A Detailed Look atU.S. Health Care Spending          Julie A. Schoenman, Ph.D.National Institute for Health Care Managemen...
What We Will Cover Today1.  Big Picture Orientation2.  Distribution of Personal Health Care Spending3.  Spending through G...
What We Will Cover Today1. Big Picture Orientation2.  Distribution of Personal Health Care Spending3.  Spending through Go...
Total National Health Spending             Continues to Increase    3                                                     ...
U.S. Health Spending is a Dramatic      Outlier Internationally   United States    Netherlands                            ...
U.S. Spends More than Expected                                         Based on Our Wealth                                ...
What Does $8,400 Per Person Buy?                         Public Health,                Investment, $483                 16...
Health Spending Growth has Slowed,But Usually Outpaces GDP Growth                                     16                  ...
Historically, Health Spending Has Grown1.0 - 2.5 Percentage Points Faster than GDP                         Pct. Points    ...
The Recent Slowdown in Spending          Temporary Blip or Systemic Change?•  Continuation of slowdown underway since 2002...
2011 Uptick     Return to Higher Spending Growth, or Not?Altarum analysis of monthly health spending data from the Bureau ...
A Growing Share of National Health    Spending is From Public Sources100%                                              Oth...
A Closer Look at Public & Private    Health Care Spending, 2010   Private Sources (55%)                                   ...
What We Will Cover Today1.  Big Picture Orientation2. Distribution of Personal Health   Care Spending3.  Spending through ...
A Word about Data SourcesNational Health Expenditure Accounts         Medical Expenditure Panel Survey(NHEA)              ...
Relatively Few People Account                                         for Most Personal Health Spending                   ...
Greatest Potential for Savings                                               Focus on High Spenders                       ...
High Spenders are Older100%                                   1.4                                       2.7  90%          ...
High Spenders                           Report Worse Health 100%                                  0.8                     ...
High Spenders Have More Chronic   Conditions & Functional Limits100%                                      1.9             ...
Considerable Persistence in                          Spending Patterns Over Two Years                                    8...
Persistent High Spenders:          Older People & Those Whose Health Remains a Problem                     Age (end of 200...
Long-Term Persistence of High Spending          Among Medicare Beneficiaries10090                                         ...
Challenges of Controlling          Costs Among High Spenders•  Chronic health problems and persistence in high spending im...
What We Will Cover Today1.  Big Picture Orientation2.  Distribution of Personal Health Care Spending3. Spending through Go...
Government Health Entitlement Programs         36 Percent of National Health Spending in 2010                             ...
Government Health Entitlement Programs               21 Percent of U.S. Federal Spending in 2011              Federal Reve...
Structure of the Medicare ProgramPART A            •    Hospital Insurance (HI) Trust FundInpatient &       •    Mandatory...
Current Claims on the Part A Trust   Fund Require General Revenues% of Taxable Payroll     7%                             ...
The Big Picture for Medicare:  Dedicated Revenue < Expenditures%GDP                                     historical   proje...
A Beneficiary Lifetime Perspective: Payroll Contributions < Expected Benefits  $400,000                      Medicare Expe...
But the Public Perception is Very          Different from RealityThinking about Medicare, do you believe that over the cou...
Structure of the Medicaid Program•  Covers ~60 million low-income individuals•  Jointly financed by states and federal gov...
Medicaid   Enrollment vs. Spending, FY 2009100% 90%                           15%                                         ...
Medicaid Spending is a Large and    Growing State & Federal BurdenTotal State Expenditures, FY2011 (estimated)            ...
Mandatory Federal Health SpendingProjected to More Than Double in 10 Years   $ billions       Exchanges                   ...
And That’s the Good News•  CBO’s baseline projections assume current laws remain in place   and will be implemented as wri...
Faster Growth in Health Entitlement Spending                                  Will Dramatically Worsen Projected Deficit  ...
Triangle of Painful Choices                        Tradeoffs Needed to Balance Budget by 2035                             ...
What We Will Cover Today1.  Big Picture Orientation2.  Distribution of Personal Health Care Spending3.  Spending through G...
Private Health Insurance Premiums            One-Third of National Health Spending, 2010                                  ...
Private Health Insurance Markets  Employer-Based or Group Market                     Individual or Non-Group Market•  Cove...
Private Coverage is Dominated by      Employment-Based Insurance100%                                                      ...
Private-Sector Workers Paying an           Increasing Share of Increasing Premiums                                        ...
And Facing Higher Out-of-Pocket Costs                 via Deductibles                   Average Deductible for those with ...
Health Spending by American Families       More Than Doubled in Past Decade                         Family of Four, Employ...
Premiums and Deductibles Also Continue    to Rise in the Non-Group Market                   Individual Policy             ...
High-Deductible Health Plans                are Becoming Much More Prevalent        Health Plan Enrollment by Plan Type fo...
HSA-Qualified HDHP Enrollment Rising                       Especially in the Large Group Market 2005            1.0       ...
Health Care Premiums GrowingQuickly as a Share of Personal Income                                                         ...
Insurance Premiums Pay for        Health Care Services for Enrollees                                                      ...
Net Cost of Health Insurance•  Defined by NHEA framework as the difference between premiums collected   and benefits paid ...
Private Health Insurance Spending Rose                 Almost 15 Percent in Five Years             $900                   ...
Higher Spending for Hospital & Physician Services               Drove More than 70 Percent of the Premium Growth          ...
What We Will Cover Today1.  Big Picture Orientation2.  Distribution of Personal Health Care Spending3.  Spending through G...
Deconstructing the        Rising Health SpendingSpending increases may be driven by: •  unit price effect - rising prices ...
It Really is the Prices (Stupid)                 Evidence from Massachusetts, 2007-2009                Decomposition of Sp...
It Really is the Prices (Stupid)                             Evidence from Several National Payers, 2010-2011             ...
U.S. Pays More for Hospital Services                                  Select Countries & Services(US$, 2007)              ...
U.S. Pays More for Hospital Services                  Composite Index, 29 Inpatient Services                   Comparative...
U.S. Pays Physicians More for the Same Services                          Especially Private Payers and Specialty Care     ...
U.S. Physicians Earn More                                Particularly Specialists  $500,000                      Australia...
Summary and Implications•  Health care spending is a heavy and increasingly   unmanageable burden to federal and state gov...
Summary and Implications         (continued)•  Private premium increases are driven by underlying increases   in spending ...
For more information oradditional hard copies of our publications,  please contact me or visit our website:            jsc...
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Dr. Julie Schoenman’s presentation for the MILI Actuarial Seminar series, “A Detailed Look at US Health Care Spending,” covers recent trends in public and private spending as well as the implications of rising spending for the federal budget outlook and for consumers.

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  1. 1. A Detailed Look atU.S. Health Care Spending Julie A. Schoenman, Ph.D.National Institute for Health Care Management Foundation Medical Industry Leadership Institute Actuarial Seminar Series October 25, 2012
  2. 2. What We Will Cover Today1.  Big Picture Orientation2.  Distribution of Personal Health Care Spending3.  Spending through Government Entitlement Programs4.  Spending through Private Health Insurance5.  What’s Behind the High and Rising Spending?
  3. 3. What We Will Cover Today1. Big Picture Orientation2.  Distribution of Personal Health Care Spending3.  Spending through Government Entitlement Programs4.  Spending through Private Health Insurance5.  What’s Behind the High and Rising Spending?
  4. 4. Total National Health Spending Continues to Increase 3 $8,402 $9,000 $8,149 National Health Expenditures (trillions) $7,911 $7,628 $8,000 2.5 Per Capita Health Spending $7,251 $6,868 2.6 $6,488 2.5 $7,000 $6,114 2.4 $5,687 2.3 2 2.2 $6,000 $5,241 2.0 $4,878 $4,601 1.9 $4,367 1.8 $5,000 $4,169 1.5 1.6 1.5 $4,000 1.4 1.3 1 1.1 1.2 $3,000 $2,000 0.5 $1,000 0 $0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010% GDP 13.7% 13.7% 13.8% 13.8% 14.5% 15.4% 15.9% 16.0% 16.1% 16.2% 16.4% 16.8% 17.9% 17.9%NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
  5. 5. U.S. Health Spending is a Dramatic Outlier Internationally United States Netherlands 17.4 France Germany Denmark Switzerland Canada Austria Belgium New Zealand SwedenUnited Kingdom Iceland Norway Spain Most developed Italy Ireland countries spent Slovenia Finland ~9.5 to 12% ofSlovak Republic GDP on health Chile Czech Republic care in 2009 Israel Luxembourg Poland Hungary Estonia Korea % GDP, 2009 Mexico 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0NIHCM Foundation analysis of data from the Organisation for Economic Cooperation and Development.
  6. 6. U.S. Spends More than Expected Based on Our Wealth $9,000 United StatesPer Capita Health Spending, 2009 $8,000 $7,000 Chile, Mexico, Poland, $6,000 Estonia, Hungary, Switzerland Norway Slovak Republic, Czech Luxembourg $5,000 Republic, Korea, Israel, $4,000 Slovenia, New Zealand $3,000 $2,000 Spain, Italy, France, Finland, United Kingdom, Belgium, Germany, Iceland, Sweden, Denmark, $1,000 Canada, Austria, Ireland, Netherlands $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 Per Capita GDP, 2009 NIHCM Foundation analysis of data from the Organisation for Economic Cooperation and Development.
  7. 7. What Does $8,400 Per Person Buy? Public Health, Investment, $483 16% of spending Administration, $267 ($1,320) is not $570 related to personal health care services Rx, DME & Hospital Care, Other Medical $2,637 Products, $1,106 84% of spending Home Health & ($7,080) is for LTC, $1,107 MD & Clinical personal health Services, $1,670 Dentists & care services Other Health Professionals, $560NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
  8. 8. Health Spending Growth has Slowed,But Usually Outpaces GDP Growth 16 Health Spending 14 GDP 12 Percent Change from Previous Year Lowest growth rates in history of 10 National Health Expenditure Accounts 8 6 4 2 0 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 -2 -4NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
  9. 9. Historically, Health Spending Has Grown1.0 - 2.5 Percentage Points Faster than GDP Pct. Points 3.0 1975-2008 1980-2008 1985-2008 1990-2008 2.5Average Annual Rate of 2.5“Excess” Cost Growth 2.0 2.2 2.0 1.9 1.9 1.9 1.8 1.8 1.8 1.5 1.7 1.7 1.5 1.4 1.4 1.0 1.2 1.0 0.5 0.0 Medicare Medicaid All Other All Health Spending HealthSpending NIHCM Foundation analysis of information presented in CBO’s “The Long-Term Budget Outlook.” Revised August 2011.
  10. 10. The Recent Slowdown in Spending Temporary Blip or Systemic Change?•  Continuation of slowdown underway since 2002•  Factors related to recent slowing in spending: o  Recession ü  Massive loss of jobs and employer-sponsored insurance ü  Declining real income, substantial loss of wealth, people more cautious about spending ü  Reduced demand for health care services, even among those with insurance o  Drugs – ongoing shift to generics, expiring drug patents, fewer new drugs coming on line o  Medicare – provider payment cuts, stabilization in Part D enrollment o  Medicaid – provider payment cuts, higher drug rebates, benefit restrictions o  Ongoing shift to policies with more cost-sharing, employees paying higher share of rising premiums•  Factors likely to affect future spending: o  Economic recovery, pent-up demand for health care, higher need due to delayed care o  ACA - 2014 coverage expansions and other industry changes o  Aging population o  Delivery/payment system changes emphasizing paying for value, informed consumers o  Ongoing consolidation among providersSources: Martin et al. “Growth in US Health Spending Remained Slow in 2010; Health Share of GDP Was Unchanged from 2009.” HealthAffairs, 31(1):208-19, Jan. 2012 & McKinsey Center for U.S. Health System Reform. “Accounting for the Cost of U.S. Health Care.” Dec. 2011.
  11. 11. 2011 Uptick Return to Higher Spending Growth, or Not?Altarum analysis of monthly health spending data from the Bureau of Economic Analysis.
  12. 12. A Growing Share of National Health Spending is From Public Sources100% Other Private Revenues 90% 80% Private Households 70% Private Sources Sources = 55% 60% = 68% 50% Private Business 40% 30% Public Federal Government Public 20% Sources Sources = 32% = 45% 10% State and Local Government 0% 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
  13. 13. A Closer Look at Public & Private Health Care Spending, 2010 Private Sources (55%) Public Sources (45%)Total Spending by Private Sources $1,430 B Total Spending by Public Sources $1,164 BPrivate Business (20.6%) Federal Government (28.6%) Private Health Insurance Premiums $414.1 Private Health Insurance Premiums $28.5 Medicare Payroll Taxes $79.7 Medicare Payroll Tax $4.0 Workers Compensation, Disability Direct Medicare Program Spending $254.0 Insurance & Worksite Health $40.7 Direct Medicaid Program Spending $278.1Households (28.0%) All Other Health Spending $178.0 Private Health Insurance Premiums $263.1 State/Local Government (16.2%) Medicare Payroll Taxes and Premiums $162.8 Private Health Insurance Premiums $134.1 Out of Pocket Spending $299.7 Medicare Payroll Tax $11.4Other Private Sources (6.6%) Direct Medicaid Program Spending $135.9 Philanthropy, Investment, Etc. $169.9 All Other Health Spending $139.6 Source: NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
  14. 14. What We Will Cover Today1.  Big Picture Orientation2. Distribution of Personal Health Care Spending3.  Spending through Government Entitlement Programs4.  Spending through Private Health Insurance5.  What’s Behind the High and Rising Spending?
  15. 15. A Word about Data SourcesNational Health Expenditure Accounts Medical Expenditure Panel Survey(NHEA) (MEPS)Synthetic database derived from myriad Annual survey of households aboutsecondary sources their health spendingCovers total US population, including Covers civilian, non-institutionalizedmilitary, nursing home residents, etc. populationIncludes expenditures beyond personal Designed to capture payments from allhealth care services (e.g., public health, sources (public, private, self-pay) forresearch, investments in infrastructure, personal health care servicesadministration)Latest available year is 2010 Latest available year is 2009Total spending reported = $2.594T Total spending reported = $1.259T
  16. 16. Relatively Few People Account for Most Personal Health Spending 100 100.0 90 Top 1% of spenders account for >20% of spending ($275 billion) Cumulative Percent of Total Spending 80 78.2 70 Top 5% of spenders account for almost half of spending ($623 billion) 60 50 Total Personal Health Care Spending 50.5 = $1.259 Trillion 40 34.8 $36 Billion $1,223 Billion 30 18.8 20 10.4 10 5.6 1.3 2.9 0.0 0.1 0.4 95 99 0 15.4 0 10 20 30 40 50 60 70 80 90 100 Percent of Civilian Non-Institutionalized Population Ordered by Health Care SpendingNIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
  17. 17. Greatest Potential for Savings Focus on High Spenders $100,000 Total spending by top 1% $90,061 $90,000 = $275 billion $80,000Mean Annual Expenditure $70,000 Total spending by top 5% = $623 billion $60,000 Total spending by top 10% $50,000 = $821 billion Total spending $40,682 $40,000 by bottom 50% $30,000 = $36 billion $26,767 $20,000 $12,265 $10,000 $7,980 $236 $0 Lowest 50% Top 50% Top 30% Top 10% Top 5% Top 1% 30.7M pop. 15.3M pop. 3.06M pop. Percent of Civilian Non-Institutionalized Population Ordered by Health Care Spending NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
  18. 18. High Spenders are Older100% 1.4 2.7 90% 7.0 21.1 24.8 12.5 80% 75+ 70% 14.0 17.1 65-74 15.1 55-64 60% 45-54 50% 27.8 22.1 26.1 35-44 40% 19-34 30% 16.2 0-18 13.2 20% 8.7 34.5 7.3 10% 8.5 5.9 6.3 7.6 0% Lowest 50% Top 5% Top 1%NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
  19. 19. High Spenders Report Worse Health 100% 0.8 4.3 90% 18.5 26.0 22.1 80% 70% 25.2 Poor 60% 31.4 32.3 Fair 50% Good 40% 28.9 Very Good 30% 23.4 Excellent 20% 40.4 19.9 10% 13.4 7.5 5.8 0% Lowest 50% Top 5% Top 1%NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
  20. 20. High Spenders Have More Chronic Conditions & Functional Limits100% 1.9 1.3 3.4 90% 8.2 31.5 80% Functional limitation only 70% 36.5 Chronic condition, help with 60% ADLs 50% 28.9 Chronic condition, functional limitation 40% Chronic condition only 30% 50.0 30.9 20% No chronic condition, no functional limitation 10% 7.4 0% Other 95% Top 5% SpendersNIHCM Foundation analysis of data contained in The Lewin Group, "Individuals Living in the Community with ChronicConditions and Functional Limitations: A Closer Look," January 2010.
  21. 21. Considerable Persistence in Spending Patterns Over Two Years 80% 73.9% 75.0%Percent with Same Ranking in 2009 70% 63.1% 60% 54.4% 50% 44.8% 40% 38.0% 30% 20.0% 20% 10% 0% Bottom 50% Top 50% Top 30% Top 20% Top 10% Top 5% Top 1% Percentile Rank by Health Care Spending, 2008Source: Cohen SB and Yu W. "The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the U.S.Population, 2008-2009." Agency for Healthcare Research and Quality, Statistical Brief #354. January 2012.
  22. 22. Persistent High Spenders: Older People & Those Whose Health Remains a Problem Age (end of 2009) Health Status (end of 2008) 100 100 6.1 90 19.2 90 13.2 24.8 80 42.9 80 70 70 26.4 65+ 27.3 Excellent 60 45-64 60 30.9 Very Good 50 30-44 50 Good 27 18-29 40 Fair 40 40.1 29.6 0-17 Poor 30 30 26.9 20 16.6 20 10 10.6 3.1 10 23.9 14.1 3.4 10.9 3.3 0 0 Top 10% in both years Top 10% in 2008, Top 10% in both years Top 10% in 2008, Bottom 75% in 2009 Bottom 75% in 2009 Of top 10% of spenders in 2008: 44.8% remained in top 10% and 25.4% moved to the bottom 75% in 2009Source: Cohen SB and Yu W. "The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the U.S.Population, 2008-2009." Agency for Healthcare Research and Quality, Statistical Brief #354. January 2012.
  23. 23. Long-Term Persistence of High Spending Among Medicare Beneficiaries10090 Bottom 75% Top 25%80 Died by Jan. 1 Not in FFS70605040302010 0 1993 1994 1995 1996 1997 1998 1999 2000 2001Source: Congressional Budget Office. “High-Cost Medicare Beneficiaries.” May 2005.
  24. 24. Challenges of Controlling Costs Among High Spenders•  Chronic health problems and persistence in high spending imply a role for disease management. But… •  many of the same chronic problems are also highly prevalent in lower-spending groups, especially among the elderly •  accurate prospective targeting of those who can most benefit from disease management can be tricky•  Managing high spending at the end of life can be problematic •  not all with high spending will die soon •  predicting timing of death and distinguishing between care that could extend life in a meaningful way and care that does little good is often very difficult •  societal reluctance to discuss end of life care, fears of rationing•  Not all high spending is predictable or persistent. •  hard to control the random events •  may be able to manage some episodes more efficiently (e.g., clinical pathways for cancer)
  25. 25. What We Will Cover Today1.  Big Picture Orientation2.  Distribution of Personal Health Care Spending3. Spending through Government Entitlement Programs4.  Spending through Private Health Insurance5.  What’s Behind the High and Rising Spending?
  26. 26. Government Health Entitlement Programs 36 Percent of National Health Spending in 2010 Investment, 6% Public Health, 3% Other Third Party Payers & Programs, Out of Pocket, 7% 12% DOD & VA, 3% Medicaid & CHIP = Private Health $413.1B, 16% Insurance, 33% Medicare = $524.6B, 20% 2010 Total Spending = $2.594 TNIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
  27. 27. Government Health Entitlement Programs 21 Percent of U.S. Federal Spending in 2011 Federal Revenues Federal Spending ($3.598T) ($2.302T, excluding borrowing) 6% Net Interest 18% Non-Defense Discretionary 19% Defense 6% Discretionary Other Revenue 15% Other Mandatory 23% Spending Payroll Taxes Social Security 5% 20% Corporate Income Taxes Medicaid & Other 30% 8% Health Entitlements Individual Income 21% 13% Medicare Taxes Borrowing (Deficit) 36%NIHCM Foundation analysis of data from CBO’s “The Budget and Economic Outlook: Fiscal Years 2012 to 2022,” Jan. 2012.
  28. 28. Structure of the Medicare ProgramPART A •  Hospital Insurance (HI) Trust FundInpatient & •  Mandatory programPost-Acute Care •  Eligible if > 40 quarters of covered employment (self/spouse) •  Payroll tax, SS income tax if high income, premiums if buying into program, interest on Trust Fund reservesPART B •  Supplemental Medical Insurance (SMI) Trust FundPhysician & •  Voluntary programsOutpatient Care •  Premiums from enrollees (~25% of program costs) •  Fees on manufacturers/importers of brand name drugs (B)PART D •  Transfers from state Medicaid programs (D)Outpatient Rx •  General revenues (balance SMI Trust Fund each year)PART C •  Capitated arrangements with private health plansManaged Care •  Financed from both trust funds
  29. 29. Current Claims on the Part A Trust Fund Require General Revenues% of Taxable Payroll 7% A Pay-As-We-Go System Part A Expenditures Part A Operating Deficit: Baby boomers retiring 6% ~10,000/day Covered by Redemption of Trust Fund Assets, Requiring 5% General Revenues Part A Income 4% 2024: Part A Trust Fund Exhausted 3% 2% Periods of Operating Surplus: Trust Fund Assets Accumulate 1% and are Lent to the Federal Government, Earning Interest 0% 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080Source: A Summary of the 2012 Annual Reports, Social Security and Medicare Boards of Trustees, www.ssa.gov/OACT/TRSUM
  30. 30. The Big Picture for Medicare: Dedicated Revenue < Expenditures%GDP historical projected 7% Total Medicare Expenditures Part A Trust Fund Deficit 6% Part A Trust Fund Non-interest program income 5% exhausted 4% General Revenue Transfers to Parts B & D 3% Premiums, State Transfers, & Drug Fees 2% 1% Tax on SS Payroll Tax Benefits 0% 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080Source: A Summary of the 2012 Annual Reports, Social Security and Medicare Boards of Trustees, www.ssa.gov/OACT/TRSUM
  31. 31. A Beneficiary Lifetime Perspective: Payroll Contributions < Expected Benefits $400,000 Medicare Expected Benefits (Net of $357,000 $357,000 $350,000 Premiums), Lifetime $300,000 Medicare Payroll Taxes, Lifetime $250,000 $200,000 Female $188,000 Male $170,000 $150,000 $119,000 $100,000 $60,000 $60,000 $50,000 $0 Single, Average Wage Single, Average Wage One-Earner Couple, Average Wage One-Earner Couple, Two-Earner Couple, Average Wage Two-Earner Couple, Average Wage Average WagesSource: Steuerle CE and Rennane S. "Social Security and Medicare Taxes and Benefits Over a Lifetime.” Washington, DC: TheUrban Institute. June 2011.
  32. 32. But the Public Perception is Very Different from RealityThinking about Medicare, do you believe that over the course of yourcareer you [will] have paid… Not enough, others will support me Enough to support myself More than Ill receive 56+ 32% 34% 34% 36-55 21% 30% 49% 18-35 13% 29% 58%All Ages (18+) 21% 31% 49% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Source: Stony Brook Poll, December 2010. http://tinyurl.com/9qteyxm
  33. 33. Structure of the Medicaid Program•  Covers ~60 million low-income individuals•  Jointly financed by states and federal government•  Voluntary program for states, all now participate•  Categorical eligibility: children, pregnant women, parents with dependent children, people with disabilities, seniors (income thresholds vary by category)•  States run their programs; must meet federal standards but can deviate with a waiver or exceed standards using own funds•  Very few states have expanded to cover “childless adults”•  ACA removed categorical eligibility and expanded eligibility to all non-elderly persons under 138% FPL•  Supreme Court decision makes this expansion optional for states
  34. 34. Medicaid Enrollment vs. Spending, FY 2009100% 90% 15% 1/4 80% 10% 43% $15,453 per enrollee 70% 2/3 60% 26% 50% $13,186 Disabled 23% 40% Elderly 30% 14% $2,926 49% 20% Adults (<65) 10% 21% $2,313 Children 0% Enrollees Spending ~15% of enrollees ~40% of spending are dual eligibles is for dual eligiblesSource: Kaiser Family Foundation, “The Medicaid Program at a Glance.” September 2012.
  35. 35. Medicaid Spending is a Large and Growing State & Federal BurdenTotal State Expenditures, FY2011 (estimated) Total Medicaid Spending ($billions) 450 400 Federal Spending 273 State Spending 251 350 201 Medicaid 191 All Other 300 181 Spending 24% 176 182 63-64% 34% 162 ARRA 250 148 200 130 118 56-57% K-12 150 Education 150 158 147 156 133 137 142 20% 100 112 122 Public 89 98Assistance Higher 50 2% Education 10% 0 Corrections Transport 3% 2000 2002 2004 2006 2008 2010 7%NIHCM Foundation depiction of data from National Association of State Budget Officers. “State Expenditure Report.” Dec. 2011.
  36. 36. Mandatory Federal Health SpendingProjected to More Than Double in 10 Years $ billions Exchanges Medicaid $1,800 Medicare (net offsetting receipts) 6.7% 7.0% 6.2% 6.4% Other Mandatory Health Spending (net) 6.1% $1,600 Percent of GDP 5.8% 5.8% 123 6.0% 118 $1,400 5.8% 5.5% 111 5.1% 5.3% 101 107 592 5.0% $1,200 4.9% 91 4.7% 75 549 $1,000 46 514 4.0% 479 24 446 1 382 416 $800 3.0% 341 305 $600 275 253 267 899 2.0% $400 750 806 632 696 539 589 608 480 466 494 514 1.0% $200 45 $0 0.0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 actualNIHCM analysis of data from CBO’s “An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022,” Aug. 2012.
  37. 37. And That’s the Good News•  CBO’s baseline projections assume current laws remain in place and will be implemented as written, most notably: •  Deep cuts in Medicare physician payment rates under the SGR formula •  2% reductions in Medicare payment rates under Budget Control Act sequestration •  Cuts in Medicare provider payment updates under the ACA•  Overriding any of these cuts will increase Medicare spending•  Other big unknowns: •  extent to which states will expand Medicaid (implications for Federal match) •  extent to which people will seek subsidized coverage in the exchanges
  38. 38. Faster Growth in Health Entitlement Spending Will Dramatically Worsen Projected Deficit 10 historical projectedPrimary Surplus (+) or Deficit (-) as % of GDP 5 0 Growth at GDP -5 -10 GDP + 1% -15 GDP + 2% -20 (~Historical Average) -25 2000 2010 2020 2030 2040 2050 2060 2070 2080 Source: “2011 Fiscal Report of the U.S. Government.” Supplemental Information, Chart 5, http://www.fms.treas.gov/finrep11/supp_info/fr_supplement_info_alternative.html#chart5
  39. 39. Triangle of Painful Choices Tradeoffs Needed to Balance Budget by 2035 Health Spending Growth Relative to Potential GDP 10% -4% -3% -2% -1% 0% +1% A 9% B Defense & Other Non-Health 8% Spending as % of GDP D 7% 6% 5% 4% 3% C 2% 18% 19% 20% 21% 22% 23% 24% 25% Tax Revenue as % of GDPSource: Roehrig, C. Altarum Center for Sustainable Health Spending. As presented in The Incidental Economist Blog, Aug. 15, 2012.
  40. 40. What We Will Cover Today1.  Big Picture Orientation2.  Distribution of Personal Health Care Spending3.  Spending through Government Entitlement Programs4. Spending through Private Health Insurance5.  What’s Behind the High and Rising Spending?
  41. 41. Private Health Insurance Premiums One-Third of National Health Spending, 2010 Investment, 6% Public Health, 3% Other Third Party Payers & Programs, 7% Out of Pocket, 12% DOD & VA, 3% Private Health Medicaid & CHIP, Insurance = $848.7B, 16% 33% Medicare, 20% 2010 Total Spending = $2.594 TNIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
  42. 42. Private Health Insurance Markets Employer-Based or Group Market Individual or Non-Group Market•  Coverage purchased by employer for •  Coverage purchased directly from insurer workers, dependents and, perhaps, retirees. •  Individual/family is own risk pool. Health•  Risks pooled by employer group. underwriting and pre-existing conditions can make coverage expensive or unavailable.•  Employers and employees generally contribute to premium •  Purchaser pays full premium.•  Premiums excluded from taxes in most •  Preferential tax treatment of premiums only cases. Value of tax exclusions = $145 billion for self-employed in 2011. •  Most people purchasing coverage in this•  Small, medium, large group based on market do not have access to employer- number of employees based coverage •  self-employed•  60 percent of workers with employer-based •  employed but not offered coverage coverage were in “self-insured” plans (2012) •  non-dependent students•  Larger employers most likely to self insure, •  early retirees but growing trend among smaller employers •  between jobs
  43. 43. Private Coverage is Dominated by Employment-Based Insurance100% Govt. employer 90% contributions (20.4%) 80% 70% Private 60% employer 89.2% 94.9% contributions 50% (52.0%) 40% Employer- 30% Based Employee 20% contributions Coverage (27.6%) Individual 10% 10.8% Market 5.1% 0% Enrollees Premiums 174.4M (2011) $839.8B (2010)Sources: Fronstin P. “Sources of Heath Insurance…” EBRI Issue Brief 376, Sept. 2012; NIHCM analysis of data from the 2010National Health Expenditure Accounts, Sponsor Highlights.
  44. 44. Private-Sector Workers Paying an Increasing Share of Increasing Premiums Employment-Based Coverage Individual Policy Family Policy16000 150% 16000 146% 150% 142%14000 $15022 14000 122%12000 12000 114% 97% 100% 100%10000 10000 8000 87% 8000 $6772 6000 $5222 6000 50% 50% 4000 4000 $2655 2000 2000 0 0% 0 0% 2000 2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010 Employee (EE) Contribution to Premium Employer (ER) Contribution to Premium Cumulative Pct. Change, EE Contribution Cumulative Pct. Change, ER Contribution Cumulative Pct. Change, Total PremiumSource: NIHCM analysis of data from the Medical Expenditure Panel Survey, Insurance Component. Data not available for 2007.
  45. 45. And Facing Higher Out-of-Pocket Costs via Deductibles Average Deductible for those with a Deductible - Individual Policy 78% 78%$2,500 Average Deductible for those with a Deductible - Family Policy 74% 80% Percent of Enrollees with a Deductible 71% $2,220 70% $1,975$2,000 59% 66% 64% $1,761 60% 52% $1,658 48% 50%$1,500 $1,351 $1,232 $1,143 $1,123 40% $1,079 $1,025 $958 $917$1,000 $869 30% $714 $652 $573 $518 20% $446 $500 10% $0 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: NIHCM analysis of data from the Medical Expenditure Panel Survey, Insurance Component. Data not available for 2007.
  46. 46. Health Spending by American Families More Than Doubled in Past Decade Family of Four, Employer-Based PPO Coverage$21,000 $20,728 Employee Out-of-Pocket Costs $19,393 $18,074 3470 Employee Contribution to Premium $16,771 3280 Employer Contribution to Premium $15,609 3005 $14,500 2820 2675 5114$14,000 $13,382 4728 $12,214 2420 4325 $11,192 2210 4004 $10,168 2035 3492 1920 3171 $9,235 2810 1760 1580 2666 2522 $7,000 2354 2055 11385 12144 9947 10744 8909 9442 7513 8362 6054 6750 5600 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Source: NIHCM Foundation analysis of data presented in the annual Milliman Medical Index reports, 2005-2012. Values forcomponent parts for 2002-2005 were estimated using component growth rates reported by Milliman.
  47. 47. Premiums and Deductibles Also Continue to Rise in the Non-Group Market Individual Policy Family Policy 4968$5,000 80% $5,000 80% 4596 4704 71% 4392 4428 69%$4,500 $4,500 70% 70% 4128$4,000 $4,000 3888 60% 3879 60%$3,500 $3,500 2935 50% 50%$3,000 $3,000 3128 2632 3531 2760$2,500 40% $2,500 2610 40% 2084 2486 1972 2326 2294$2,000 1864 2196 $2,000 28% 1721 2004 30% 30% 1896 1908 1728 1776 1932 $1,500$1,500 27% 20% 20%$1,000 $1,000 10% 10% $500 $500 $0 0% $0 0% 2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011 Mean Annual Premium Mean Deductible Cumulative Pct. Change - Premium Cumulative Pct. Change - DeductibleNIHCM Foundation analysis of data contained in eHealthInsurance reports “The Costs and Benefits of Individual and FamilyHealth Insurance Plans” (Nov. 2008 and Nov. 2011) and “2009 Summer Cost Report for Individual and Family Policy Holders.”
  48. 48. High-Deductible Health Plans are Becoming Much More Prevalent Health Plan Enrollment by Plan Type for Covered Workers20052006 Conventional20072008 HMO2009 PPO2010 POS2011 HDHP/SO2012 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Health Plan Enrollment by Plan Type for Privately Insured Individuals200520062007 Traditional2008 HDHP2009 CDHP20102011 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Sources: Kaiser Family Foundation/Health Research & Educational Trust. “Employer Health Benefits, 2012 Annual Survey.” Sept.2012 (top graph); Employee Benefit Research Institute. “Findings from the 2011 EBRI/MGA Consumer Engagement in Health CareSurvey.” EBRI Brief No. 365, Dec. 2011 (bottom graph).
  49. 49. HSA-Qualified HDHP Enrollment Rising Especially in the Large Group Market 2005 1.0 Individual 2006 Small Group 2007 Large Group 2008 Group, Size Not Known 2009 Market Not Known 2010 2011 2012 13.5 0 2 4 6 8 10 12 14 million 2005 64% 17% 19% 2006 42% 25% 33% 2007 26% 25% 49% Individual 2008 25% 30% 46% Small Group 2009 23% 30% 47% Large Group 2010 21% 30% 50% 2011 21% 24% 55% 2012 18% 22% 59% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Source: America’s Health Insurance Plans. “January 2012 Census Shows 13.5 Million People Covered by HSA/HDHPs.” May 2012.
  50. 50. Health Care Premiums GrowingQuickly as a Share of Personal Income •  Employee share of premium up 63%. •  Per-person deductibles doubled.Source: Schoen C, Fryer AK, Collins SR and Radley DC. “State Trends in Premiums and Deductibles, 2003-2010: The Needfor Action to Address Rising Costs.” The Commonwealth Fund, November 2011.
  51. 51. Insurance Premiums Pay for Health Care Services for Enrollees Net Cost of Personal Health Care Services (88%) Insurance 34 28 14 9 3 12 Physician & Clinical Rx & Hospital Care Services DME Dental & Other ProfessionalTotal Private Insurance Premium Revenue = $848.7B Services Home Health & Other LTC Facilities & ServicesNIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
  52. 52. Net Cost of Health Insurance•  Defined by NHEA framework as the difference between premiums collected and benefits paid out•  All administrative costs •  Claims processing •  Sales and marketing •  Member enrollment and customer service •  Actuarial analysis and underwriting •  Product development and provider contracting •  Medical management •  Quality improvement •  Wellness programs•  Rate credits to policyholders and dividends to stockholders•  Taxes to government•  Additions to reserves•  Profits (or losses)
  53. 53. Private Health Insurance Spending Rose Almost 15 Percent in Five Years $900 14.7% increase $848.7 billion $800 $740.2 billion 102.7 Net Cost of Insurance [-------- Personal Health Care Spending ---------] 23.5 $700 99.6 75.8 Home Health & Other LTC$ Billions 19.5 Facilities & Services $600 66.3 121.4 Dental & Other Professional Services 88% of Premiums $500 106.0 Prescription Drugs & DME $400 239.4 Physician & Clinical Services 211.4 $300 Hospital Care $200 285.8 $100 237.5 $0 2006 2010Source: NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
  54. 54. Higher Spending for Hospital & Physician Services Drove More than 70 Percent of the Premium Growth $120 3% of net 4% of net 9% of net change change 14% of net change $3.12006 to 2010 Change ($ Billions) $100 change $9.5 $4.0 26% of net $80 change $15.4 $60 45% of net $28.0 change $108.5 $40 97 percent of change in premiums $20 $48.3 was due to growth in insurers’ spending for health care services $0 Hospital Care Physician & Prescription Dental & Other Home Health & Net Cost of Total Change in Clinical Services Drugs & DME Professional Other LTC Health Insurance Premiums Services Facilities &2006-2010 Services% Change 20.3% 13.2% 14.5% 14.3% 20.5% 3.1% 14.7%Source: NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
  55. 55. What We Will Cover Today1.  Big Picture Orientation2.  Distribution of Personal Health Care Spending3.  Spending through Government Entitlement Programs4.  Spending through Private Health Insurance5. What’s Behind the High and Rising Spending?
  56. 56. Deconstructing the Rising Health SpendingSpending increases may be driven by: •  unit price effect - rising prices per unit of service •  volume or utilization effect - higher volume of services, due to •  more users of services and/or •  more services used per capita •  intensity or service mix effect - shift to more expensive mix of services or to more expensive providers
  57. 57. It Really is the Prices (Stupid) Evidence from Massachusetts, 2007-2009 Decomposition of Spending Growth for Privately Insured Patients Change in Total Number of Stays/ Shift to More Spending Pure Price Effect Services Expensive Providers Service Mix 7.3% 6.5% 6.4%Inpatient 5.7%Stays 1.0% 1.1% 0.2% 0.3% 9.4% -0.5% -2.1%Hospital 4.6% 5.1% 5.5% 3.9%OutpatientCare 0.1% 0.1% 0.3% 0.2% -1.3% 2007-2008 2008-2009Source: Massachusetts Division of Health Care Finance and Policy. “Massachusetts Health Care Cost Trends: Trends in HealthExpenditures.” June 2011.
  58. 58. It Really is the Prices (Stupid) Evidence from Several National Payers, 2010-2011 Per Capita Spending Unit Price Utilization Intensity 9.6 10.0 Percent change, 2010-2011 5.9 7.2 5.0 6.2 3.5 3.7 4.9 4.5 2.1 1.6 1.0 1.2 0.0 -0.6 -0.3 -0.4 -5.0 -4.2 Inpatient Care Outpatient Visits Other Outpatient Professional ProceduresSource: Health Care Cost Institute, “Health Care Cost and Utilization Report: 2011,” September 2012.
  59. 59. U.S. Pays More for Hospital Services Select Countries & Services(US$, 2007) $34,358 $35,000 Australia$30,000 Canada$25,000 France Sweden$20,000 United States $21,218 $17,406$15,000 $11,162$10,000 $7,962 $8,917 $4,451 $4,558 $5,000 $3,093 $2,591 $0 Normal Delivery Appendectomy CABG Hip Replacement Hernia Repair Source: Koechlin F, Lorenzoni L and Schreyer P. “Comparing Price Levels of Hospital Services Across Countries.” OECD Health Working Papers No. 53, July 2010.
  60. 60. U.S. Pays More for Hospital Services Composite Index, 29 Inpatient Services Comparative Price Levels, Hospital Services, 2007 United States 164 Italy 140 Australia 123 France 121 U.S. hospital Sweden 114 prices 64% Canada 113 higher than Finland 98 OECD average Portugal 85 Israel 62 Slovenia 59 Korea 57 OECD Average 0 20 40 60 80 100 120 140 160 180Source: Koechlin F, Lorenzoni L and Schreyer P. “Comparing Price Levels of Hospital Services Across Countries.” OECDHealth Working Papers No. 53, July 2010.
  61. 61. U.S. Pays Physicians More for the Same Services Especially Private Payers and Specialty Care Primary Care - Office Visit Fees Specialty Care – Hip Replacement$140 133 $4,500 129 3,996 $4,000$120 104 $3,500$100 $3,000 $80 $2,500 66 2,160 59 60 1,943 $60 $2,000 1,634 46 45 $1,500 1,251 1,340 $40 34 32 34 1,046 $1,000 674 1,181 $20 $500 652 $0 $0 Public Payers Private Payers Public Payers Private Payers Australia Canada France Germany UK US Australia Canada France Germany UK USSource: Laugesen MJ and Glied SA. “Higher Fees Paid to US Physicians Drive Higher Spending for Physician Services Comparedto Other Countries.” Health Affairs, 30(9):1647-56. September 2011.
  62. 62. U.S. Physicians Earn More Particularly Specialists $500,000 Australia Canada France Germany UK US 442,450 $450,000 $400,000 $350,000 324,138 $300,000 $250,000 208,634 186,582 187,609 202,771 $200,000 159,532 154,380 $150,000 125,104 131,809 92,844 95,585 $100,000 $50,000 $0 Primary Care Physicians Orthopedic SurgeonsSource: Laugesen MJ and Glied SA. “Higher Fees Paid to US Physicians Drive Higher Spending for Physician Services Comparedto Other Countries.” Health Affairs, 30(9):1647-56. September 2011.
  63. 63. Summary and Implications•  Health care spending is a heavy and increasingly unmanageable burden to federal and state governments, employers and individuals.•  Recent slowing in health spending growth offers a ray of hope. But is the slowdown sustainable? •  Real and sustained gains in efficiency and value will be needed to offset the demographic and other pressures driving health spending upward.•  The highly concentrated nature of personal health care expenditures suggests a strategy for controlling spending. But there are real challenges in managing the care of high spending patients.
  64. 64. Summary and Implications (continued)•  Private premium increases are driven by underlying increases in spending for medical care for enrollees. Controlling spending for hospital and physician/clinical services will be essential to moderating growth in private premiums.•  We pay more than other countries for the same services, and rising prices have been the dominant factor behind our growing spending. Attention to these high prices is warranted.•  Sizing the challenge is the easy part. Finding real solutions is much harder.
  65. 65. For more information oradditional hard copies of our publications, please contact me or visit our website: jschoenman@nihcm.org 202-296-4192 www.nihcm.org
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