A Public Health Insurance Plan:

Reducing Costs & Improving Quality

1

Health Care Reform Should Expand Consumer Choice

• • We should be able to keep our

employer-provided coverage

if we like it.

• We should be able to get coverage through a

new public health insurance plan like Medicare

sponsored by the government.

President Obama’s

reform plan proposed such a choice for many Americans, as do many members of Congress.

•

Medicare is a public health insurance plan

should continue and be improved.

for seniors that • Medicare provides valuable lessons for creating a

new public health insurance plan for people under 65

.

2

Public Health Insurance Plans: Strong Track Record vs. Private Insurance Plans

• Much better

cost controls

• Much lower

administrative costs

• Much more reasonable

provider costs

• Good

quality

and

cost effectiveness

• More

choice, competition

and

accountability

3

Medicare’s Record: Better Cost Controls than Private Insurance Over 25 Years

• Private health insurers’ spending per enrollee

grew 29% faster

than Medicare spending between 1983 and 2006.

• Private health insurers’ spending per enrollee

grew 59% faster

than Medicare spending between 1997 and 2006.

• Spending was for

comparable benefits.

• The time periods correspond to major reforms to the way Medicare pays hospitals (1983) and physicians (1997).

4

Per Enrollee Average Annual Percent Change in Private Health Insurance Premiums and in Medicare Spending for Common Benefits

8% 7% 6% 5% 7.6% 5.9% 7.3% 4.6% 4% 3% 2% 1% 0% 1983-2006 1997-2006

Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group, National Health Expenditures, Table 13, 2008

PHI Medicare Trend PHI Trend Medicare 5

“Excess Spending Growth” for Elderly Health Care Is Much Lower than for the Non-elderly

• Excess spending growth measures how much is spent on health care above how much the economy grows. The goal is

not to spend more than the economy grows

, or else health care becomes too costly.

• Excess spending growth for the

elderly

, nearly all of whom get

Medicare

, has

plummeted to just 0.3% in recent years

. • Excess spending growth for the

non-elderly

, most of whom are

privately insured

, has skyrocketed to

3.4% - that’s unaffordable

. • Much lower spending for seniors is due to

Medicare’s much stronger cost control measures

. 6

Annual Rates of Excess Growth in Health Spending Per Person for Selected Time Periods, Elderly and Nonelderly, 1970 –2004

5% 4% 3% 2% 1% 0% Elderly Nonelderly 1970-1977 1977-1987 1987-1996 1996-2004

Source: Chapin White, “Why Did Medicare Spending Growth Slow Down?” Health Affairs, May/June 2008.

7

Medicare’s Record: Much Better Cost Controls Than Private FEHBP Plans

• The Federal Employees Health Benefits Program offers members of Congress and other government employees

a choice of hundreds of private insurance plans

through an “insurance exchange.” • The annual growth in FEHBP plan premiums per enrollee was

26% higher than the growth in Medicare spending

between 1985 and 2002 (latest data).

• FEHBP plans’ costs rose at the

same rate

private health insurance plans.

as other • FEHBP is

not a good model

insurance exchange. for a national health 8

8% 7% 6% 5% 4% 3% 2% 1% 0%

Annual per Enrollee Growth in Medicare Spending and Private Health Insurance and FEHBP Plan Premiums For Common Benefits, 1985 –2002

7.4% 7.3% 5.8% Medicare PHI FEHBP

Jan/Feb 2004

Private Health Insurance Market: Highly Consolidated, High Premiums, Record Profits

• In 16 states the dominant carrier has at least

50% of private insurance enrollment.

• In 40 states the top 3 carriers have

60% to 100% of the market.

• Employer-paid health insurance premiums have increased

9% a year since 1999

.

•

The result:

Insurance companies reap record profits.

•

The need:

More competition from a public plan.

10

Market Consolidation: Record Insurance Company and Hospital Profits

  CEOs at these companies were paid a combined $147.6 million in 2007 –

$10.5 million each

.

 Profits of the 14 largest health insurance companies rose from $3.5 billion to $15 billion between 2000 and 2007 – a

330% increase

.

That’s

259 times more

paid -- $40,690. than an average worker was 

9 out of 10 metro areas are highly concentrated

hospital markets pushing up costs in some markets by 40%.

 U.S. for-profit hospitals reported

$43 billion in profits

in 2007, their best single-year jump in at least 15 years.

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$16 $14 $12 $10 $8 $6 $4 $2 $0

Growth in Profits of Major Private Health Insurance Companies $15.0 Billion $3.5 Billion 2000 Source: Company SEC filings 2007

12

Profits and CEO Compensation for Major Private Health Insurance Companies

Aetna

Company

Amerigroup Corporation Centene Corporation CIGNA Corporation Health Care Health Net Humana Principal Financial Group Sierra Health Services* Torchmark Corporation UnitedHealth Group Universal American Unum Group WellPoint WellCare Health Plans**

Total 2000 Net Income $ Millions

$127.1

$18.8

$7.2

$987.0

** $61.3

$163.6

$90.1

$358.8

-$199.9

$362.1

$736.0

$22.9

$538.9

$226.0

$3,499.9

2007 Net Income $ Millions

$1,831.0

$116.5

** $73.4

$1,115.0

$626.1

$193.7

$833.7

$860.3

$94.1

$527.5

$4,654.0

$84.1

$679.3

$3,345.4

$15,033.9

% Change 2007 vs. 2000

1,340.6% 519.2% 914.4% 13.0% 920.7% 18.4% 825.8% 139.8% 147.0% 45.7% 532.3% 267.4% 26.1% 1,380.3% **

329.6% CEO

Ronald A. Williams Jeffrey L. McWaters Michael F. Neidorff H. Edward Hanway Dale B. Wolf Jay M. Gellert Michael McCallister J. Barry Griswell * Mark S. McAndrew Stephen J. Hemsley Richard A. Barasch Thomas R. Watjen Angela F. Braly Todd S. Farha Source: Company SEC filings. The companies are listed in the Corporate Library's "Insurance Health and Disability" category. All of these companies, with the exception of Torchmark, are members of America's Health Insurance Plans.

*Sierra Health Services has been acquired by UnitedHealth Group.

**WellCare Health Plans did not exist in 2000 and it has not filed quarterly or annual reports since 2007 when its offices were raided by the FBI. Its CEO compensation figure is from 2006.

Value of Total Compensation $ Millions

$23.0

$8.2

$8.8

$25.8 $14.9 $3.7

$10.3

$11.8

* $4.7

$13.2

$1.6

$7.3

$9.1

$5.3

$147.6

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Public Health Insurance Plans = Much Lower Administrative Costs

• Medicare’s public plan has

administrative costs of less than 2%.

• Administrative costs and profits of

Medicare Advantage plans

, offered by private insurers,

are 11%

.

• Health insurance industry spending for administration and profits jumped

12% a year

from 2000 to 2005: –

40% faster

–

50% faster

grew than overall health spending grew than hospitals’ and physicians’ spending • Private health insurance industry employment those under 65

grew by just 3.4%

.

grew 52%

from 1997 to 2007; private health plan enrollment of 14

Health Expenditure Growth by Selected Categories, 2000-2005

14% 12% 10% 8% 6% 4% 2% 0% 12.0% 10.7% 8.0% 7.9% 6.1% Insurance Administration & Profit Prescription Drugs Hospital Care Physician & Clinical Services Nursing Home & Home Health

Source: The Commonwealth Fund Commission on a High Performance Health System, "Slowing the Growth of U.S. Health Care Expenditures: What Are the Options?” January 2007

15

Growth in Employment, Aug. 1997- Aug. 2007

60% 52% 50% 40% 30% 20% 26% 12% 10% 0% Health Insurance Industry Health & Support Services Total Nonfarm

Source: Economic Policy Institute chart based on Bureau of Labor Statistics, Employment Statistics Survey (National)

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Public Health Insurance = More Bargaining Power and Lower Provider Costs

  Medicare’s more reasonable hospital payments require them to operate more efficiently. 

Hospitals:

Paid

25% less

by Medicare than private insurers pay for comparable benefits. Virtually

all hospitals participate

with Medicare.

Physicians:

Paid

19% less

by Medicare than private insurers pay for comparable services.



97% of doctors

take new Medicare public plan patients, virtually the same rate as accept private PPO patients.

 Number of physicians billing Medicare is

faster growing much

than enrollment in Medicare Part B, which pays for physician care.

17

Public Health Insurance Plans = High Quality and Cost Effectiveness

    

Medicare’s central role:

Health policy experts say Medicare plays the central role in transforming the health system to higher quality and more cost effectiveness.

Medicare is leading:

Development of practice guidelines and quality measurements, requiring providers to publicly report quality indicators, development of a pay-for-performance system.

Market share:

Medicare and a new public plan would have the market share and power to reshape market practices to promote much better quality and more cost effectiveness.

More financial incentives:

Public health insurance plans have more incentive than private plans to improve quality in order to curb costs because they operate under tight fiscal constraints and can’t pass along cost increases to employers.

Stability:

Public health insurance plans are much more stable for enrollees and providers making investments in prevention much more cost effective for the long run.

18

Public Health Insurance Plans = More Choice, Competition and Accountability



Choice:

A public plan offers an alternative to private insurance and access to more health care providers. 

Competition:

place an important check on both plans to the benefit of consumers. Between public and private plans will 

Accountability:

A public plan promotes accountability because it must meet the test of democratic support.



Transparency:

Private insurers’ billing, payment, claims and health outcomes data are mostly proprietary and receive limited public oversight.

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