportunity for CPHN practice.

So even with things like ACOs and the PPHF, the overall share of funding going to actual public health funding remains tiny.

It does.

Public health agencies are primarily tax -funded.

Despite the PPHF, public health funding dropped to only $274 per person, representing just 2 .5 % of federal funding in 2019.

It's the enduring paradox of the American system.

We know prevention works, but we refuse to adequately fund it.

All right.

Let's turn to the private market, which accounts for the rest of that spending.

What drove the evolution of private insurance?

Well, private insurance began simply in 1847 as a way to provide financial security against unexpected illness.

But the system was fundamentally reshaped by the Great Depression and soaring medical costs in the 1930s.

Hospitals and doctors needed guaranteed payment, which spurred the development of third -party payment systems like Blue Cross for hospitals and Blue Shield for doctors.

And their original model used a specific way of handling risk.

Yes.

Blue Cross initially used a community rate.

This meant everyone in a community paid a similar premium, regardless of their health status.

It's the true definition of insurance as social solidarity.

But then commercial insurers entered the market and adopted an experience rate, setting premiums based on the illness risk of a specific group, like one company.

So they could cherry -pick healthy groups.

Exactly.

They could offer lower rates to healthy groups, which undermined the community rate and fragmented the entire insurance market.

Post -World War II, insurance became permanently tied to your job.

So what happened when costs started to skyrocket with the role of employers and cost shifting?

Insurance became a cornerstone employment benefit.

But as health care costs surged, especially after the 2008 recession, employers aggressively shifted those costs onto their employees.

The result?

Average employee premiums increased 55 % since 2007, often way faster than wages.

This is why employees now face these massive deductibles and high co -payments.

And some big companies just decided to cut out the middleman entirely.

Right.

Large employers started adopting self -insurance.

They bypassed the commercial insurers and contract directly with providers or even operate their own on -site wellness and clinic programs.

This saves the company money and, importantly for our listeners, it creates new opportunities for nurses to run those company -based wellness and screening programs.

The rise of managed care then made the consumer personally responsible for costs and decisions.

Managed care, like HMOs and PPOs, is a risk -based plan.

It combines the financing and the delivery for one set fee.

The underlying philosophy is that prevention, health promotion, and consumer education will reduce the use of expensive care.

This structure forces consumers to become more price -sensitive.

They have to be knowledgeable about quality versus cost trade -offs.

And we see the ultimate expression of this in health -specific savings accounts, or HSAs.

These are tax -advantaged accounts coupled with high -deductible health plans.

They're designed to make individuals responsible for covering their initial costs.

The theory is, if you're spending your own money, you'll be a wiser consumer.

But this requires providers to disclose detailed cost and quality information and forces consumers to become highly involved in their healthcare decision -making, which is a massive burden.

So let's clarify.

The main healthcare payment systems used to pay both organizations and practitioners, since this is so vital for understanding incentives.

Okay.

For organizations like hospitals or nursing homes, we have two core systems.

First is retrospective reimbursement.

The organization sets the fees after the services are delivered.

This is the old cost -plus system, where the more you did, the more you were paid.

It led directly to cost -shifting inflating prices in one area to cover losses in another, with very little incentive for cost control.

And the other system?

Is prospective reimbursement.

The payment amount is established and fixed before services are delivered.

Think DRGs for hospitals.

This is efficient because it incentivizes organizations to stay within a budget.

The risk, though, is that quality could be compromised if cost control is overemphasized, leading to things like premature discharge.

Now, for practitioners, the systems are equally varied.

The traditional private system was, and often still is, fee -for -service, retrospective.

The practitioner sets the cost based on usual, customary, and reasonable charges.

This fundamentally encourages the practitioner to provide more services, since they get paid for each one.

The major shift for primary care came with RBRVS.

Explain the resource -based relative value scale.

This was Medicare's attempt to fix the fee -for -service problem and elevate primary care.

Adopted in 1991, it reimburses physicians not based on historical charges, but on the resources required to deliver the service.

This was a monumental win for primary care, because it finally acknowledged and assigned value to typically lower -cost services like prevention, counseling, and complex patient management things nurses and primary care doctors do constantly that were severely undervalued.

And finally, the payment model favored by managed care, which flips the incentive completely.

That's capitation.

This is a set amount paid per member per month to the provider to care for a set group of clients for a specific period, regardless of how often they visit.

Under capitation, the financial incentive is clear.

The provider saves money if the patient doesn't use costly services.

So the provider is rewarded for treating adequately on the first visit and keeping patients healthy through prevention.

Our entire conversation today really culminates in the massive implications this all has for nursing practice, especially for the CPHN.

Let's start with reimbursement for nursing services.

Why was hospital nursing treated like this hidden administrative cost for so long?

Historically, nursing care was financially invisible.

It was just buried in the overall patient room charge, lumped in with the linens and the meals.

The American Nurses Association has long advocated for nursing care to be a separate budget item.

And this separation is crucial to clearly demonstrate the profession's efficiency, effectiveness,

and its financial value within the system.

But advanced practice nurses, or APNs, have made huge strides toward independent reimbursement.

These strides were hard won and driven by outcomes research.

Spurred by cost control pressures and research proving their positive contributions, nurse practitioners and clinical nurse specialists were granted third -party reimbursement from Medicare Part B services starting in 1998, set at 85 % of physician rates.

Medicaid also reimburses them.

These gains give APNs greater autonomy and prove that cost -effective, prevention -focused care is financially viable.

And the ACA specifically championed new delivery models based on nursing leadership.

Yes.

A direct result of the ACA was the establishment of over 200 nurse -managed clinics across the U .S.

These clinics are critical because they focus specifically on population -based primary and preventive care meeting, that 2 .5 % need we identified at the start.

And they're supported by a mix of Medicare, Medicaid, and grants, providing a sustainable model for community care.

So, given this shifting landscape, what are the primary CPHN role and practice implications for the future?

Well, first, nurses have to develop a profound cost awareness and value consciousness.

They need to understand the true cost of services, identify areas for safe cost savings, like reducing medical waste or managing supplies efficiently, and constantly define nursing's quantifiable value to ensure its economic viability in this marketplace.

And beyond just awareness, nurses need to be leading the organizational change.

Absolutely.

They must assume leadership in models of care, developing and implementing new models that deliver effective, high -quality care, often leveraging technology like telemedicine to reach remote populations.

They also have to take a greater role in evaluating both client care outcomes and overall nurse performance relative to cost.

And this connects directly back to the most critical determinants of population health, the factors that drive that 97 % problem.

It connects to the core CPHN role of SDOH advocacy.

Since half of all health outcomes are attributed to social determinants of health and health behaviors, CPHNs must be involved at all levels of policymaking.

We have to advocate for improved education, employment opportunities, environmental justice, better transportation, and robust social support systems.

This is the only way to fundamentally reduce the demand for that expensive acute care spending.

And finally, the essential competency of teamwork and collaboration stresses the public health nurses' need to work across different sectors.

PHNs cannot solve this problem alone.

They have to collaborate actively with community organizations, with business systems, with local governments.

They must provide expert input into fiscal planning and funding proposals, especially for chronic disease reduction and health promotion programs.

This holistic, partnership -driven approach is the only way to achieve sustainable improvements in population health outcomes.

Wow, that was a crash course in systemic dysfunction and the path toward fixing it.

We've established that the U .S.

healthcare system is astronomically expensive, historically reactive, and fundamentally designed to fund intervention over maintenance, which creates profound disparities.

Right, and the entire financial infrastructure is desperately trying to transition from that retrospective, open -ended fee -for -service model to prospective, and capitated models to achieve cost control, which is finally elevating the status of prevention.

And that transition is where the CPHN finds their economic mandate.

As inherently cost -effective providers focused on primary and secondary prevention, nurses are not just caregivers.

They are integral strategic partners in improving decision -making about how we allocate these scarce healthcare resources.

They really are.

The current trajectory of healthcare, the baby boomer generation rapidly straining Medicare to its limits, and employers shifting enormous costs onto employees via high deductibles, it demands radical, scalable solutions outside the traditional hospital walls.

So here is a provocative thought for you to chew on.

Given the projected fiscal strain on Medicare and the intense cost shifting to consumers,

what specific new models of community -based nursing care focused solely on scalable primary prevention could radically change the GDP expenditure trajectory for the next generation, proving that a focus on wellness is the true cost saver?

The challenge is converting the proof of that 560 % ROI into immediate, permanent public and private investment.

And that, right there, is the economic work of public health today.

Thank you for taking this deep dive with us.

We'll see you next time.