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.
1. A Detailed Look at
U.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. What We Will Cover Today
1. Big Picture Orientation
2. Distribution of Personal Health Care Spending
3. Spending through Government Entitlement
Programs
4. Spending through Private Health Insurance
5. What’s Behind the High and Rising Spending?
3. What We Will Cover Today
1.Big Picture Orientation
2. Distribution of Personal Health Care Spending
3. Spending through Government Entitlement
Programs
4. Spending through Private Health Insurance
5. What’s Behind the High and Rising Spending?
4. Total National Health Spending
Continues to Increase
3 $8,402 $9,000
National Health Expenditures (trillions) $8,149
$7,911
$7,628 $8,000
Per Capita Health Spending $7,251
2.5 $6,868 2.6
$6,488 2.5 $7,000
$6,114
2.4
2.3
2 $5,687 2.2 $6,000
$5,241 2.0
$4,878 1.9
$4,601 $5,000
$4,367 1.8
1.5 $4,169 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. U.S. Health Spending is a
Dramatic Outlier Internationally
United States
Netherlands
17.4
France
Germany
Denmark
Switzerland
Canada
Austria
Belgium
New Zealand
Sweden
United Kingdom
Iceland
Norway
Spain Most developed
Italy
Ireland countries spent
Slovenia
Finland ~9.5 to 12% of
Slovak Republic
Chile GDP on health
Czech Republic
Israel
care in 2009
Luxembourg
Poland
Hungary
Estonia
Korea
Mexico % GDP, 2009
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0
NIHCM Foundation analysis of data from the Organisation for Economic Cooperation and Development.
6. U.S. Spends More than Expected
Based on Our Wealth
$9,000
United States
$8,000
$7,000
Chile, Mexico, Poland,
$6,000 Estonia, Hungary, Slov Switzerland Norway
$5,000 ak Republic, Czech Luxembourg
Republic, Korea, Israel
Per Capita Health
Spending, 2009
$4,000 , Slovenia, New
Zealand
$3,000
$2,000 Spain, Italy, France, Finland, United
Kingdom, Belgium, Germany, Iceland, Sweden,
$1,000 Denmark, 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. What Does $8,400 Per Person Buy?
Public Investment, $48 16% of spending
Health, $267 3
Administration, $ ($1,320) is not
570 related to
personal health
care services
Rx, DME & Other Hospital
Medical Care, $2,637
Products, $1,106
84% of
Home Health & spending
LTC, $1,107 MD & Clinical
Services, $1,670
($7,080) is for
Dentists & Other
personal health
Health care services
Professionals, $
560
NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
8. Health Spending Growth has
Slowed, But Usually Outpaces GDP
Growth
16
Health Spending
14 GDP
Percent Change from Previous Year
12
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
-4
NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
9. Historically, Health Spending Has Grown
1.0 - 2.5 Percentage Points Faster than
GDP
Pct. Points
3.0
1975-2008 1980-2008 1985-2008 1990-2008
2.5
Average 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. 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
Massive loss of jobs and employer-sponsored insurance
Declining real income, substantial loss of wealth, people more cautious about spending
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 providers
Sources: Martin et al. “Growth in US Health Spending Remained Slow in 2010; Health Share of GDP Was Unchanged from 2009.”
Health Affairs, 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. 2011 Uptick
Return to Higher Spending Growth, or Not?
Altarum analysis of monthly health spending data from the Bureau of Economic Analysis.
12. A Growing Share of National Health
Spending is From Public Sources
100%
Other Private Revenues
90%
80% Private
Households
70%
Private Sources
Source = 55%
60% s=
50%
68%
Private Business
40%
30%
Public Federal Government Public
20% Source Source
s= s=
10%
32% State and Local Government 45%
0%
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
13. A Closer Look at Public & Private
Health Care Spending, 2010
Private Sources (55%) Public Sources (45%)
Total Spending by Private Sources $1,430 Total Spending by Public Sources $1,164
B B
Private 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 $278.1
Households (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 $11.4
Other 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. What We Will Cover Today
1. Big Picture Orientation
2. Distribution of Personal Health
Care Spending
3. Spending through Government Entitlement
Programs
4. Spending through Private Health Insurance
5. What’s Behind the High and Rising Spending?
15. A Word about Data Sources
National Health Expenditure Medical Expenditure Panel Survey
Accounts (NHEA) (MEPS)
Synthetic database derived from Annual survey of households about
myriad secondary sources their health spending
Covers total US population, including Covers civilian, non-institutionalized
military, nursing home residents, etc. population
Includes expenditures beyond personal Designed to capture payments from
health care services (e.g., public all sources (public, private, self-pay)
health, research, investments in for personal health care services
infrastructure, administration)
Latest available year is 2010 Latest available year is 2009
Total spending reported = $2.594T Total spending reported = $1.259T
16. Relatively Few People Account
for Most Personal Health Spending
100 100.0
90 Top 1% of spenders account for >20% of spending ($275
Cumulative Percent of Total Spending
billion)
80 78.2
70
Top 5% of spenders account for almost half of spending ($623
60 billion)
50 Total Personal Health Care
50.5
40 Spending
= $1.259 Trillion 34.8
$36 Billion $1,223 Billion
30
18.8
20
10.4
10 5.6
1.3 2.9 99
0.0 0.1 0.4 95
0 15.
0 10 4 20 30 40 50 60 70 80 90 100
Percent of Civilian Non-Institutionalized Population Ordered by Health Care Spending
NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
17. Greatest Potential for Savings
Focus on High Spenders
$100,000
Total spending by top $90,061
$90,000 1% = $275 billion
$80,000
Mean Annual Expenditure
$70,000 Total spending by top
5% = $623 billion
$60,000
Total spending by top
$50,000 10% = $821 billion
Total $40,682
$40,000
spending by
$30,000 bottom 50% = $26,767
$36 billion
$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 3.06M pop.
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. High Spenders are Older
100% 1.4
2.7
90% 7.0
21.1 24.8
80% 12.5
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. High Spenders
Report Worse Health
100% 0.8
4.3
90% 18.5
26.0
22.1
80%
70% 25.2
60% Poor
32.3 31.4
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. High Spenders Have More Chronic
Conditions & Functional Limits
100% 1.9 1.3
3.4
90% 8.2
80% 31.5
Functional limitation only
70% 36.5
60% Chronic condition, help with 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% Spenders
NIHCM Foundation analysis of data contained in The Lewin Group, "Individuals Living in the Community with Chronic
Conditions and Functional Limitations: A Closer Look," January 2010.
21. Considerable Persistence in
Spending Patterns Over Two
80%
73.9%
Years
75.0%
70%
Percent with Same Ranking in
63.1%
60%
54.4%
50% 44.8%
2009
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, 2008
Source: 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. 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
40 27 18-29 40 Fair
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 bothTop 10% in 2008, Bottom 75% in 2009
years Top 10% in both years in 2008, Bottom 75% in 2009
Top 10%
Of top 10% of spenders in 2008:
44.8% remained in top 10% and 25.4% moved to the bottom 75% in 2009
Source: 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. Long-Term Persistence of High Spending
Among Medicare Beneficiaries
100
90
Bottom 75% Top 25%
80
Died by Jan. 1 Not in FFS
70
60
50
40
30
20
10
0
1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: Congressional Budget Office. “High-Cost Medicare Beneficiaries.” May 2005.
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. What We Will Cover Today
1. Big Picture Orientation
2. Distribution of Personal Health Care Spending
3. Spending through Government
Entitlement Programs
4. Spending through Private Health Insurance
5. What’s Behind the High and Rising Spending?
26. Government Health Entitlement
Programs
36 Percent of National Health Spending in 2010
Investment, 6%
Public Health, 3%
Other Third Party Out of
Payers & Pocket, 12%
Programs, 7%
DOD & VA, 3%
Medicaid & CHIP = Private Health
$413.1B, 16% Insurance, 33%
Medicare = 2010 Total Spending = $2.594 T
$524.6B, 20%
NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
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%
6% Defense
Discretionary
Other Revenue
23% 15%
Other Mandatory
Payroll Taxes Spending
5% 20%
Corporate Income Social Security
Taxes 8%
30%
Individual Income 21% 13% Medicaid & Other
Taxes
Health
Borrowing (Deficit) Entitlements
36%
NIHCM Foundation analysis of data from CBO’s “The Budget and Economic Outlook: Fiscal Years 2012 to 2022,” Jan. 2012.
28. Structure of the Medicare
Program
PART A • Hospital Insurance (HI) Trust Fund
Inpatient & • Mandatory program
Post-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 reserves
PART B • Supplemental Medical Insurance (SMI) Trust Fund
Physician & • Voluntary programs
Outpatient 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 plans
Managed Care • Financed from both trust funds
29. Current Claims on the Part A Trust
Fund Require General Revenues
% of Taxable Payroll A Pay-As-We-Go System
7%
Part A Expenditures
Part A Operating Deficit: Baby boomers retiring
6%
~10,000/day
Covered by Redemption of
Trust Fund
5% Assets, Requiring 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 2080
Source: A Summary of the 2012 Annual Reports, Social Security and Medicare Boards of
Trustees, www.ssa.gov/OACT/TRSUM
30. The Big Picture for Medicare:
Dedicated Revenue <
%GDP
Expenditures historical projecte
7% d Total Medicare Expenditures
Part A Trust
Fund Deficit
6% Part A
Trust
Non-interest program income
Fund
5% exhauste
d
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 2080
Source: A Summary of the 2012 Annual Reports, Social Security and Medicare Boards of
Trustees, www.ssa.gov/OACT/TRSUM
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 $188,00
Male $170,000
$150,000
$119,000
$100,000
$60,000 $60,000
$50,000
$0
Single, Average WageOne-EarnerOne-Earner Couple, Average Wage Couple, Average Couple, Average
Single, Average Wage Couple, Average Wage Two-Earner Two-Earner Wages
Wage
Source: Steuerle CE and Rennane S. "Social Security and Medicare Taxes and Benefits Over a Lifetime.” Washington, DC:
The Urban Institute. June 2011.
32. But the Public Perception is Very
Different from Reality
Thinking about Medicare, do you believe that over the course of
your career you [will] have paid…
Not enough, others will support me Enough to support myself More than I'll 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. 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. Medicaid
Enrollment vs. Spending, FY
2009
100%
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% $2,313
Children
0%
Enrollees Spending
~15% of enrollees ~40% of spending
are dual eligibles is for dual eligibles
Source: Kaiser Family Foundation, “The Medicaid Program at a Glance.” September 2012.
35. Medicaid Spending is a Large and
Growing State & Federal Burden
Total State Expenditures, FY2011 Total Medicaid Spending ($billions)
(estimated) 450
400
Federal Spending 273
State Spending 251
350
201
Medicaid 191
All Other 300 181
24% 176 182 63-64%
Spending
162
34% 250 ARRA
148
200 130
118 56-57%
K-12 150
158
Education 142 150 147 156
133 137
20% 100 112 122
Public 89 98
Assistance Higher 50
2% Education
Corrections Transport 10% 0
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. Mandatory Federal Health Spending
Projected 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
5.3% 101 107 5.0%
$1,200 5.1% 91 592
4.7% 4.9%
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
actual
NIHCM analysis of data from CBO’s “An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022,” Aug. 2012.
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. Faster Growth in Health Entitlement Spending
Will Dramatically Worsen Projected Deficit
10 historical projected
Primary 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. Triangle of Painful Choices
Tradeoffs Needed to Balance Budget by 2035
Health Spending Growth Relative to Potential GDP
10%
-4% -3% -2% -1% +1%
A 0%
9% B
Defense & Other Non-Health
Spending as % of GDP
8%
D
7%
6%
5%
4%
3%
C
2%
18% 19% 20% 21% 22% 23% 24% 25%
Tax Revenue as % of GDP
Source: Roehrig, C. Altarum Center for Sustainable Health Spending. As presented in The Incidental Economist Blog, Aug.
15, 2012.
40. What We Will Cover Today
1. Big Picture Orientation
2. Distribution of Personal Health Care Spending
3. Spending through Government Entitlement
Programs
4. Spending through Private Health
Insurance
5. What’s Behind the High and Rising Spending?
41. Private Health Insurance Premiums
One-Third of National Health Spending, 2010
Investment, 6%
Public Health, 3%
Other Third Party
Payers & Out of
Programs, 7% Pocket, 12%
DOD & VA, 3%
Private Health
Medicaid & Insurance =
CHIP, 16% $848.7B, 33%
Medicare, 20%
2010 Total Spending = $2.594 T
NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
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
underwriting and pre-existing conditions
• Risks pooled by employer group. 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
cases. Value of tax exclusions = $145 only for self-employed
billion 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- • employed but not offered coverage
based coverage were in “self-insured” • non-dependent students
plans (2012)
• early retirees
• Larger employers most likely to self • between jobs
insure, but growing trend among smaller
employers
43. Private Coverage is Dominated
by Employment-Based Insurance
100% 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
0% 5.1%
Enrollees Premiums
174.4M (2011) $839.8B
Sources: Fronstin P. “Sources of Heath Insurance…” EBRI Issue Brief 376, Sept. 2012; NIHCM analysis of data from the
(2010)
2010 National Health Expenditure Accounts, Sponsor Highlights.
44. Private-Sector Workers Paying an
Increasing Share of Increasing Premiums
Employment-Based Coverage
Individual Policy Family Policy
16000 150% 16000 146% 150%
142%
14000 14000
$1502
122%
12000 12000 114%
97%
100% 100%
10000 10000
8000 87%
8000 $677
6000 $522 6000
50% 50%
2
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 Premium
Source: NIHCM analysis of data from the Medical Expenditure Panel Survey, Insurance Component. Data not available for
2007.
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 80%
74%
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 20%
$518
$500 $446
10%
$0 0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: NIHCM analysis of data from the Medical Expenditure Panel Survey, Insurance Component. Data not available for
2007.
46. Health Spending by American Families
More Than Doubled in Past Decade
Family of Four, Employer-Based PPO Coverage
$21,000 $20,72
Employee Out-of-Pocket Costs $19,39 8
$18,07 3 3470
Employee Contribution to Premium
$16,77 4 3280
Employer Contribution to Premium $15,60 1 3005
$14,50 9 2820
0 2675 5114
$14,000 $13,382 4728
$12,21 2420 4325
$11,192 4 2210 4004
$10,16 2035 3492
1920 3171
$9,23 8 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 2012
Source: NIHCM Foundation analysis of data presented in the annual Milliman Medical Index reports, 2005-2012. Values for
component parts for 2002-2005 were estimated using component growth rates reported by Milliman.
47. Premiums and Deductibles Also
Continue to Rise in the Non-Group
Market
Individual Policy Family Policy
$5,000 4968 80%
$5,000 80%
4596 4704
71% $4,500 4392 4428 69%
$4,500
70% 70%
4128
$4,000 $4,000 3888
60% 3879 60%
$3,500 $3,500
50% 50%
$3,000 2935 $3,000 3128
2632 3531
$2,500 2760 40%
$2,500 40% 2610
2084 2486
1972 2326 2294
$2,000 1864 2196 $2,000 28%
1721 30% 30%
1908 2004
1896
$1,500 1728 1776 1932 27% $1,500
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 - Deductible
NIHCM Foundation analysis of data contained in eHealthInsurance reports “The Costs and Benefits of Individual and Family
Health Insurance Plans” (Nov. 2008 and Nov. 2011) and “2009 Summer Cost Report for Individual and Family Policy
Holders.”
48. High-Deductible Health Plans
are Becoming Much More Prevalent
Health Plan Enrollment by Plan Type for Covered Workers
20…
20…
20… Conventional
20… HMO
20… PPO
20… POS
20… HDHP/SO
20…
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Health Plan Enrollment by Plan Type for Privately Insured Individuals
20…
20…
20… Traditional
20… HDHP
20…
CDHP
20…
20…
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 Care Survey.” EBRI Brief No. 365, Dec. 2011 (bottom graph).
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%
2008 25% 30% 46% Individual
2009 23% 30% 47% Small Group
2010 21% 30% 50% Large Group
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. Health Care Premiums Growing
Quickly 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
Need for Action to Address Rising Costs.” The Commonwealth Fund, November 2011.
51. Insurance Premiums Pay for
Health Care Services for Enrollees
Net Cost
of
Personal Health Care Services (88%) Insuranc
e
34 28 14 9 3 12
Physician & Clinical Rx &
Hospital Care Services DME
Dental & Other
Professional
Total Private Insurance Premium Revenue = Services
$848.7B Home Health & Other
LTC Facilities & Services
NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
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. 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
88% of Premiums
Services
$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 2010
Source: NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
54. Higher Spending for Hospital & Physician Services
Drove More than 70 Percent of the Premium
Growth
$120 3% of net
4% of net
9% of net change
change
14% of net change
2006 to 2010 Change ($ Billions)
$100 change
$3.1
$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
$20
$48.3 premiums was due to growth in
insurers’ spending for health
$0 care services
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. What We Will Cover Today
1. Big Picture Orientation
2. Distribution of Personal Health Care Spending
3. Spending through Government Entitlement
Programs
4. Spending through Private Health Insurance
5. What’s Behind the High and
Rising Spending?
56. Deconstructing the
Rising Health Spending
Spending 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. It Really is the Prices (Stupid)
Evidence from Massachusetts, 2007-2009
Decomposition of Spending Growth for Privately Insured Patients
Shift to More
Change in Total Number of Expensive
Spending Pure Price Effect Stays/Services 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%
Outpatient
Care 0.1% 0.1% 0.3% 0.2%
-1.3%
2007-2008 2008-2009
Source: Massachusetts Division of Health Care Finance and Policy. “Massachusetts Health Care Cost Trends: Trends in
Health Expenditures.” June 2011.
58. It Really is the Prices (Stupid)
Evidence from Several National Payers, 2010-2011
Per Capita Spending Unit Price Utilization Intensity
10.0 9.6
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
Percent
-0.6 -0.3 -0.4
-5.0 -4.2
Inpatient Care Outpatient Visits Other Outpatient Professional
Procedures
Source: Health Care Cost Institute, “Health Care Cost and Utilization Report: 2011,” September 2012.
59. U.S. Pays More for Hospital Services
Select Countries & Services
(US$, 2007)
$35,000
$34,358
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. 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 80 100 120 140 160 180
Source: Koechlin F, Lorenzoni L and Schreyer P. “Comparing Price Levels of Hospital Services Across Countries.” OECD
Health Working Papers No. 53, July 2010.
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 1,181
674
$20
$500 652
$0 $0
Public Payers Private Payers Public Payers Private Payers
Australia Canada France Germany UK US Australia Canada France Germany UK US
Source: Laugesen MJ and Glied SA. “Higher Fees Paid to US Physicians Drive Higher Spending for Physician Services
Compared to Other Countries.” Health Affairs, 30(9):1647-56. September 2011.
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 Surgeons
Source: Laugesen MJ and Glied SA. “Higher Fees Paid to US Physicians Drive Higher Spending for Physician Services
Compared to Other Countries.” Health Affairs, 30(9):1647-56. September 2011.
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. 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. For more information or
additional hard copies of our publications,
please contact me or visit our website:
jschoenman@nihcm.org
202-296-4192
www.nihcm.org
Editor's Notes
Public spending must be financed by taxes or borrowing, thus the growing share of health spending that is publicly financed has increasingly important implications for the government’s fiscal situation and for our ability to spend money on other goods and services, such as education and defense.
CBO’s August 2012 update to the January report did not present all of the individual data items needed for the spending part of this chart, so did not update. The revenue and spending numbers that were available did not change appreciably from those presented here.
Slide has been updated to account for Supreme Court decision re: Medicaid; lowers Medicaid projections, increases exchange projections.Medicaid down initially b/c of lower FMAP, then up due to Federal share of Medicaid expansionsMedicare spending down in initially due to timing of FY12 start, then up as baby boomers retire and costs/person continue to riseFederal subsidies in the exchanges begin in 2014