Comparing Health Systems and Challenges in Costa Rica and the United States

Financial Troubles in Costa Rica

The World Health Organization quickly heralded Costa Rica as a model for other Latin American countries because after the first few years of reforms, infant mortality fell by 69%, deaths from infectious diseases dropped by 98%, and communicable diseases like poliomyelitis were eradicated (Morgan, 1987, 86). However, the initial gains in population health were quickly trumped by dramatic fiscal problems. The country’s health care expenditures proved unsustainable because the budget of the CCSS rose by 689% between 1972 and 1979 (Morgan, 1987, 94).

During this period of relative economic stability, Costa Rica managed the dramatic increases in health care spending with assistance. The country was initially able to finance its health care system in the 1970s with tremendous amounts of foreign aid from UNICEF, CARE, USAID, and the Inter-American Development Bank (Morgan, 1987, 89).

Foreign aid has been credited with preventing steep declines in population health during this difficult economic time, but even with foreign aid, the CCSS still managed a budget deficit of $26 million that constituted 33% of its total operating budget in 1982 (Morgan, 1987, 96). Some economists have noted that the massive debt of the CCSS may have contributed to the severity of the economic crisis since residents understood a critical legal clause that mandated the state’s responsibility for all incurred debts (Morgan, 1987, 96).

To alleviate its fiscal burden, the CCSS attempted a number of policy changes within just a decade of its major expansion that put more financial responsibility on residents. The CCSS raised the payroll tax on employees, along with the expected employer contribution, multiple times throughout the 1980s as the government’s relative contribution decreased (Morgan, 1987, 96). Employees of the CCSS - including all medical personnel and administrators - began paying a tax to receive coverage while employee benefits were rescinded and early retirement packages were offered to cut payroll costs (Morgan, 1987, 96).

As a result, physicians who observed the erosion of their previously high standard of living went on strike, pressuring the CCSS to raise salaries despite its financial instability. After one month of strikes, the two parties eventually reached a financial agreement that still left the CCSS fiscally unsound (Morgan, 1987, 96).

Many expenses of the CCSS simply went unpaid since the government lacked the financial resources to fund its obligations. Doctors struggled to provide quality care to patients when faced with a staggering lack of medical supplies and pharmaceuticals. In 1982, the CCSS could not pay for $6.5 million worth of precious supplies, so they remained unavailable in warehouses (Morgan, 1987, 97-98). In addition, rural health clinics closed, the social insurance expansion program halted, and hiring freezes took effect despite shortages of doctors (Morgan, 1987, 98).

The economic consequences manifested in the quality of care, although the CCSS allotted no funding for studies on quality control during this time period. However, measures that analyze rates of disease diagnoses can be indicative of adequate and timely care. One unique measure shows that the number of cervical cancer cases diagnosed while treatable plummeted, but the number diagnosed with an unfavorable prognosis rose sharply during the economic crisis (Morgan, 1987, 98-99). Another pediatric output study that found falling primary care visitations also elucidates the negative impact of fiscal problems on care quality (Morgan, 1987, 99).

As another major cost-saving measure, the CCSS developed the Lista Oficial de Medicamentos (LOM), which details the medicines available to the general populace through the CCSS (Del Rocío Sáenz et al., 2010, 11). Despite the worldwide availability of tens of thousands of medications, doctors can only prescribe medications from the official list of medicines, which was further reduced from 1,000 medications to just 400 during the 1980s (Morgan, 1987, 98). Although exceptions were technically possible, less than 5% of individuals successfully sought an exception to the LOM for special illnesses or for conditions that did not respond adequately to accepted medications (Del Rocío Sáenz et al., 2010, 11-12).

Without unprecedented financial support from the United States and other development organizations, Costa Rica would not have afforded even the most basic of medications included on the LOM (Morgan, 1987, 100). The problem with this rationing tool continues, with an average of 60 appeals against the CCSS each week in 2009 because of untimely medical services, refused provision of a medication, or a lack of access to technological advances in medicine (Del Rocío Sáenz et al., 2010, 17).

To further ration care for its constituents and ensure long-term sustainability, the CCSS establishes contracts, called management commitments, with private facilities that provide care (Del Rocío Sáenz et al., 2011, 2-3). These commitments, founded in 1997 to expand health services, must meet annual treatment performance goals and adhere to financial ceilings set by the CCSS. Based upon the projected demographical and epidemiological needs of the country, the CCSS adjusts its contracts to provide the greatest resources to regions with the greatest need (Del Rocío Sáenz et al., 2010, 11).

Despite these provisions, the CCSS still leaves 700,000 Costa Ricans without access to health care due to geographical gaps created by inadequate government allocation. Although the CCSS planned to construct eighty new EBAIS units, a lack of funding resulted in the construction of only six clinics, demonstrating a delayed central response to the population’s changing medical needs (Del Rocío Sáenz et al., 2010, 15). Meanwhile, the private sector offers specialty services to patients who either pay out-of-pocket or pay private insurance premiums (Del Rocío Sáenz et al., 2011, 2-3).

As a result of long waiting periods for clinical tests and surgeries funded by the CCSS, the use of private health care services by those with the means to pay has increased. This tendency exposes a vulnerability in a system where just 18% of the highest-income residents pay for half of its expenditures (Del Rocío Sáenz et al., 2010, 16).

Existing Costa Rican hospitals have continued to witness quality deterioration and greater demands for service. For example, San Francisco de Asís Hospital in Grecia was built to provide care for a population of 60,000 but currently serves 160,000 residents without any upgrades in equipment or personnel (Boddiger, 2012). More doctors serve on call or have switched to night shifts to alleviate costs, increasing average waiting times from two hours to seven hours for non-emergencies, according to the mayor of San Jose (Boddiger, 2012). The executive president of the CCSS, Ileana Balmaceda, stated that the CCSS is taking the necessary steps to stay solvent.

During the economic downtown of 2009, employer and worker contributions decreased by $18 million in just one month as demands for public assistance rose. A 2011 study by the Pan American Health Organization found that the CCSS will go bankrupt in 2015 without additional cost-saving interventions beyond the already enacted wage freezes, medication rationing, hospital overuse, private contracts, and decrease in state contributions (Boddiger, 2012).

The U.S. Health Care Profile

The financial difficulties that are threatening the integrity of the Costa Rican health care system may foreshadow the coming financial issues facing the United States. An understanding of the structure of the U.S. health care system elucidates its future fiscal challenges and the possible solutions it may undertake based upon Costa Rica’s experiences with centralization. Like Costa Rica, the United States utilizes a mixed public and private system, although only 4% of hospitals are currently government-owned and operated (Rice et al., 2013, 242). Recent reforms establishing government-sponsored health care exchanges places unprecedented responsibility on the public sector for the health of its citizens. Previously, it was not until the 1960s that the U.S. government even became involved in the health care of its citizens.

The private health care system, which consists of health maintenance organizations (HMOs), preferred provider organizations (PPOs), and the new Accountable Care Organizations (ACOs), dominated the medical world for many decades. HMOs contract with medical groups and hospitals to fund care but are often restrictive in out-of-network use, limiting their value. PPOs consist of a network of providers, and their relative ease in funding out-of-network care has contributed to their increased popularity in recent years. Finally, ACOs, which are fundamentally similar to the private management contracts of Costa Rica, consist of independent providers who coordinate to reduce costs (Rice et al., 2013, 37-39).

The landmark public health care programs of the 1960s were Medicare, a program for seniors and some disabled adults, and Medicaid, a program for impoverished individuals meeting eligibility requirements (Rice et al., 2013, 25). Medicare initially consisted of two distinct programs: Part A, which provides hospital insurance with payroll taxes, and Part B, which is an optional program for outpatient services that is 75% funded by the government. In 2006, a prescription drug benefit was added, again 75.5% funded by the federal government (Rice et al., 2013, 35).

Like Costa Rica’s CCSS payroll tax, American employers and employees each contribute 1.45% of the employee’s income to the payroll tax for Medicare, with the self-employed responsible for the full tax (Rice et al., 2013, 104). However, Medicare and Medicaid are primarily funded through progressive income taxes and property taxes. These two programs now comprise more than 22% of the federal budget, fostering higher expenditures on health care as a percentage of GDP and consequently a larger debt burden for the nation (United States).

On March 23, 2010, Congress passed the Patient Protection and Affordable Care Act, reforming portions of the U.S. health care system (United States). The major reform, adopted in January 2014, included an individual mandate requiring health insurance for all citizens or payment of a fine (Rice et al., 2013, 31). Additionally, the legislation created a sliding scale of health insurance subsidies for individuals making up to 400% of the federal poverty level; the establishment of exchanges that offer competing insurance plans; no-deductible insurance coverage of specific services, including many primary care services; elimination of higher premiums based upon pre-existing conditions or health status; and mandates for health insurers to return a percentage of funding for direct health care (Rice et al., 2013, 31).

States could also elect to expand Medicaid to 138% of the federal poverty level, supported by substantial financial incentives from the federal government. The legislation reduced government reimbursements for Medicare and established ACOs in attempt to control costs (Rice et al., 2013, 32).

In total, the United States spent $2.7 trillion on health care in 2011, which equates to $8,233 per citizen. Spending has seen a fourfold increase between 1970 and 2011, and by 2019, the government predicts a total expenditure of $4.5 trillion comprising 19.3% of GDP (Rice et al., 2013, 92-94). The amount spent on health care is two times the OECD median and more than 53% higher than the second-highest country, Norway (United States). Medicare and Medicaid costs are greater than both defense and Social Security Insurance budgets, contributing to a burgeoning national debt that now exceeds $18 trillion (Rice et al., 2013, 93). Although 54% of citizens are covered by private medical insurance, private funding sources only accounted for 40% of total expenditures. In contrast, the 30% of individuals covered by public sources, which include many of the elderly and the poor, constitute 48% of the total spending, with 12% paid out-of-pocket by consumers (Rice et al., 2013, 91).

The unprecedented dedication of financial resources to the U.S. health care system would bankrupt other countries like Costa Rica. However, the United States has a unique advantage in that it has the financial resources to fund itself through debt financing. With a Federal Reserve that can create money through open market operations, the United States has funded the current health needs of its populace by delaying actual payment of the costs. Costa Rica was forced to finance its health care expenditures each year and relied heavily upon foreign aid to meet its burden, thereby quickening its eventual tumble to predicted bankruptcy in 2015 (Boddiger, 2012). However, the United States is free of the requirement for annual financing. The current generation is enjoying extraordinary health care expenditures at the cost of future generations, who will eventually reach a critical point necessitating significant fiscal restraint.

For all countries, those critical points tend to come during difficult economic times, when government revenues from income taxes decrease and expenditures for social welfare programs increase to substantially raise the deficit. Despite its burgeoning costs, the government-funded Costa Rican health care system could sustain itself during relatively strong economic times, including the 1970s and early 2000s. Only when the country faced economic turmoil in the early 1980s and throughout the 1990s did it fail to meet the health care needs of the population. Similarly, the United States is implementing its health care reforms during a time of economic recovery, with the stock market reaching record highs near the end of 2014. However, the true test of the Affordable Care Act’s sustainability will come during the next economic recession.Continued on Next Page »