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THE ECONOMICS OF HEALTH REFORM:
IMPLICATIONS FOR HEALTH PROFESSIONALS


             Don McDaniel
             April 27, 2...
AGENDA
»   A Context for our Discussion
»   The Seemingly Intractable Problems
»   A Deeper Dive
»   Implications
»   One ...
THE PATIENT PROTECTION AND AFFORDABLE
                   CARE ACT

»   Expanded Coverage
»   Individual Mandate
»   Employ...
HEALTHCARE: THE ECONOMIC ENGINE

  1.   United States            $14.3 T
  2.   Japan                    $ 4.8 T
  3.   Ch...
NATIONAL HEALTH EXPENDITURES PER CAPITA,
                1980–2007




                                                   ...
INSURANCE TAKE-UP 1990 - 2007

                                        1990             2006             2007
            ...
Intractable Problems




                       7
PROBLEM #1
HEALTH EXPENDITURES AS A PERCENTAGE OF GDP




                              * 2009 – 2018 Projected


        ...
PROBLEM #2
 AVERAGE PERCENTAGE INCREASE IN HEALTH INSURANCE
  PREMIUMS COMPARED TO OTHER INDICATORS, 1988 -2007


20%

18%...
PROBLEM #3
                GROWTH IN MEDICARE SPENDING VS.
               PRIVATE HEALTH INSURANCE SPENDING


            ...
AGGREGATE HOSPITAL PAYMENT-TO-COST RATIOS
FOR PRIVATE PAYERS, MEDICARE, AND MEDICAID




                                 ...
HOSPITAL PAYMENT SHORTFALL RELATIVE TO COSTS FOR
  MEDICARE, MEDICAID, AND OTHER GOVERNMENT




             Medicare
    ...
A BEACON OF LIGHT, BUT…




                          13
PROBLEM #4: ENOUGH
    PHYSICIANS?




                     14
NATIONAL SUPPLY & DEMAND PROJECTIONS FOR FTE RNS




                                                                     ...
PROBLEM # 5
        THE DEMOGRAPHIC TSUNAMI

» One-quarter of all Medicare recipients
   » Have five or more chronic condi...
PROBLEM #6
NUMBER OF FULL-TIME AND PART-TIME HOSPITAL
                EMPLOYEES




                                      ...
PROBLEM #7
           ARRESTED DEVELOPMENT: CONSUMER SOVEREIGNTY



                                 2008                 ...
“WE SPEND SO MUCH BECAUSE WE SPEND
                                       SO LITTLE…”
                           18.00%   ...
HEALTH REFORM 2010

H.R. 3590 THE PATIENT PROTECTION AND AFFORDABLE CARE
                          ACT



 H.R. 4872 THE H...
BIG THEMES

» Coverage expansion to 32 million people by 2019
» Expands Medicaid to 133% of FPL ~ 16 million new
  enrolle...
HEALTH REFORM - CHRONOLOGY

2010
» Insurance reforms
   » Eliminates lifetime limits
» Small business tax credit – sliding...
HEALTH REFORM - CHRONOLOGY

2011
» W-2 reporting – health benefits
» Brand-name drug tax ~ $33B in new fees
» OTC drugs no...
HEALTH REFORM - CHRONOLOGY

2012
» Medicare Advantage – reduction in payments

2013
» New FSA limits
» Medical device 2.3%...
HEALTH REFORM - CHRONOLOGY
2014
» Medicaid eligibility expansion – up to 133% of FPL
» Premium credit subsidies – up to 40...
HEALTH REFORM - CHRONOLOGY

2015
» Creates Independent Medicare Payment Advisory
  Board – reductions in Medicare spending...
HOW TO PAY FOR IT?

» Cuts to Medicare spending by as much as $575 Billion
   »   Parts A and B and future market basket: ...
HOW TO PAY FOR IT?

» Projected funding sources for health reform – 10 years:
   »   Individual penalties - $17B
   »   Em...
IN THE CROSSHAIRS
» Consumer directed plans with HSAs
  » 8 million Americans currently participating
» Medicare Advantage...
BELLWETHER?
THE MASSACHUSETTS EXPERIENCE




                               30
MASSACHUSETTS REFORM PLATFORM

» Individual Mandate
» Employer Mandate
   » All employers with 10 or more employees. $295 ...
ACCESS TO CARE

» Health insurance does not guarantee access to care!
   » An additional 400,000 people are attempting to ...
WAIT TIME ACROSS THE US - 2007

      City         % of Population    Number of       Average wait to see
                ...
MASSHEALTH: MASSCOST?

» State spending on healthcare has increased by 45%
  ($595 million) since 2006
» Commonwealth Care...
IMPLICATIONS




               35
IMPACT ON PHYSICIANS

»   Medicaid Coverage Expansion
»   Dramatic cuts to Medicare- $575 Billion
»   Reimbursement challe...
IMPACT ON BUSINESS
» Small business already gets the shaft!
   »   Highly regulated markets
   »   Very concentrated insur...
IMPACT ON BUSINESS

» Incentives point to “Pay vs. Play” for
  employers, especially small employers
» Signals seem to fav...
ONE SCENARIO –
             HEALTH CARE DEATH SPIRAL
»   Medicare in crisis fueled by cuts to fund reform
»   Public payor...
OH, BY THE WAY…

» Projects Health Reform will increase National Health
  Expenditure by $311 billion by 2019
   » $77 bil...
“LOW HANGING FRUIT”

1. Fuel growth in CDHC vehicles (HSAs)
2. Equalize tax laws with respect to employer-
   sponsored vs...
THANKS

             Don McDaniel
      dmcdaniel@sage-growth.com
    http://twitter.com/don_mcdaniel
http://www.linkedin....
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The Economics of Health Reform: Implications for Health Professionals

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Context and discussion regarding the problems, implications and solutions to health care reform with a contrarian point twist. Includes discussion of The Patient Protection and Affordable Care Act, economic data, insurance data, H.R. 3590, H.R. 4872, a history of health reform. Finally, the presentation outlines the implications for business, physicians and the health care system.

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  1. 1. THE ECONOMICS OF HEALTH REFORM: IMPLICATIONS FOR HEALTH PROFESSIONALS Don McDaniel April 27, 2010
  2. 2. AGENDA » A Context for our Discussion » The Seemingly Intractable Problems » A Deeper Dive » Implications » One Contrarian’s View 2
  3. 3. THE PATIENT PROTECTION AND AFFORDABLE CARE ACT » Expanded Coverage » Individual Mandate » Employer Requirements » Insurance Market Reforms » Subsidies and Penalties » Health Exchanges 3
  4. 4. HEALTHCARE: THE ECONOMIC ENGINE 1. United States $14.3 T 2. Japan $ 4.8 T 3. China $ 4.2 T GDP 2008 (USD) 4. Germany $ 3.8 T 5. France $ 2.9 T 6. UK $ 2.8 T 7. US health economy $ 2.4 T 8. Italy $ 2.4 T 4 Sources: International Monetary Fund and Centers for Medicare and Medicaid.
  5. 5. NATIONAL HEALTH EXPENDITURES PER CAPITA, 1980–2007 5 Data: OECD Health Data 2009 (June 2009).
  6. 6. INSURANCE TAKE-UP 1990 - 2007 1990 2006 2007 73.2% Pr i va te 67.9% 67.5% 13.0% M edi ca r e 13.6% 13.8% 9.7% M edi ca i d 12.9% 13.2% 4.0% Oth er 3.6% G over nm ent 3.7% 13.9% U ni ns ur ed 15.8% 15.3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 6 Source: US Census Bureau, Current Population Survey, 2008 Annual and Social Economic Supplement. Data released March 2008. Table HI05. Health Insurance Coverage Status and Type of Coverage by State and Age for All People: 2007. Link: http://pubdb3.census.gov/macro/032008/health/h05_000.htm.
  7. 7. Intractable Problems 7
  8. 8. PROBLEM #1 HEALTH EXPENDITURES AS A PERCENTAGE OF GDP * 2009 – 2018 Projected 8 Source: Centers for Medicare and Medicaid Services
  9. 9. PROBLEM #2 AVERAGE PERCENTAGE INCREASE IN HEALTH INSURANCE PREMIUMS COMPARED TO OTHER INDICATORS, 1988 -2007 20% 18% Health Insurance Premiums Workers' Earnings Overall Inflation 16% 14% 12% 10% 8% 6% 4% 2% 3.7% 0% 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 9
  10. 10. PROBLEM #3 GROWTH IN MEDICARE SPENDING VS. PRIVATE HEALTH INSURANCE SPENDING Medicare Private Health Insurance 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 10 Source: American Hospital Association via the Centers for Medicare & Medicaid Services, Office of the Actuary. Data Released January 8, 2008
  11. 11. AGGREGATE HOSPITAL PAYMENT-TO-COST RATIOS FOR PRIVATE PAYERS, MEDICARE, AND MEDICAID 11 Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2008, for community hospitals. (1) Includes Medicaid Disproportionate Share payments
  12. 12. HOSPITAL PAYMENT SHORTFALL RELATIVE TO COSTS FOR MEDICARE, MEDICAID, AND OTHER GOVERNMENT Medicare Medicaid Other Government 12 Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2008, for community hospitals. (1) Costs reflect a cap of 1.0 on the cost-to-charge ratio.
  13. 13. A BEACON OF LIGHT, BUT… 13
  14. 14. PROBLEM #4: ENOUGH PHYSICIANS? 14
  15. 15. NATIONAL SUPPLY & DEMAND PROJECTIONS FOR FTE RNS 15 Source: National Center For Health Workforce Analysis, Bureau of Health Professions, Health Resources and Services Administration. (2004). What Is Behind HRSA’s Projected Supply, Demand, and Shortage of Registered Nurses? Link: ftp://ftp.hrsa.gov/bhpr/workforce/behindshortage.pdf.
  16. 16. PROBLEM # 5 THE DEMOGRAPHIC TSUNAMI » One-quarter of all Medicare recipients » Have five or more chronic conditions » See, on average, 13 physicians per year » Secure 50 prescriptions per year » Over 13,000 different drugs being sold in the U.S. in 2007 – 16x what was available 50 years ago » Over 900,000 physicians in the U.S. – 75% are in practices of less than 8 physicians » Payment system issues – hard to support a “system” of care 16
  17. 17. PROBLEM #6 NUMBER OF FULL-TIME AND PART-TIME HOSPITAL EMPLOYEES 17 Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2008, for community hospitals.
  18. 18. PROBLEM #7 ARRESTED DEVELOPMENT: CONSUMER SOVEREIGNTY 2008 What do things really cost? Out-of-Pocket 12% Other » We don’t demand price 13% transparency Other Private 7% » We don’t demand better Medicaid( excluding S- Private information to inform our CHIP) 15% Insurance 33% purchase decisions Medicare » Consumer demand should 20% drive supply-side reform 18 Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group
  19. 19. “WE SPEND SO MUCH BECAUSE WE SPEND SO LITTLE…” 18.00% 60.00% 16.00% Percentage of Out-of-Pocket Expenditures 50.00% 14.00% NHE as Percentage of GDP 40.00% 12.00% 30.00% 10.00% 8.00% 20.00% 6.00% 10.00% 4.00% 0.00% 2.00% 0.00% -10.00% 19
  20. 20. HEALTH REFORM 2010 H.R. 3590 THE PATIENT PROTECTION AND AFFORDABLE CARE ACT H.R. 4872 THE HEALTH CARE AND EDUCATION TAX CREDIT RECONCILIATION ACT OF 2010 20
  21. 21. BIG THEMES » Coverage expansion to 32 million people by 2019 » Expands Medicaid to 133% of FPL ~ 16 million new enrollees in Medicaid and SCHIP » Eliminates coverage denials due to pre-existing conditions » Closes Part D “doughnut hole” for seniors » Increases Medicaid payments to PCPs 21
  22. 22. HEALTH REFORM - CHRONOLOGY 2010 » Insurance reforms » Eliminates lifetime limits » Small business tax credit – sliding scale tax credit for businesses with < 25 employees » Age 26 – can stay on parents policy 22
  23. 23. HEALTH REFORM - CHRONOLOGY 2011 » W-2 reporting – health benefits » Brand-name drug tax ~ $33B in new fees » OTC drugs not eligible for reimbursement from FSA/HAS/HRA » Federally-subsidized long-term care program – employers can participate through payroll deductions 23
  24. 24. HEALTH REFORM - CHRONOLOGY 2012 » Medicare Advantage – reduction in payments 2013 » New FSA limits » Medical device 2.3% excise tax » Medicare payroll tax base increase » Medicare investment tax – 3.8% » Medicaid reimbursements to increase to 100% of Medicare 24
  25. 25. HEALTH REFORM - CHRONOLOGY 2014 » Medicaid eligibility expansion – up to 133% of FPL » Premium credit subsidies – up to 400% of FPL » Insurance Exchanges come online – “qualified” plans for individuals and small businesses » Individual mandate – “carry or penalty” - $695/year to $2,085 or 2.5% of household income » Employer requirements - >50 employees have to provide insurance or incur penalty – up to $2,000/$3,000 per employee » Federal health insurance premium tax – will raise almost $70 Billion through 2019 - passed on through premiums » DSH cuts » Pre-x and annual limits prohibited 25
  26. 26. HEALTH REFORM - CHRONOLOGY 2015 » Creates Independent Medicare Payment Advisory Board – reductions in Medicare spending? 2018 » Cadillac Tax – 40% excise tax above: » $10,200 single/$27,500 family 26
  27. 27. HOW TO PAY FOR IT? » Cuts to Medicare spending by as much as $575 Billion » Parts A and B and future market basket: $233 Billion » Elimination of Medicare Improvement Fund: $27 Billion » Medicare Advantage: $145 Billion » DSH payments: $50 Billion » Freeze income threshold for Part B: $8 Billion » Independent Payment Advisory Board: $24 Billion » Increase in HI payroll tax: $63 Billion Source: CMS Office of the Actuary
  28. 28. HOW TO PAY FOR IT? » Projected funding sources for health reform – 10 years: » Individual penalties - $17B » Employer penalties - $52B » New Taxes/Assessments on Industry - $107B » Cadillac Tax on High Premiums - $32B Source: Congressional Budget Office
  29. 29. IN THE CROSSHAIRS » Consumer directed plans with HSAs » 8 million Americans currently participating » Medicare Advantage plans » 10.2 million (22% of total Medicare book) currently participating » 40% of African-Americans and 54% of Latino seniors participate in MA – mimics Medigap without the added cost 29
  30. 30. BELLWETHER? THE MASSACHUSETTS EXPERIENCE 30
  31. 31. MASSACHUSETTS REFORM PLATFORM » Individual Mandate » Employer Mandate » All employers with 10 or more employees. $295 fine per employee if insurance is not offered » Middle-Class Subsidies » Commonwealth Care for all families with income up to 300% of the federal poverty level » The Connector » Acts as an exchange for individuals and small business » Very familiar to National legislation! 31
  32. 32. ACCESS TO CARE » Health insurance does not guarantee access to care! » An additional 400,000 people are attempting to access the same number of physicians » Wait time went from 33 days to ~ 50 days » 75% of non-urgent ED visits are due to physician shortages 32
  33. 33. WAIT TIME ACROSS THE US - 2007 City % of Population Number of Average wait to see Uninsured Physicians per a specialist 1,000 people Boston, Mass 9.4% 4.53 49.6 Philadelphia, PA 11.3% 3.32 27.0 Los Angeles, CA 20.5% 2.60 24.2 Houston, TX 27.1% 2.15 23.4 Minneapolis, MN 9.6% 2.81 19.8 New York, NY 15.2% 4.00 19.2 Denver, CO 18.4% 2.65 15.4 Miami, FL 24.2% 2.53 15.4 Seattle, WA 13.6% 2.62 14.2 33 Source: National Center for Policy Analysis
  34. 34. MASSHEALTH: MASSCOST? » State spending on healthcare has increased by 45% ($595 million) since 2006 » Commonwealth Care was estimated at $725 million annually: 2010 projection is at $880 million » Health insurance premiums are growing at a rate of 8- 10% a year, nearly twice the national average. 34
  35. 35. IMPLICATIONS 35
  36. 36. IMPACT ON PHYSICIANS » Medicaid Coverage Expansion » Dramatic cuts to Medicare- $575 Billion » Reimbursement challenges for private insurers » Ban on physician-owned hospitals Source: CMS Office of the Actuary
  37. 37. IMPACT ON BUSINESS » Small business already gets the shaft! » Highly regulated markets » Very concentrated insurance markets » Highest growth in premium YOY » Higher cost per benefit – most cost-shifted market » New mandates, new taxes and expansion of entitlement programs – all good for business? » Industry taxes on medical devices, pharmaceuticals and health insurers will likely be passed on 37
  38. 38. IMPACT ON BUSINESS » Incentives point to “Pay vs. Play” for employers, especially small employers » Signals seem to favor push of new insured's to public programs or State Health Exchanges » PWC study states 10-year premium growth in commercial premiums will be 40% higher than without reform legislation* » Where’s the innovation in plan design, benefits and financing? 38 *Source: PWC, “Potential Impact of Health Reform on the Cost of Private Health Insurance Coverage”, 10/09
  39. 39. ONE SCENARIO – HEALTH CARE DEATH SPIRAL » Medicare in crisis fueled by cuts to fund reform » Public payors further reduce reimbursement » Private insurance market “crowd-out” – public programs a bigger “slice” of providers business » Private insurance reforms hamper effective pricing/down-ward pressure on reimbursement » Untold pressure on “physician entrepreneur” - further widening of physician shortage (especially PCPs) » Extreme costs and workforce pressures compel explicit rationing of health services » No “innovation” premium » Migration of entrepreneurs and capital to other industries 39
  40. 40. OH, BY THE WAY… » Projects Health Reform will increase National Health Expenditure by $311 billion by 2019 » $77 billion more than the estimate by the Congressional Budget Office in December 2009 » Expanded coverage will lead to greater utilization of services coupled with lower federal payments to providers » 50% of Medicare advantage enrollees » Also predicts that 15% of hospitals could be driven into the red Source: CMS Office of the Actuary
  41. 41. “LOW HANGING FRUIT” 1. Fuel growth in CDHC vehicles (HSAs) 2. Equalize tax laws with respect to employer- sponsored vs. individual market health insurance 3. Allow interstate commerce for health insurance 4. Repeal all coverage mandates 5. Enact substantive tort reform 41
  42. 42. THANKS Don McDaniel dmcdaniel@sage-growth.com http://twitter.com/don_mcdaniel http://www.linkedin.com/in/rdmcdaniel (o)410.534.1161 (m)443.904.2882 42

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