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A New Era in American Health Care: What does it mean for the economy?


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Presentation by Karen Davis at the Detroit Regional Chamber 2010 Health Care Forum

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A New Era in American Health Care: What does it mean for the economy?

  1. 1. A New Era in American Health Care: What Does it Mean for the Economy? Karen Davis President, The Commonwealth Fund Federal Reserve Bank of Chicago – Detroit Branch 2010 Health Care Leaders Forum April 26, 2010 [email_address]
  2. 2. What Are the Problems? Uninsured Rates Quality of Care Chasm Costs of Care Administrative Complexity
  3. 3. Seventy-Two Million Americans Have Problems with Medical Bills or Accrued Medical Debt, 2007 Source: M. M. Doty, S. R. Collins, S. D. Rustgi, and J. L. Kriss, Seeing Red: The Growing Burden of Medical Bills and Debt Faced by U.S. Families (New York: The Commonwealth Fund, Aug. 2008). Percent of adults ages 19–64 In the past 12 months: 28 % 49 million 21 % 37 million Medical bills being paid off over time 33 % 59 million 28 % 48 million Any of the above bill problems 41 % 72 million 34 % 58 million Any bill problems or medical debt 14 % 24 million 13% 22 million 23% 39 million 2005 18 % 32 million <ul><ul><li>Had to change way of life to pay bills </li></ul></ul>16 % 28 million 27% 48 million 2007 <ul><ul><li>Contacted by collection agency for unpaid medical bills </li></ul></ul><ul><ul><li>Had problems paying or unable to pay medical bills </li></ul></ul>
  4. 4. Premiums Rising Faster Than Inflation and Wages * 2008 and 2009 NHE projections. Data: Calculations based on M. Hartman et al., “National Health Spending in 2007,” Health Affairs , Jan./Feb. 2009 and A. Sisko et al., “Health Spending Projections through 2018,” Health Affairs, March/April 2009. Premiums, CPI and Workers’ earnings from Henry J. Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits Annual Surveys, 2000–2009 . Source: K. Davis, Why Health Reform Must Counter the Rising Costs of Health Insurance Premiums, (New York: The Commonwealth Fund, August 2009). Projected Average Family Premium as a Percentage of Median Family Income, 2008–2020 Cumulative Changes in Components of U.S. National Health Expenditures and Workers’ Earnings, 2000–2009 Percent Percent 108% 32% 24% Projected
  5. 5. International Comparison of Spending on Health, 1980–2007 Data: OECD Health Data 2009 (November 2009). $7,290 $2,510
  6. 6. The Bottom Line: The U.S. Spends Most and Ranks Last Note: * Estimate. Expenditures shown in US PPP. Source: Calculated by the Commonwealth Fund based on 2007 International Health Policy Survey; 2008 International Health Policy Survey of Sicker Adults; 2009 International Health Policy Survey of Primary Care Physicians; Commonwealth Fund Commission on a High Performance Health System National Scorecard; and OECD Health Data 2009 (November 2009). 7 1 5 2 3.5 3.5 6 <ul><ul><li>Cost-Related Problem </li></ul></ul>5 4 3 1 2 7 6 <ul><ul><li>Timeliness of Care </li></ul></ul>$3,837* 4 1 3 1 6 2 1 3 2 1 NETH 7 6 5 3 2 1 Long, Healthy, Productive Lives $3,895 5 6 5 5 5 5 7 7 6 CAN 7 2 6 3 4 Equity $7,290 $2,992 $2,454 $3,558 $3,357 Health Expenditures/Capita, 2007 7 1 4 5 2 Efficiency 6.5 2 4 3 6.5 Access 4 7 1 3 2 <ul><ul><li>Patient-Centered Care </li></ul></ul>6 3 1 7 4 <ul><ul><li>Coordinated Care </li></ul></ul>7 2 4 3 6 <ul><ul><li>Safe Care </li></ul></ul>4 1 5 6 2 <ul><ul><li>Effective Care </li></ul></ul>6 3 1 5 4 Quality Care 7 2 5 4 3 OVERALL RANKING (2010) US UK NZ GER AUS     4.66-7.0 2.33-4.66 1.0-2.33 Country Rankings
  7. 7. The Affordable Care Act of 2010
  8. 8. A Historic Accomplishment <ul><li>Health reform promises to help usher in a new era in American health care </li></ul><ul><li>It will: </li></ul><ul><ul><li>Cover 32 million uninsured </li></ul></ul><ul><ul><li>Improve affordability of coverage for millions now having difficulty paying health insurance premiums, medical bills, or accumulated medical debt </li></ul></ul><ul><ul><li>Eliminate doughnut hole in Medicare Rx coverage; institute a new voluntary long-term care financing program </li></ul></ul><ul><ul><li>Begin to move to an organized integrated delivery system with coordinated care, reducing errors, duplication, and waste </li></ul></ul><ul><ul><li>Help slow rising health care costs that are a burden on families, employers, and federal, state, and local government budgets </li></ul></ul><ul><li>Important to foster understanding of what health reform is and isn’t </li></ul><ul><li>Build areas of consensus; will need cooperation of all stakeholders to realize potential </li></ul>
  9. 9. Major Features of New Health Reform Law Voluntary Medicare payment innovations -- ACOs, Medical Homes, 10% increase in primary care, 1% productivity improvement, Medicaid primary care at Medicare levels, CMS Payment Innovation Center, Independent Payment Advisory Board Payment Reform Comparative effectiveness research; HIT; Medicare Advantage reform System Reform 2-9.5% of income up to 400% FPL; Medicaid to 133% poverty Income-related Premium and Cost Sharing; Medicaid expansions State, start in 2014 Insurance Exchanges Rules on enrollment, premiums, medical loss, consumer protections Insurance Market Rules Comprehensive; 70% actuarial value $2000 per employee for employers 50+ employees not offering coverage  Health Reform Law Benefit Standard Employer Shared Responsibility Individual Mandate
  10. 10. Health Reform Timeline: What is Relevant to Employers? Source: B. Schilling, Health Care Reform: What Does it Mean for Employers , (New York: The Commonwealth Fund, forthcoming). <ul><li>Dependent adults up to age 26 on parents’ policies </li></ul><ul><li>Policies cannot be canceled </li></ul><ul><li>Tax credits for small businesses </li></ul><ul><li>No pre-existing condition exclusions for children </li></ul><ul><li>Lifetime benefit caps banned </li></ul><ul><li>HHS review of premium increases </li></ul><ul><li>Reinsurance for retirees’ benefits </li></ul><ul><li>Comparative effectiveness research </li></ul><ul><li>Refunds if medical loss ratio less than 85 percent in large group market; 80 percent in small group and individual market </li></ul><ul><li>Employers note value of health benefits on W-2 forms </li></ul><ul><li>Center for Medicare and Medicaid Innovation </li></ul><ul><li>Web site for comparing Medicare doctors </li></ul>
  11. 11. Health Reform Timeline: What is Relevant to Employers? Source: B. Schilling, Health Care Reform: What Does it Mean for Employers , (New York: The Commonwealth Fund, forthcoming). <ul><li>Value-based purchasing for hospitals (2012) </li></ul><ul><li>Diabetes report card (2012) </li></ul><ul><li>Elimination of deduction for 28 percent Medicare Part D subsidy (2013) </li></ul><ul><li>Limits on flexible spending arrangements (2013) </li></ul><ul><li>No one gets turned away (2014) </li></ul><ul><li>Establishment of state-based insurance exchanges (2014) </li></ul><ul><li>National coverage requirement (2014) </li></ul><ul><li>Fines for large employers that opt out (2014) </li></ul><ul><li>Small business tax credit increases (2014) </li></ul><ul><li>Quality reporting (2014) </li></ul><ul><li>Independent Payment Advisory Board (2014) </li></ul><ul><li>Cadillac Plan taxes – 40 percent on premiums for individual plans that cost more that $10,200 and family plans that cost more than $27,500 (2018) </li></ul>
  12. 12. 32 Million Uninsured Covered Under Affordable Care Act, Employers Remain Primary Source, 2019 10 M (4%) Nongroup * Employees whose employers provide coverage through the exchange are shown as covered by their employers (5 million), thus about 29 million people would be enrolled through plans in the exchange. Note: ESI is Employer-Sponsored Insurance. Source: S. R. Collins, K. Davis, J. L. Nicholson, S. D. Rustgi, and R. Nuzum, The Health Insurance Provisions of the Affordable Care Act: Implications for Coverage, Affordability, and Costs, The Commonwealth Fund, (forthcoming) . Among 282 million people under age 65 Pre-Reform 162 M (57%) ESI 35 M (12%) Medicaid 54 M (19%) Uninsured 16 M (6%) Other 15 M (5%) Nongroup 159 M (56%) ESI 51 M (18%) Medicaid 24 M (9%) Exchanges (Private Plans) 16 M (6%) Other 23 M (8%) Uninsured Affordable Care Act
  13. 13. Small Business Tax Credits Under Health Reform Law for Family Premiums * To be eligible for tax credits, firms must contribute 50% of premiums. Firms receive 35% and later 50% of their contribution in tax credits. Note: Projected premium for a family of four in a medium-cost area in 2009 (age 40). Premium estimates are based on actuarial value = 0.70. Actuarial value is the average percent of medical costs covered by a health plan. Small businesses are eligible for new tax credits to offset their premium costs in 2010. Tax credits will be available for up to a two-year period, starting in 2010 for small businesses with fewer than 25 employees and with average wages under $50,000. The full credit will be available to companies with 10 or fewer employees and average wages of $25,000, phasing out for larger firms. Eligible businesses will have to contribute 50 percent of their employees' premiums. Between 2010–13, the full credit will cover 35 percent of a company's premium contribution. Beginning in 2014, the full credit will cover 50 percent of that contribution. Tax-exempt organizations will be eligible to receive the tax credits, though the credits are somewhat lower: 25 percent of the employer's contribution to premiums in 2010–13 and 35 percent beginning in 2014. Source: Commonwealth Fund analysis of proposals. Premium estimates are from Kaiser Family Foundation Health Reform Subsidy Calculator, . $4,718* $9,435—projected family premium 50% employer contribution Credit per employee
  14. 14. Total National Health Expenditures (NHE), 2009–2019 Before and After Reform NHE in trillions Source: D. M. Cutler, K. Davis, and K. Stremikis, Why Health Reform Will Bend the Cost Curve , (Washington and New York: Center for American Progress and The Commonwealth Fund, December 2009). $2.5 $4.5 6.6% annual growth 6.0% annual growth $4.8
  15. 15. Major Sources of Cost, Savings and Revenues Compared with Projected Spending, Net Cumulative Effect on Federal Deficit, 2010–2019 Dollars in billions Note: Totals do not reflect net impact on deficit due to rounding. Source: Congressional Budget Office, Letter to the Honorable Nancy Pelosi, Mar. 20, 2010. – $19 Education System Savings – 204 <ul><li>Medicare Advantage reform </li></ul>– $117 Offsetting Revenues from Individual Mandate, Employers, and Wage Effects $938 Gross Cost of Coverage Provisions – 160 <ul><li>Productivity updates/provider payment changes </li></ul>– $432 – 147 – $511 – $143 CBO estimate of Affordable Care Act of 2010 Total Net Impact on Federal Deficit, 2010–2019 <ul><li>Other improvements and savings </li></ul>Savings from Payment and System Reforms Total Revenues
  16. 16. Why Health Reform Will Bring Down Costs for Businesses <ul><li>Creation of health insurance exchanges, public reporting and transparency on cost and quality, patient financial incentives, innovative payment methods for qualified health plans will pool risk, increase purchasing power and efficiency, and drive competition </li></ul><ul><ul><li>Cutler-Davis estimate $162 billion in 10-year administrative savings, $122 billion of which goes to businesses </li></ul></ul><ul><ul><li>Cutler-Davis estimate $530 billion in 10-year modernization savings, $236 billion of which goes to businesses </li></ul></ul><ul><li>Small business tax credits available to an estimated 3.6 million firms </li></ul><ul><li>Coverage expansion reduces hidden cost of uninsured for those who already provide insurance </li></ul><ul><li>New medical loss ratio standards will have a dampening impact on premiums, especially in the individual and small business market </li></ul><ul><li>Federal oversight of insurance premium increases will end arbitrary hikes </li></ul><ul><li>Elimination of health status rating broadens risk pool and stability of premiums </li></ul><ul><li>Innovations Center will conduct pilots of new payment methods, including multi-payer strategies </li></ul><ul><li>Payment and system reform will lower cost of care and lead to lower premiums </li></ul>Source: M. Seshamani, Lower Premiums, Stronger Businesses: How Health Insurance Reform Will Bring Down Costs for Small Businesses, (Washington: U.S. Department of Health and Human Services, 2010); D. M. Cutler, K. Davis, and K. Stremikis, Why Health Reform Will Bend the Cost Curve , (Washington and New York: Center for American Progress and The Commonwealth Fund, December 2009).
  17. 17. Modernizing the Health System with Payment and Delivery Reform Innovations: What is Promising? <ul><li>Rewarding hospital and physician performance based on quality and/or cost instead of fee-for-service volume </li></ul><ul><li>Provisions to encourage multi-payer payment reform </li></ul><ul><li>CMS Innovation Center pilots, accountable care organizations with shared savings, and other payment innovations including multi-payer payment innovations </li></ul><ul><li>Improved payment for primary care under Medicare and Medicaid </li></ul><ul><li>Bundling acute care episode and post-acute care payment demonstration </li></ul><ul><li>Insurance exchanges and insurance market rules, review of premiums </li></ul><ul><li>Qualified health plans in insurance exchanges will be encouraged to move away from fee-for-service provider payment </li></ul><ul><li>Rewarding high quality Medicare managed care plans </li></ul><ul><li>Independent Payment Advisory Board with recommendations to achieve Medicare savings targets and non-binding recommendations for private payers </li></ul>
  18. 18. Timeline for Payment and System Innovation <ul><li>Productivity Improvement -- 2010 </li></ul><ul><li>10 Percent Increase in Medicare Payment for Primary Care -- 2011 </li></ul><ul><li>Center for Medicare and Medicaid Innovation -- 2011 </li></ul><ul><li>State-based all-payer payment demonstrations and payment to Healthcare Innovation Zones through the CMI -- 2011 </li></ul><ul><li>Value-based Purchasing for Hospitals 2012 </li></ul><ul><li>Reduce payment for preventable hospital readmissions -- 2012 </li></ul><ul><li>Accountable Care Organization Provider shared savings -- 2012 </li></ul><ul><li>Five state capitated payment for safety net hospitals -- 2012 </li></ul><ul><li>National voluntary pilot on payment bundling for acute care episodes including hospitals, doctors, and post-acute providers -- 2013 </li></ul><ul><li>Independent Payment Advisory Board tasked with recommendations to reduce Medicare spending and excess cost growth and improve quality of care throughout the healthcare system -- 2014 </li></ul><ul><li>Medicaid primary care payment up to Medicare levels – 2013 and 2014 </li></ul><ul><li>Create a physician value-based payment program in Medicare -- 2015 </li></ul><ul><li>Reduce Medicare Payment for Hospital Acquired Infections -- 2015 </li></ul>
  19. 19. Innovation Center Pilots <ul><li>Patient-centered medical homes </li></ul><ul><li>Promotion of innovative care delivery models with providers such as risk-based comprehensive payment or salary-based payment </li></ul><ul><li>Using geriatric assessments and comprehensive care plans to coordinate care </li></ul><ul><li>Promote care coordination through salary-based payment </li></ul><ul><li>Support care coordination through the use of health information technology </li></ul><ul><li>Payment to physicians ordering diagnostic imaging services based on appropriateness </li></ul><ul><li>Use medication therapy management services </li></ul><ul><li>Establish community-based health teams to support small practice medical homes </li></ul><ul><li>Support the use of patient decision support tools </li></ul><ul><li>Allow states to test and evaluate care for dual eligibles </li></ul><ul><li>Allow states to test and evaluate all-payer payment reform </li></ul><ul><li>Align nationally recognized, evidence-based guidelines of cancer care with payment incentives </li></ul><ul><li>Improve post-acute care through continuing care hospitals </li></ul><ul><li>Fund home health providers offering chronic care management </li></ul><ul><li>Develop a collaborative of high-quality, low-cost health care institutions to develop, disseminate, and implement best practices and provide assistance to other institutions </li></ul><ul><li>Use electronic monitoring to facilitate inpatient care of hospitalized individuals </li></ul><ul><li>Promote efficiency and timely access to outpatient services </li></ul><ul><li>Establish comprehensive payments to Healthcare Innovation Zones </li></ul>
  20. 20. Investment in Information, Infrastructure, and Research <ul><li>Health information technology; regional extension centers </li></ul><ul><li>Comparative effectiveness research; Patient-centered Outcomes Research Institute </li></ul><ul><li>Continued investment in research to improve performance, identify and share best practices </li></ul><ul><li>Greater transparency and better multi-payer data on comparative performance </li></ul><ul><li>Investment in primary care workforce and improved payment for primary care; funding for Community Health Centers; National Commission on Workforce </li></ul><ul><li>National Quality Strategy; continued progress in performance metrics and measurement </li></ul><ul><li>National Prevention Strategy; support for employer wellness and community-based health promotion </li></ul>
  21. 21. A New Era in Health Care Delivery <ul><li>The U.S. has passed historic legislation that will help usher in a new era in American health care </li></ul><ul><li>Will make major strides toward achievement of goals of affordable coverage for all while slowing cost growth </li></ul><ul><li>Payment and system reforms – Innovation Center </li></ul><ul><li>Insurance market reforms </li></ul><ul><li>Independent Payment Advisory Board </li></ul><ul><li>Budget-neutrality is achievable through combination of cost-containment and new revenues </li></ul><ul><li>Oversight and system of tracking health system performance will be needed </li></ul>
  22. 22. Health Reform: Opportunities for Michigan <ul><li>Health reform at the national level opens up opportunities for Michigan: </li></ul><ul><ul><li>To be a leader in shaping the state health system for high performance </li></ul></ul><ul><ul><li>To use opportunities in federal reform legislation for state demonstrations, waivers, or leadership in pursuing this goal </li></ul></ul><ul><ul><li>To leverage newly available federal funds to test innovative approaches to enhancing value in the health care system </li></ul></ul><ul><ul><li>To craft all-payer (multi-stakeholder) initiatives </li></ul></ul>
  23. 23. Michigan Blue Cross Blue Shield Physician Group Incentive Program <ul><li>8,150 physicians </li></ul><ul><ul><li>5,000 Primary Care Physicians </li></ul></ul><ul><li>38 Physician Organizations (some of which serve as umbrella and management support organizations for many smaller POs) </li></ul><ul><ul><li>100 sub-POs </li></ul></ul><ul><li>2,000,000 members </li></ul><ul><li>$100+M annual incentive dollars </li></ul>
  24. 24. <ul><ul><li>Improvement Capacity Initiatives </li></ul></ul><ul><ul><li>Establishing staff dedicated to managing process improvement teams (new PGIP groups only) </li></ul></ul><ul><ul><li>Establishing analytics and reporting staff (new PGIP groups only) </li></ul></ul><ul><li> Condition-focused Initiatives </li></ul><ul><ul><li>Oncology/ASCO Quality Oncology Practice Initiative™ (limited participation) </li></ul></ul><ul><ul><li>Service-focused Initiatives </li></ul></ul><ul><ul><li>Pharmacy use and quality </li></ul></ul><ul><ul><li>Radiology procedures utilization </li></ul></ul><ul><ul><li>ER Utilization </li></ul></ul><ul><ul><li>Inpatient Utilization </li></ul></ul><ul><ul><li>Anticoagulation management </li></ul></ul><ul><ul><li>Transition of Care Professional </li></ul></ul><ul><ul><li>Core Clinical Process-focused Initiatives </li></ul></ul><ul><ul><li>Evidence based care (quality) performance </li></ul></ul><ul><ul><li>*Performance reporting </li></ul></ul><ul><ul><li>*Patient-Provider agreement </li></ul></ul><ul><ul><li>*Extended access </li></ul></ul><ul><ul><li>*Individual care management </li></ul></ul><ul><ul><li>*Test tracking and follow-up </li></ul></ul><ul><ul><li>Lean Thinking-Clinic Re-engineering </li></ul></ul><ul><ul><li>Clinical IT-focused Initiatives </li></ul></ul><ul><ul><li>*Accelerating the Adoption and Use of Electronic prescribing </li></ul></ul><ul><ul><li>*Patient registry </li></ul></ul><ul><ul><li>*Patient Portal </li></ul></ul>2 3 4 5 1 Michigan Blue Cross Blue Shield PGIP Initiatives <ul><li>*Coordination of Care </li></ul><ul><li>*Preventive Services </li></ul><ul><li>*Specialist Referral Process </li></ul><ul><li>*Linkage to Community Services </li></ul><ul><li>*Self-Management Support </li></ul>
  25. 25. Implications for Michigan <ul><li>1.3 million residents who do not currently have insurance and 459,000 residents who have nongroup insurance can get affordable coverage through the health insurance exchange </li></ul><ul><li>797,000 residents will qualify for premium tax credits to help them purchase health coverage </li></ul><ul><li>1.6 million seniors will receive free preventive services </li></ul><ul><li>279,000 seniors will have their brand-name drug costs in the Medicare Part D “doughnut hole” halved </li></ul><ul><li>109,000 small businesses will be eligible for tax credits to offset up to 35 percent of premium cost in 2010 (and 50 percent in 2014) </li></ul><ul><li>Businesses likely to see moderation of insurance premium growth </li></ul><ul><li>Opportunity to lead in shaping a high performance health system </li></ul>Source: White House Office of Health Reform, “Health Insurance Reform and Michigan,” available at:
  26. 26. Thank You! Kristof Stremikis, Senior Research Associate, [email_address] For more information, please visit: Rachel Nuzum, Senior Policy Director [email_address] Stephen C. Schoenbaum, M.D. Executive Vice President for Programs [email_address] Sara Collins, Vice President, Cathy Schoen, Senior Vice President for Research and Evaluation, Stu Guterman, Assistant Vice President, Payment Reform [email_address]