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WealthTrust-Arizona - Deficit In Healthcare
 

WealthTrust-Arizona - Deficit In Healthcare

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Educational workshop presented by WealthTrust-Arizona and world-renowned guest Robert K. Smoldt, Chief Administrative Officer Emeritus at Mayo Clinic and Associate Director of Healthcare Delivery & ...

Educational workshop presented by WealthTrust-Arizona and world-renowned guest Robert K. Smoldt, Chief Administrative Officer Emeritus at Mayo Clinic and Associate Director of Healthcare Delivery & Policy Programs at Arizona State University. Mr. Smoldt has been involved in health care administration for more than 30 years and is currently pursuing U.S. health reform in close partnership with Mayo Clinic’s Emeritus President and CEO.

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    WealthTrust-Arizona - Deficit In Healthcare WealthTrust-Arizona - Deficit In Healthcare Presentation Transcript

    • Deficit Reduction and Healthcare
    • Bob Smoldt• Associate Director, ASU Healthcare Delivery and Policy Program• Emeritus CAO, Mayo Clinic
    • Smoldt poll • Question 1: Do you believe the federal budget deficit is a very serious problem? –U.S. = 68%Source: Blendon and Benson, “The Public‟s View About Medicare and Budget Deficits,” NEJM 10.1056.
    • Smoldt poll • Question 2: Do you believe it is possible to balance the budget without cutting Medicare spending in one way or the other? –U.S. = 54%Source: Blendon and Benson, “The Public‟s View About Medicare and Budget Deficits,” NEJM 10.1056.
    • Smoldt poll • Question 3: Do you agree with the following methods of reducing the deficit? A. Reduce military commitments U.S. = 46% B. Raise taxes on people with an annual income >$250K U.S. = 69% C. Limit tax deductions for corporations U.S. = 62% D. Reduce Medicare spending in some way U.S. = 22%Source: Blendon and Benson, “The Public‟s View About Medicare and Budget Deficits,” NEJM 10.1056.
    • Today:• Will analyze the Medicare issue in depth• But need to understand the broader U.S. deficit and debt problem
    • Growth of government Total Federal Spending (as percentage of U.S. Economy) Total federal spendingSource: Walker, D. “Comeback America: The Nation‟s Fiscal Challenge and the Way Forward”, January 20, 2011
    • “You remember 1800, right?”
    • Growth of government Total Federal Spending (as percentage of U.S. Economy) Total federal spendingSource: Walker, D. “Comeback America: The Nation‟s Fiscal Challenge and the Way Forward”, January 20, 2011
    • Federal government spending has increased dramatically since the 1930s Federal government outlays as % of GDP (1791-2010) 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 1791 1811 1831 1851 1871 1891 1911 1931 1951 1971 1991 2011Source: http://www.whitehouse.gov/omb/budget/Historicals; http://www.measuringworth.com/usgdp/; Federalspending 1791-1900 based on “Historical Statistics of the United States, Colonial Times to 1970, Part II”; datanot adjusted for inflation
    • Changes in spending Composition of Federal Spending (as percentage of Total Spending)Source: Walker, D. “Comeback America: The Nation‟s Fiscal Challenge and the Way Forward”, January 20, 2011
    • The cost of debt may have been held artificially low US net debt outstanding vs. effective interest rates (1980-2010) $10,000 10.0% Net debt outstanding Effective interest rate $8,000 8.0% Net debt ($ billions) Interest rates (%) $6,000 6.0% $4,000 4.0% $2,000 2.0% $- 0.0% 1980 1985 1990 1995 2000 2005 2010Source: http://www.whitehouse.gov/omb/budget/Historicals
    • • As US federal spending has grown, so has the federal deficit as a percent of GDP • European Monetary Union’s“Stability and Growth Pact” guidelines • Annual deficit as a % of GDP should be equal to or less than 3% • EU 27 average = 2.3% in 2009Source: The Reform of the Stability and Growth Pact; speech by Jose Manuel Gonzalez-Paramo; European CentralBank; October 13, 2005. www.ecb.int/press/key/date/2005/html/sp051013.en.html.
    • Federal Deficit as percent of GDP
    • With sustained deficits the US debt grows…
    • Three measures of Federal debt/ financial obligations 1. Debt held by the public 2. Total debt = debt held by the public + debt held by government agencies, e.g., Social Security Trust Fund, etc. 3. Total liabilities = Total debt + future pension, Social Security, payments, and healthcare payments that are promised under current legislation (the unfunded liabilities)Source: “A Short Primer on the National Debt”, WSJ, 8/29/11
    • Are there economic guidelines for the maximum debt a country should tolerate? • European Monetary Union’s “Stability & Growth Pact: 60% of GDP * • Reinhart and Rogoff: 90% *** The European Monetary Union states guideline for EU countries. It came from recommendations containedin a report entitled “The Critical Mission of the European Stability and Growth Pact”, Occasional Paper No. 70by the Group of Thirty in 2004. The Group of Thirty is a group of thirty of the most prominent economists inworld. It included such U.S. economists as Paul Volker, Martin Feldstein, and Paul Krugman.** Authors of a study titled “Growth in a Time of Debt.”
    • Economic growth can be impacted by a country’s debt • “(Debt) burdens above 90% are associated with 1 percent lower median growth. Our results are based on a data set covering 44 countries for up to 200 years…. (and) incorporates more than 3,700 observations.” • “Our 90 % threshold is largely based on earlier periods when old-age pensions and healthcare costs hadn’t grown to anything near the size they are today. Surely this makes the burden of debt greater.”Source: Op-Ed Bloomberg News, July 14, 2011 by Dr. Carmen Reinhart, senior fellow at the Peterson Institutefor International Economics and Dr. Kenneth Rogoff, Professor of Economics at Harvard University
    • Historical debt burden – Debt held by publicSince 1800, US Debt Held by the Public has exceeded 60% of GDP (the maximumdebt ceiling used by the European Monetary Union) only during WWII Source: Walker, D. “Comeback America: The Nation‟s Fiscal Challenge and the Way Forward”, January 20, 2011
    • Historical debt burden – Gross Federal debt US gross Federal debt (FY1900-2010)% GDP 140 WW II 120 Total Federal Debt = 100% GDP in 2011 100 90% 80 TARP and Recession 60 60% Great 40 Depression WW I 20 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010Source: http://www.usgovernmentspending.com/ accessed September 8, 2011;http://www.politifact.com/ohio/statements/2011/aug/18/rob-portman/sen-rob-portman-says-us-debt-now-matches-size-gros/
    • Comparative debt burdensTotal government debt in the U.S. is higher than someof the most financially troubled countries in EuropeSource: Walker, D. “Comeback America: The Nation‟s Fiscal Challenge and the Way Forward”, January 20, 2011
    • August 8th, 2011“Sign of the Apocalypse:The struggling Spanish banking groupBankia is seeking a loan from the EuropeanCentral Bank and has put the two (RealMadrid soccer players) up as collateral.”
    • “Sovereign fiscal responsibility index” • Measures: A. Debt B. Projection of future debt C. Fiscal rules, transparency and enforceability • Country rank: 1. Australia 5. China 12. India 23. France 27. Italy 28. United States 34. GreeceSource: True State of Our Federal Finances, Comeback America Initiative, www.tcaii.org andDavid Walker, former Comptroller General of the U.S. 1988-2008
    • Future debt burdensFuture U.S. Debt Held by the Public is projected tosoar if current policies remain unchangedSource: Walker, D. “Comeback America: The Nation‟s Fiscal Challenge and the Way Forward”, January 20, 2011
    • Our fiscal futureWithout reforms, by 2055, revenues will just coverinterest costsSource: Walker, D. “Comeback America: The Nation‟s Fiscal Challenge and the Way Forward”, January 20, 2011
    • Growing foreign dependencyU.S. dependency on foreign lenders to finance publicdebt has risen sharply
    • The wishful thinking U.S. debt solutions• Increase taxes on well-to-do Americans: Would raise top 2 tax brackets to 86% and 91% (from 33% and 35%)1• Raise taxes for all: Would double marginal tax for individuals and corporations (some middle income Americans would be at 66%)2• Grow the economy: “To stabilize debt at 60% GDP, economy would need to grow at 6% for at least the next 10 years – the economy has never growth by more that 4.4% in any decade since WWII.”11. Bipartisan Policy Center presentation to PG Peterson Foundation fiscal summit at www.pgpf.org2. Heritage Foundation presentation to PG Peterson Foundation fiscal summit at www.pgpf.org
    • Before deciding on solutions we should look at underlying factors causing the increase in debt…
    • Entitlements are a major contributor to the rise in federal debt Federal expenses vs. GDP, adjusted for inflation (1965- 2010) 1200% GDP Total outlays 1000% Defense Entitlements* 800% 600% 400% 200% 0% 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 -200% *Entitlements = ”Payments for individuals” (includes Social Security, Medicare, Medicaid, VA payments, etc.) Source: http://www.whitehouse.gov/omb/budget/Historicals
    • In addition to the Federal debt, the US also has unfunded liabilities…
    • Federal financial hole $70.0 Total: $61.9T $60.0 $USD trillions $50.0 $40.0 $45.8 Unfunded social insurance promises $30.0 $20.0 $2.0 Commitments and $10.0 contingencies $13.6 $14.1 Explicit liabilities including $0.0 debt Total U.S. debt Total liabilitiesExplicit liabilities include such items as military and civilian pensions and retiree health; unfunded social insurance promises arefuture Medicare and Social Security benefits for the next 75 yrs (estimates as of January 1, 2009; discounted to present value);Total US debt as of September 30, 2010 Source: Walker, D. “Comeback America: The Nation‟s Fiscal Challenge and the Way Forward”, January 20, 2011
    • “Now $46,300”
    • Federal financial obligations per U.S. household as of June 30, 2011 • Total Federal Debt as of June 30, 2011: – $125,500 • Federal Financial Hole as of Sept. 30, 2011: – $536,300
    • “…the entitlement programs are not self- funded. They are unfunded liabilities to a significant extent at this point. They are the biggest component of spending going forward.” – Ben Bernanke1 “In an uncertain world, our currency and credit are well established. But there are serious questions, most immediately about the sustainability of our commitment to growing entitlement programs” – Paul A. Volcker21. “State of Economy: View from the Federal Reserve”, testimony before the House Budget Committee, June 9, 20102. Volcker PA, remarks at the Stanford Institute for Economic Policy Research, May 18, 2010
    • Federal financial hole – Social insurance programs Unfunded social insurance promises (2009)$ trillions Medicaid: Paid from general tax revenue each year and does not have a trust fundUnfunded social insurance promises are future Medicare and Social Security benefits for the next 75 yrs (estimates as of January1, 2009; discounted to present value)Source: Walker, D. “Comeback America: The Nation‟s Fiscal Challenge and the Way Forward”, January 20, 2011
    • Medicare – Why an issue?• Health costs growing faster than the economy• Aging population
    • The growth in healthcare costs has generally outpaced GDP growth Growth in healthcare expenditures vs. GDP in the United States (1990-2009) Healthcare expenditures per capita (PPP$) GDP per capita (nominal) Change in growthSource: OECD, 2011
    • U.S. is not unique in having healthcare expenditures outpace GDP growthGrowth in healthcare expenditures vs. GDP (1990-2009) GDP per capita (nominal) Healthcare expenditures per capita (PPP$) CAGR* (%)*CAGR = Compound Annual Growth RateSource: OECD, 2011
    • Historical and projected number of Medicare beneficiaries Number of Beneficiaries (1966-2030) MillionsSource: 2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal SupplementaryMedical Insurance Trust Funds
    • Workers paying Medicare tax per Medicare beneficiary Number of workers per beneficiary (1970-2030) Source: Public Agenda, "Fewer Workers Projected Per HI Beneficiary," Retrieved Sept 19, 2011; 2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds
    • But haven’t we paid Medicare taxesover our lives to earn this benefit? “Two married 66 year olds with roughly average earnings over their lifetimes will end up paying about $110,000 in dedicated Medicare taxes through the (Medicare) payroll tax, including the portion their employers pay. They can expect to receive about $340,000 in benefits. Two average earning 56 year olds will pay about $140,000 and get back about $430,000 in benefits.”Source: David Leonhardt, “Generational Divide Colors Debate Over Medicare‟s Future,” New YorkTimes, April 5, 2011.
    • Will the Congressional debt deal solve the problem? The Economist, August 6th, 2011: • “But the thoughtlessness of the debt deal – notably its failure to tackle any of the real sources of America’s fiscal problems, such as entitlement spending, raises a bigger worry.” • Simpson/Bowles “savings” over ten years - $4T • Bipartisan Policy Center “savings” over ten years - $5.8T • Super Committee target - $1.5T
    • Will the health reform bill of 2010 help?• Half of the health reform bill was "paid for" with across the board reductions in what Medicare will pay for medical services.• These reductions will lead down the road to providers getting 50% less than presently (according to the Medicare actuary).• Providers already lose money on average with Medicare patients.• As the Medicare actuary has said (and as CBO implied), these reductions will lead to less access to providers for Medicare beneficiaries or reduced quality -- or both.• Should heed the initial advice of Dr. Henry Aaron.
    • Henry Aaron Brookings Institution: “The costs of extending coverage are certain… The savings from delivery system reform are speculative and slow.” “…not even the worthy goals of health reform justify increasing already perilous budget deficits.” “Reform must therefore be paid for…”Source: NEJM, Perspective, September 3, 2009
    • A 1967 estimate understated eventual Medicare spending by a factor of 10Medicare spending, actual vs.estimated $billionsSource: Senate Joint Economic Committee Report, 2009
    • Can the health reform bill’s Independent Payment Advisory Board (IPAB) help? • If Medicare spending above a target level after 2014, IPAB issues a plan to get to target. • HHS must implement the plan unless Congress intervenes • BUT: “The Board is not allowed to …ration care, raise premiums, increase cost sharing, restrict benefits, or modify eligibility; leaving (further) reductions in payments to providers..” Source: CBO report: www.cbo.org.gov/ftpdocs/doc2085/03-10-Reducingthe Deficit.pdf
    • To solve the Medicare problem, can we learn from what these two did to prop up Social Security in the 1980’s?
    • What to do: Social Security as an example?• Annual income greater than expense till 1975-1981• Reforms enacted – Cut benefits by 5% – Raised tax rates by 2.3% – Increased full retirement age 3% (to age 67)• Restored stability for 25 years• But demographics impacting again – “Social Security expenditures exceeded the program’s income in 2011 for the first time since 1983.” *Source: A Summary of the 2011 Annual Report by the Social Security and Medicare Boards of Trustees onwww.ssa.gov
    • The first step to solving Medicare issue: “Denial is not a policy.”
    • What are the options for Medicare?If Medicare in its present form will not be affordable forU.S. taxpayers, there are some basic options forcorrecting: a. Raise eligibility age
    • Raise eligibility ageLife Expectancy at age 65 (Years)• 1960 14.3• 2007 18.6 +4.3 Years
    • Questionable Trust Fundprojections for life expectancy • 2005 Trust Fund projection of life expectancy at 65 in 2025 • 17.5 male and 20.0 female • 2007 actual life expectancy at 65 • 17.2 male and 19.9 femaleSource: http://aging.senate.gov/crs/aging1.pdfSource: http://www.cdc.gov/nchs/data/hus/hus10.pdf#022
    • Some pertinent questions:• Is medicine allowing us to live too long?• Are we retiring too early?• Or both?
    • Rising life expectancy and lower retirement age result in higher need for social support – Can we afford it? Life Average expectancy retirement Year at birth age* 1950 68.2 68.3 2005 77.8 62.6 Gain/loss +9.6 -5.7 15.3 year spread*Weighted average of “by gender” Social Security data for 1950-1955 and 2000-2005 based on labor forcecomposition – rounded Sources: OECD; National Center for Health Statistics; Bureau of Labor Statistics, MonthlyLabor Review (2002, 2008)
    • Working longer – Good for Boomers; Good for economy • McKinsey Global Institute: • Boomers not financially prepared for retirement • Boomer options: – Reduce personal spending – Work longer • Economic impact of Boomers retiring 2 years later (at 64.1) • U.S. GDP difference over 2007-2035: – Reduce personal spending: ($5.4) T – Work 2 years longer: $12.9 TSource: McKinsey Global Institute, “Talkin‟ „Bout My Generation: The Economic Impact of Aging US BabyBoomers,” June 2008
    • What are the options for Medicare?If Medicare in its present form will not be affordable forU.S. taxpayers, there are some basic options forcorrecting:a. Raise eligibility ageb. Increase beneficiary share of costs
    • Medicare Part B (physician/outpatient services) beneficiary premium as percent of total actual cost Individual adjusted gross income Premium % total cost Up to $85K 25% $85 - $107 35% $107 - $160 50% $160 - $214 65% $214+ 80% • Increase percentage of cost • Don‟t index up the salary cut-offsSource: Medicare Premiums: Rules for Higher Income Beneficiaries: Social Security Administration Publication#05-10161.
    • What are the options for Medicare? If Medicare in its present form will not be affordable for U.S. taxpayers, there are some basic options for correcting: a. Raise eligibility age b. Increase beneficiary share of costs c. Limit benefits or move coverage to more of a catastrophic insurance model
    • Limit benefits• To control Medicare costs would require reducing average Medicare benefits by 53% to $5,558 per year• More limited adjustments are possible, e.g., increase deductibles, co-pays, etc.• Changes either from program overall, or for selected components like home health, skilled nursing, drugs, etc.Source: http://www.forbes.com/sites/robertlenzner/2011/07/31/our-country-is-in-deep-financial-trouble/
    • Joint Select Committee on deficit reductionpossible considerations on reducing benefits Action Ten year savings • Prohibit Medigap paying 1st $550 $53B • Subject lab tests to deductible $24B • Require new home health co-pay $40B • Increase skilled nursing cost sharing $21B
    • What are the options for Medicare?If Medicare in its present form will not be affordable forU.S. taxpayers, there are some basic options forcorrecting:a. Raise eligibility ageb. Increase beneficiary share of costsc. Limit benefits or move coverage to more of a catastrophic insurance modeld. Increase Medicare taxes
    • Increase Medicare taxes • To correct the underfunding of Medicare would require increasing the Medicare tax by 3.9% to 6.8% • A self employed person making $100,000 would have Medicare tax move from $2,900 to $6,900 – all in addition to federal income taxesSource: http://www.forbes.com/sites/robertlenzner/2011/07/31/our-country-is-in-deep-financial-trouble/
    • What are the options for Medicare?If Medicare in its present form will not be affordable forU.S. taxpayers, there are some basic options forcorrecting:a. Raise eligibility ageb. Increase beneficiary share of costsc. Limit benefits or move coverage to more of a catastrophic insurance modeld. Increase Medicare taxese. Change Medicare policies and payment approaches to encourage greater cost efficiency
    • CMS can realize ~12-18% annual cost savings if clinicalpractice style aligns with top decile Hospital Referral Regions (HRR)Medicare FFS spending and estimated savings, HRR data (2008) Average standardized risk- adjusted per capita Potential CMS HRR costs ($USD) savings (% total)* Decile 1 6,194 17.6 Decile 2 6,613 12.5 National average** 7,500 -- Decile 9 8,301 -- Decile 10 8,849 --*Total = National average standardized risk adjusted per capita cost x total Medicare beneficiaries in sample; Total Medicare beneficiaries n =25,832,920; Standardization of Spending: To standardize payment rates, examined Medicare‟s various FFS payment systems and identified the factorsthat lead to different payment rates for the same service (e.g., local wages, input prices, DSH, GME); Estimated what Medicare would have paid foreach claim without those adjustments; Risk-Adjustment of Spending: Used total Hierarchical Condition Category (HCC) risk scores to risk-adjustspending data; Calculated standardized risk-adjusted costs by taking the standardized costs for each beneficiary in a region and dividing them by his/heractual individual risk score **Includes VI, PR, DC and unassigned data Source: “New Data on Geographic Variation”, Institute of Medicine, 2011
    • Gaining Medicare efficiencies • Start by addressing patients with most expensive conditions • Financially reward providers who get better patient outcomes while using fewer resources – e.g. Pay for Value. • Value = Patient Outcomes Cost per patient over time
    • • Change existing financial incentives and start paying for value • If we accomplish this correctly, providers will self- organize into systems that produce high value care• Present Medicare pay for value approach will not reward better outcomes at lower cost.
    • What are the options for Medicare? – Raise eligibility age – Increase beneficiary share of costs – Limit benefits or move coverage to more of a catastrophic insurance model – Increase Medicare taxes – Change Medicare policies and payment approaches to encourage greater cost efficiency – Move Medicare to a premium support model with private insurers
    • Move Medicare to a premium support model• Medicare would no longer be a government insurance company• Instead would function like FEHBP – coordinate private insurance options and provide a set dollar amount to each beneficiary to purchase from the insurance options• Approach recommended by the Clinton Medicare Bipartisan Commission in 1995 and by the Bipartisan Policy Committee Task Force in 2010
    • Washington Post editorial, May 8, 2011 • “Democrats have effectively scared seniors as a political tactic for many years. Republicans returned the tables in 2010… Now Rep. Paul Ryan (R-Wis.) has given President Obama and his party a chance to reclaim the low ground and they haven’t hesitated. [premium support proposal] • “But it’s [Ryan’s proposal] honest enough to acknowledge that simply preserving Medicare as we know it is not an option… • “…the concept is hardly beyond pale – as past support for it, in some form, from Democrats such as budget expert Alice Rivlin and former Senator John Breaux suggests. [In addition] the principle undergirds how Medicare pays for drugs, and resembles how the Obama health plan would subsidize insurance on market exchanges for some non- senior adults.”
    • What are the options for Medicare?If Medicare in its present form was not be affordable for U.S. taxpayers;what would you do?a. Raise eligibility ageb. Increase beneficiary share of costsc. Limit benefits or move coverage to more of a catastrophic insurance modeld. Increase Medicare taxese. Change Medicare policies and payment approaches to encourage greater cost efficiencyf. Move Medicare to a premium support model with private insurersg. Some combination
    • What would you do about Medicare? If Medicare in its present form was not be affordable for U.S. taxpayers; what would you do? a. Raise eligibility age b. Increase beneficiary share of costs c. Limit benefits or move coverage to more of a catastrophic insurance model d. Increase Medicare taxes e. Change Medicare policies and payment approaches to encourage greater cost efficiency f. Move Medicare to a premium support model with private insurers g. Some combination
    • “Yes, We Can”“Yes, we can do what it takes to create a better future, but we all must do out part, and we need to start now.”-Hon. David M. Walker, Former Comptroller Generalof the United States (1988-2008)