ACTION COSTS LESS   The Health Care Amendment    Standards and Options for             Reform                       Kennet...
Executive SummaryPrepared for the Committee for Health Care for Massachusetts   December 14, 2005
Findings• The cost of inaction is high and rising    – Health spending will almost double in ten years – growing 1 ½ times...
The Health Care Amendment      Standards for Reform      • Universal: all Massachusetts residents      • Affordable: all i...
Options Analyzed• Option 1: Inaction• Option 2: Universal coverage; expanded  public/private system; cost containment and ...
Exhibit 1: Comparative Cost          Projections all Options              2006     2007     2008     2009     2010     201...
Exhibit 2. Cost Comparison                             2006 to 2015 (in billions)                            $110.0       ...
Exhibit 3A. Total Savings Projections                                         Inaction vs. Option 2                      $...
Exhibit 3B. Total Savings Projections                                         Inaction vs. Option 3                      $...
The Baseline     Overview of Current Massachusetts       Health Coverage and SpendingPrepared for the Committee for Health...
Current Coverage and Spending • $51 billion – the 2005 price tag for health   care in Massachusetts • 748,000 uninsured in...
Exhibit 4. Massachusetts Uninsured,             2004 (in thousands)      800                                              ...
Exhibit 5. 2005 Spending by Source                                    (in billions)                       $18             ...
Exhibit 6. Funding Available to Finance   Expanded Coverage (in millions) Uses                                            ...
Option 1                              InactionPrepared for the Committee for Health Care for Massachusetts   December 14, ...
What Happens? • Health care spending nearly doubles by   2015 • The number of uninsured rises 20% to   900,000 by 2015 • B...
Exhibit 7. Spending by Source                    (in billions)             2006     2007      2008      2009     2010     ...
Exhibit 8. Spending Comparison by                         Source 2005 to 2015 (in billions)                        $35    ...
Exhibit 9. Projected Number of Uninsured in                  Massachusetts Without Reform, 2005-2015                  950,...
Exhibit 10. Projected Average Annual Growth in    Massachusetts Health Care Spending, Gross        State Product and Wages...
Exhibit 11. Percent of MA Employee Earnings                    Spent On Health Costs (w/o reform)                         ...
Exhibit 11. Percent of MA Employee Earnings                  Spent On Health Costs (w/o reform)                           ...
Exhibit 12. Health Care Spending as % of              Gross State Product (w/o reform)                        Health Care ...
Exhibit 12. Health Care Spending as % of              Gross State Product (w/o reform)                        Health Care ...
Option 2         Universal Coverage Through             Expansion of Current          Public/Private System with         R...
What Happens? • Reform generates savings of $800 million in   first year of full implementation • Health care spending is ...
Modeling Assumptions  • All eligible children automatically enrolled in    Medicaid/SCHIP  • Adults in families under 150%...
Exhibit 13. Option 2 Costs and             Savings, 2006 (in billions)     2006 Spending without reform                   ...
Cost Containment and Quality               Improvement Strategies                                      The Goal        Lim...
Potential Savings from Cost            Containment and Quality            Improvement Strategies Strategies               ...
Costs and Savings• Cost of care for the newly insured depends on key  policy choices, particularly the extent and structur...
Option 3              Universal Coverage through               Public System Expansion               with Reforms to Conta...
What Happens? • Health care spending drops by $6 billion in   2006 • Health care spending is 13% lower by 2015   than it w...
Modeling Assumptions • All residents of Massachusetts receive coverage   similar to the Blue Cross Blue Shield standard   ...
Exhibit 14. Option 3 Costs and             Savings, 2006 (in billions)                                    2006 Spending   ...
Conclusions• Cost of inaction is high and rising   – Health spending doubles in ten years – growing 1 ½ times faster     t...
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Action Costs Less: The Health Care Amendment, Standards and Options for Reform

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Action Costs Less: The Health Care Amendment, Standards and Options for Reform

  1. 1. ACTION COSTS LESS The Health Care Amendment Standards and Options for Reform Kenneth E. Thorpe, Ph.D. Robert W. Woodruff Professor and Chair Department of Health Policy and Management Rollins School of Public Health Emory UniversityPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  2. 2. Executive SummaryPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  3. 3. Findings• The cost of inaction is high and rising – Health spending will almost double in ten years – growing 1 ½ times faster than the economy and more than twice as fast as wages – Number of uninsured will rise to 900,000 in ten years• There are a range of reform options to achieve universal, affordable access, contain costs and improve quality of care• The two options examined illustrate the potential for ensuring access AND generating substantial savings at the same time – Expanding our existing public/private system to cover every resident can save $30 billion over ten years – A “single payer” system can save almost $105 billion over ten years• Achieving these savings requires – Universal, comprehensive coverage – Investment in prevention and quality improvement – Investment in administrative streamlining and efficiencyPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  4. 4. The Health Care Amendment Standards for Reform • Universal: all Massachusetts residents • Affordable: all individuals, families, providers, businesses and taxpayers • Equitable: – Costs and savings fairly distributed among all who benefit from affordable coverage for all – Fair reimbursement for all services provided • Comprehensive: all medically necessary preventive, acute and chronic health care and mental health care services, prescription drugs and devicesPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  5. 5. Options Analyzed• Option 1: Inaction• Option 2: Universal coverage; expanded public/private system; cost containment and quality improvement• Option 3: Universal coverage; expanded public system; cost containment and quality improvementPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  6. 6. Exhibit 1: Comparative Cost Projections all Options 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Option 1 $55.1 $59.6 $64.1 $68.9 $73.8 $79.7 $85.0 $91.4 $97.9 $105.3Option 2 $54.3 $57.9 $61.4 $66.0 $70.9 $76.4 $81.4 $87.6 $93.9 $101.1Option 3 $48.9 $52.1 $55.3 $59.4 $63.8 $68.8 $73.3 $78.9 $84.6 $91.1 Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  7. 7. Exhibit 2. Cost Comparison 2006 to 2015 (in billions) $110.0 $105.3 $101.1 $100.0 Spending (in billions) $91.1 $90.0 Option 1 $80.0 Option 2 $70.0 Option 3 $60.0 $55.1 $54.3 $48.9 $50.0 $40.0 2006 2015Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  8. 8. Exhibit 3A. Total Savings Projections Inaction vs. Option 2 $110.0 By 2015 $29.9 $100.0 Savings = $29.9 Billion $90.0Billions of Dollars $80.0 $11.0 $70.0 By 2010 $60.0 Savings = $11.0 Billion $50.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Inaction Option 2
  9. 9. Exhibit 3B. Total Savings Projections Inaction vs. Option 3 $110.0 By 2015 $104.6 $100.0 Savings = $104.6 Billion $90.0Billions of Dollars $80.0 $42.0 $70.0 By 2010 $60.0 Savings = $42.0 Billion $50.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Inaction Option 3
  10. 10. The Baseline Overview of Current Massachusetts Health Coverage and SpendingPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  11. 11. Current Coverage and Spending • $51 billion – the 2005 price tag for health care in Massachusetts • 748,000 uninsured in 2004 – about 12% of the non-elderly population • $1 billion – 2005 price tag for care for the uninsured and underinsured • Health spending consumes almost 15% of gross state productPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  12. 12. Exhibit 4. Massachusetts Uninsured, 2004 (in thousands) 800 744 748 639 700 600 500 400 # 300 200 105 100 0 Children Adults Total Under Total 65Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  13. 13. Exhibit 5. 2005 Spending by Source (in billions) $18 $16 $15.3 $13.2 Spending (billions) $14 $12 $9.5 $10 $8.3 $8 $6 $4.8 $4 $2 $0 M M Pr O O ut th ed ed iv -o er at ic ic f-P e ai ar In d e oc s ke tPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  14. 14. Exhibit 6. Funding Available to Finance Expanded Coverage (in millions) Uses Financing Sources Subsidies to Individuals and/or •Disproportionate Share (other than Employers to Purchase Health IMD) $470 Insurance or Reduce Contribution Levels for Publicly Financed Coverage, $1,100-$1,500 •Other current state/local Federal spending on the uninsured $477 •Other $83 TOTAL* $1,030 * Source: Urban InstitutePrepared for the Committee for Health Care for Massachusetts December 14, 2005
  15. 15. Option 1 InactionPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  16. 16. What Happens? • Health care spending nearly doubles by 2015 • The number of uninsured rises 20% to 900,000 by 2015 • By 2015 health care spending grows from – 15% to over 19% of gross state product – 22% to almost 31% of total payrollPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  17. 17. Exhibit 7. Spending by Source (in billions) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Medicaid $14.1 $15.0 $16.3 $17.7 $19.2 $20.9 $22.5 $24.4 $26.4 $28.7SpendingMedicare $10.1 $11.4 $12.1 $12.9 $13.7 $14.9 $15.7 $17.2 $18.6 $20.1SpendingPrivate $16.3 $17.5 $18.8 $20.2 $21.5 $23.1 $24.6 $26.1 $27.7 $29.5InsuranceOOP $5.8 $6.2 $6.7 $7.1 $7.6 $8.1 $8.7 $9.2 $9.7 $10.3Other $8.8 $9.5 $10.2 $11.0 $11.8 $12.7 $13.5 $14.5 $15.5 $16.7Total $55.1 $59.6 $64.1 $68.9 $73.8 $79.7 $85.0 $91.4 $97.9 $105.3 Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  18. 18. Exhibit 8. Spending Comparison by Source 2005 to 2015 (in billions) $35 $29.5 $30 $26.7 Spending (billions) $25 $20.1 $20 $16.7 $15.3 $15 $13.2 $10.3 $9.5 $8.3 $10 $4.8 $5 $0 M Pr O M O ut th ed ed iv -o er at ica ica f-P e re id In oc s ke tPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  19. 19. Exhibit 9. Projected Number of Uninsured in Massachusetts Without Reform, 2005-2015 950,000 900,000 900,000 # Uninsured 850,000 850,000 800,000 750,000 748,000 700,000 2005 2010 2015Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  20. 20. Exhibit 10. Projected Average Annual Growth in Massachusetts Health Care Spending, Gross State Product and Wages 2005 - 2015 Average Annual Growth 2005-2015 8% 7.50% 6% 4.80% 4% 3.20% 2% 0% Wages Gross State Health Care ProductPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  21. 21. Exhibit 11. Percent of MA Employee Earnings Spent On Health Costs (w/o reform) Private Out of Total as % Year HI Tax 2 Payroll Insurance Pocket of Payroll 3 2006 $16.4 1 5.2 3.2 111.4 22.3% 2015 $ 31.5 9.9 4.3 147.8 30.9% 22.3%1. $ in Billions2. Portion of Income Tax that goes to Health Costs3. For Firms with Employee-Sponsored Insurance Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  22. 22. Exhibit 11. Percent of MA Employee Earnings Spent On Health Costs (w/o reform) Private Out of Total as % Year HI Tax 2 Payroll Insurance Pocket of Payroll 3 2006 $16.4 1 5.2 3.2 111.4 22.3% 2015 $ 31.5 9.9 4.3 147.8 30.9% 30.9%1. $ in Billions2. Portion of Income Tax that goes to Health Costs3. For Firms with Employee-Sponsored Insurance Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  23. 23. Exhibit 12. Health Care Spending as % of Gross State Product (w/o reform) Health Care Gross State Health as % of Spending Product GSP 2006 $55.1 $360.1 15.3% 2015 $105.3 $539.8 19.5% 15.3%Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  24. 24. Exhibit 12. Health Care Spending as % of Gross State Product (w/o reform) Health Care Gross State Health as % of Spending Product GSP 2006 $55.1 $360.1 15.3% 2015 $105.3 $539.8 19.5% 19.5%Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  25. 25. Option 2 Universal Coverage Through Expansion of Current Public/Private System with Reforms to Contain Costs and Improve QualityPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  26. 26. What Happens? • Reform generates savings of $800 million in first year of full implementation • Health care spending is 4% lower by 2015 than it would have been without reform • The number of uninsured and underinsured drops to virtually zero • Health care spending consumes less household income and gross state product than without reformPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  27. 27. Modeling Assumptions • All eligible children automatically enrolled in Medicaid/SCHIP • Adults in families under 150% poverty enrolled in “SCHIP-like” plan • Workers pay 25% of premium. Sliding scale subsidies for workers earning between 150% and 300% of poverty • Employers pay 75% of premiums for full-time workers pro-rated for part-time workers. Sliding scale subsidies for small and low-margin employers • Self-employed pay 100% of premiums with sliding scale subsidies based on income • Cost and quality initiatives implemented in 2006Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  28. 28. Exhibit 13. Option 2 Costs and Savings, 2006 (in billions) 2006 Spending without reform $ 55.1 Change in Health Care Spending In Massachusetts—New Spending to Cover the Uninsured $ 1.4 Subtotal $ 56.5 Savings from Quality and Administrative Initiatives ($ 2.2) Total 2006 Spending Option 2 $ 54.3 2006 Savings for Option 2 with Initiatives ($ 0.8)Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  29. 29. Cost Containment and Quality Improvement Strategies The Goal Limit health care spending growth to the rate of GSP growth within 5 years • Require physicians billing state programs (MassHealth, GIC) to file electronic claims • Provide incentives for hospitals to adopt automated patient safety reporting systems • Require chronic care management in all state health programs • Reduce avoidable hospitalizations • Zero growth in childhood and adult obesityPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  30. 30. Potential Savings from Cost Containment and Quality Improvement Strategies Strategies Savings in Billions 1. 100% electronic physician claims $0.2 2. Automated hospital patient safety reporting $0.8 systems with peer protected information 3. Chronic care management – all state programs $1.0 4. Reduce avoidable hospitalizations $0.1 5. Zero growth in childhood/adult obesity $0.1 TOTAL $2.2 % of current spending 4.0%Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  31. 31. Costs and Savings• Cost of care for the newly insured depends on key policy choices, particularly the extent and structure of subsidies• Total federal/state costs to expand coverage is from $1.1 to $1.5 billion after reallocating existing spending for the uninsured and underinsured• Full implementation of quality and efficiency initiatives saves $2.2 billion• Net savings of $700 million to $1.1 billion in the first yearPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  32. 32. Option 3 Universal Coverage through Public System Expansion with Reforms to Contain Costs and Improve QualityPrepared for the Committee for Health Care for Massachusetts December 14, 2005
  33. 33. What Happens? • Health care spending drops by $6 billion in 2006 • Health care spending is 13% lower by 2015 than it would be without reform • The number of uninsured and underinsured drops to virtually zero • Health care spending consumes even less household income and gross state product than under Option 2Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  34. 34. Modeling Assumptions • All residents of Massachusetts receive coverage similar to the Blue Cross Blue Shield standard option plan • MassHealth remains unchanged • Commonwealth creates publicly financed plan for all Massachusetts residents • Workers pay 25% and employers pay 75% of cost of coverage • Sliding scale contribution rates for workers earning between 150% and 300% of poverty and for small and low-margin employers • Individuals and families under 150% of poverty would not contribute towards the cost of coveragePrepared for the Committee for Health Care for Massachusetts December 14, 2005
  35. 35. Exhibit 14. Option 3 Costs and Savings, 2006 (in billions) 2006 Spending Change in Spending with on Personal Spending Single Payer Health Care & under Single Coverage Administration Payer PlanTotal Spending $55.1 ($6.2) $48.9Increased Utilization $1.4Among UninsuredChange in Administrative $12.3 ($5.4)Costs, TotalInsurer Administration $3.8 ($2.8)Hospital Administration $3.0 ($0.6)Physician Administration $5.5 ($2.0)Cost Containment and - ($2.2)Quality ImprovementStrategiesTotal Savings ($6.2)Prepared for the Committee for Health Care for Massachusetts December 14, 2005
  36. 36. Conclusions• Cost of inaction is high and rising – Health spending doubles in ten years – growing 1 ½ times faster than the economy and more than double the rate of wages – Number of uninsured rises by 150,000 in ten years• There are a range of reform options to achieve universal, affordable access, contain costs and improve quality of care• The two options examined illustrate the potential for ensuring access AND generating substantial savings – Option 2 saves $30 billion over ten years- growing from $800 million in 2006 to over $4 billion in 2015 – Option 3 saves almost $105 billion over ten years – growing from $6 billion to over $14 billion in 2015• Achieving these savings requires – Universal, comprehensive coverage – Investment in prevention and quality improvement – Investment in administrative streamlining and efficiencyPrepared for the Committee for Health Care for Massachusetts December 14, 2005

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