Transcript Policies that enhance access Social Insurance Social Insurance Programs National Health Care Expenditures Year Total Spending (in billions) Percent change Percent of GDP Per capita spending $ 13 -- 4.5 $ 82 8.8 5.2 10.5 7.2 13.0 9.1 1,100 10.9 12.3 2,814 1,353 5.9 13.6 4,789 1,982 7.9 15.7 6,701 2,113 6.7 15.8 7,071 2,240 5.6 15.9 7,423 2,339 4.3 16.2 7,681 Source: http://www.cms.hhs.gov/NationalHealthExpendData/

Policies that
enhance access
Social Insurance
Social Insurance Programs
National Health Care Expenditures
Year
Total
Spending
(in billions)
Percent
change
Percent of
GDP
Per capita
spending
1950
$ 13
--
4.5
$ 82
1960
28
8.8
5.2
148
1970
75
10.5
7.2
356
1980
254
13.0
9.1
1,100
1990
714
10.9
12.3
2,814
2000
1,353
5.9
13.6
4,789
2005
1,982
7.9
15.7
6,701
2006
2,113
6.7
15.8
7,071
2007
2,240
5.6
15.9
7,423
2008
2,339
4.3
16.2
7,681
Source: http://www.cms.hhs.gov/NationalHealthExpendData/
Personal Health Care Expenditures
(in billions of dollars)
Private Spending
Year
Out of
pocket
Public Spending
Private
Insurance
Federal
State
1960
$ 12.9
$ 5.9
$ 2.0
$ 2.9
1970
24.9
14.0
14.4
7.8
1980
58.1
61.2
62.3
23.9
1990
136.1
204.7
172.8
63.5
2000
192.6
402.8
369.8
117.1
2005
247.5
599.8
562.3
176.9
2006
254.9
634.6
620.1
178.7
2007
270.3
665.0
661.3
188.7
2008
277.8
691.2
718.0
189.8
Source: http://www.cms.hhs.gov/NationalHealthExpendData/
Private Health Insurance Coverage
(under age 65, numbered in millions)
With Health Insurance*
Without Health Insurance
Year
Number
Percent
Number
Percent
1999
161.2
68.3
38.5
16.1
2000
160.8
67.1
41.4
17.0
2001
162.4
67.0
40.3
16.4
2002
159.4
65.3
41.7
16.8
2003
157.5
64.4
41.6
16.5
2004
159.5
64.0
42.1
16.6
2005
160.1
63.6
42.1
16.4
2006
155.8
61.5
43.9
17.0
2007
157.9
61.6
43.3
16.6
* Employer-based.
Source: Health, United States, 2008, http://www.cdc.gov/nchs/hus/updatedtables.htm, Table 138 and 140.
Medicare
 Objective: improve access to medical care for elderly
…and disabled persons
The elderly…
12.6% of US population
19% of personal health care spending
31% of hospital spending
20% of physician spending
44 million
voters
Percent of U.S. population age 65+
23
actual
projected
Percent of population
20
17
14
11
8
5
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
Source: U.S. Census Bureau, 2004, "U.S. Interim Projections by Age, Sex, Race, and Hispanic Origin," Table 2a.
<http://www.census.gov/ipc/www/usinterimproj/>
2050
Medicare
 Objective: improve access to medical care for elderly
…and disabled persons
The elderly…
12.6% of US population
19% of personal health care spending
31% of hospital spending
20% of physician spending
 Institutional Features




Part
Part
Part
Part
44 million
voters
A—Hospital insurance (compulsory)
B—Supplementary insurance (voluntary)
C—Medicare Advantage (voluntary PPO or HMO)
D—Outpatient prescription drugs (voluntary)
$468 billion in 2008
Medicare Spending
Year
Recipients
(millions)
Total Spending
(billions)
Annual Rate of
Change in
Spending
1970
20.4
$ 7.5
--
1980
28.4
36.8
17.2
1990
34.2
111.0
11.7
2000
39.7
221.8
7.2
2005
42.6
336.4
8.7
2006
43.4
408.4
21.4
2007
44.1
431.5
5.7
2008
45.2
468.1
8.5
Source: http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2008.pdf
Medicare Part A: Hospital Insurance
 Plan:




Day
Day
Day
Day
Inpatient hospital care
Skilled nursing facility care
Home health agency care
Hospice care
$1,100
1-60: Deductible = 1 day @ hospital
61-90: daily coinsurance = 25% of deductible $275
91-150: daily coinsurance = 50% of deductible $550
151-?: nothing
Lifetime reserve
Medicare is not designed to provide
protection against catastrophic illnesses
 Financed by 2.9% payroll tax
Medicare Tax Rates and Bases
(selected years)
Tax rate
(% of taxable earnings)
Year
Maximum tax
base
Employees and
employers, each
Selfemployed
1966
$6,600
0.35%
0.35%
1970
7,800
0.60
0.60
1980
25,900
1.05
1.05
1984
37,800
1.30
2.60
1990
51,300
1.45
2.90
1993
135,000
1.45
2.90
1994-2009
No limit
1.45
2.90
Scheduled in current
law: 2010 and later
No limit
1.45
2.90
Source: http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2009.pdf
Medicare Part B:
Supplementary Insurance
 Plan:
Physicians’ services
Outpatient hospital services
ER services
Laboratory services
Outpatient physical therapy
Durable medical equipment
 Annual deductible + monthly premium + 20% coinsurance
$155
$96*
 Financed by general tax revenues and premiums
Medicare Part C:
Medicare Advantage
 Optional program that allows elderly to
receive Medicare benefits (Parts A and B)
through private health insurance plans
Part D: Prescription Drug Benefit
 Plan: (coverage is not standardized)
 Medicare Part A + private stand-alone drug plan
 Medicare Advantage plan
 Annual deductible + monthly premium + 25% coinsurance
$310
$30
 Financed by general revenues and premiums
Part D: Doughnut Hole
100%
Percentage of
Drug
Expenditures
Paid by
Beneficiary
Deductible
Doughnut Hole
Catastrophic
Coverage
25%
46%
30%
14%
10%
5%
$310
$2,830
Total Drug Expenditures
$6,440
Medicare Payment Allocations, 2006
Payment Range
Number of
Enrollees
(millions)
Percent of
Total
Spending
(billions)
Percent of
Total
Average per
enrollee
Over $20,000
4.1
12.4
$182.8
65.1
$44,585
$10,000-$19,999
2.8
8.5
40.2
14.3
14,357
$5,000-$9,999
3.6
10.9
25.1
8.9
6,972
$2,000-$4,999
6.4
19.3
20.6
7.3
3,219
$1,000-$1,999
5.1
15.4
7.4
2.6
1,451
$500-$999
4.2
12.7
3.1
1.1
738
Less than $500
6.9
20.8
1.5
0.5
217
Total
33.1
100.0
$280.7
100.0
Source: Health Care Financing Review: Medicare and Medicaid Statistical Supplement, 2007, Table 3.6.
“80-20 Rule”
20% of beneficiaries account for 80% of spending
$8,480
Medicare Reimbursement Payments
Part A Services (Hospitals)
 Prospective payment system (PPS) based
on diagnosis-related group (DRG)
Upcoding: doctor makes more
severe diagnosis to hedge
against accidental costs
Part B Services (Doctors)
 Fee schedule based on resource-based
relative value scale (RBRVS)
[RVU]*[GAF]*[CF] = payment
CPT 45378
[5.46]*[1.13]*[$58.40] = $360.29
Medicaid
Objective
 Improve medical access for low income
individuals
Institutional features
 Federal cost-sharing
60% federal share on average
Mandated coverage and services
 State administered
Eligibility standards
Determine type, amount, duration, and scope of
services
Set rate of payment for services
Medicaid Spending
Year
Recipients
(millions)
Total Spending
(billions)
1966
10.0
1975
22.0
12.2
554
1980
21.6
23.3
1,079
1990
25.3
64.9
2,568
2000
42.7
168.4
3,928
2001
45.8
186.9
4,081
2002
49.7
213.5
4,291
2003
51.9
233.2
4,487
2004
55.0
257.7
4,685
$ 1.7
Source: Health Care Financing Review, 2007, Table3 13.4 and 13.10.
Average
Payment
$ 170
Medicaid Spending
by Eligibility Categories, 2004
Category
Payment per
capita
Number
Eligible
(millions)
Percent of
Total
Eligible
population
Total
spending
(billions)
Percent of
Total
Spending
$ 13,837
4.3
7.8
$ 59.5
23.1
Disabled
14,127
7.9
14.4
111.6
43.3
Children
1,668
26.5
48.2
44.2
17.2
Adults
2,516
12.2
22.2
30.7
11.9
Other
2,853
4.1
7.5
11.7
4.5
Total
$ 4,685
55.0
100.0
Aged
$ 257.7
Source: Health Care Financing Review: Medicare and Medicaid Statistical Supplement, 2007.
Rising costs…
• expanding enrollments
• rising medical care costs
• increased reimbursement rates
100.0
Medicaid: Large State Spending, 2004
Total Payments
(in billions)
Payment per
Beneficiary
Number of
Beneficiaries
(in millions)
California
$27.4
$2,740
10.0
Florida
12.8
4,267
3.0
Illinois
10.8
5,400
2.0
New York
37.3
7,936
4.7
Ohio
11.4
6,000
1.9
Pennsylvania
10.1
5,611
1.8
Texas
13.2
3,667
3.6
Seven-state total
123.0
4,556
27.0
Rest of the U.S.
134.7
4,811
28.0
Total U.S.
257.7
4,685
55.0
State
Source: Health Care Financing Review: Medicare and Medicaid Statistical Supplement, 2007.
Economic Impacts
 Health outcomes
 Currie and Gruber (1996)
 10% increase in eligibility for children resulted in 3.4% decrease in
child mortality rates
 10% increase in eligibility for pregnant women resulted in 2.8%
decrease in infant mortality rates
 Baker and Royalty (2000)
 10% increase in Medicaid fees resulted in 2.4% increase in officebased physician visits for poor patients
 Enrollment in private insurance
 Cutler and Gruber (1996): “crowding-out” effect
 Family structure
 Yelowitz (1998): Medicaid lowers the cost of childbearing
and favors single-parent families
 Savings
 Gruber and Yelowitz (1999): Medicaid reduces incentive
to save and encourages asset transfers
Other Government Programs
SCHIP (State Children’s Health Insurance Program)
VA Hospitals
 157 hospitals
 860 clinics
 137 nursing homes
 15,000+ physicians
Objectives:
 Expand insurance coverage: + 32 million
 Lower health care costs: - $143 billion over 10 years
Private Insurance
Social Insurance
Revenue Provisions
Other
Private Insurance Reforms
 Insurance rules





Community rating (age, area, family size, and tobacco use)
Guaranteed issue (can’t deny for pre-existing condition)
Prohibit lifetime limits on coverage
Dependent children on parent’s plan until age 26
Establish health insurance exchanges
 Individual Health Insurance Mandate
 Tax credit subsidies up to 400% poverty
 $695 fine (or 2.5% income) if you don’t buy
 Employer Health Insurance Mandate
 $2000 fine per employee for firms N > 50
 Tax credit subsidies to small employers
 High cost plan excise tax (t = 40%)
Social Insurance Reforms
 Medicare
 “doughnut hole” eliminated by 2020
 Prohibit physician-owned hospitals in Medicare
 Provide 10% bonus to primary care physicians in shortage
areas
 Medicaid
 eligibility expanded to 133% poverty line
 Federal government assumes larger cost share
Revenue Provisions
 Medicare tax base expanded to include unearned
income and t = 3.8% (I > $250k)
 Medicare tax rate on individuals rises by 0.9 to
2.35% (I > $250k)
 Medical device excise tax (t = 2.9%)
 Excise tax on brand name pharmaceuticals
 Excise tax on indoor tanning salons (t = 10%)
 Limit Flexible Spending Accounts to $2500
Other Features
 Establish CLASS: voluntary, self-funded long-term care
insurance program
 Establish Patient-Centered Outcomes Research
Institute
 Establish value-based modifier for physician
payment formulas
 Expand supply of health care workers
 Grant 12 years exclusivity to biologics
 Promote preventive health care
 Award grants for evidence-based public health programs
 Chain restaurants required to post caloric content
Policies To Contain
Costs
Policy Options
TE = Σ Pi Qi
Price Controls
Managed Care (Quantity Controls)
Market Alternatives
Economics of Price Controls
Competitive Markets
Monopoly Markets
Economics of Price Controls
Competitive Market
 Free Market: P0, Q0
Price
 Gov’t imposes price
ceiling at P1
P2
 At P1: Qd > Qs
 shortage results
S1
P0
P1
 Non-Price Rationing




Black Market
Bribes
Discrimination
Wait / Search
D1
QS
Q0
QD
Shortage
Health Care
Economics of Price Controls
Monopoly Market
 Monopoly: P0, Q0
 Gov’t imposes price
ceiling at P1
 At P1: there is no
shortage; monopolist
produces Q1
Price
MC1
P0
P1
MR1
Q0 Q1
D1
Health Care
Price Controls in Health Care
Mandated fee schedules
 Physician-induced demand shifts
 Unbundling of services
Global budgeting (capitation)
 Services delayed
 Personnel take unpaid vacations
Resource rationing
 Mandating primary care (gatekeepers)
 Limits on new facilities (CONs)
 Waiting lists
U.S. Cost-containment Strategies
 Hospitals: Diagnosis-related groups (DRGs)
 Prospective payment based on point system
DRGs by Weight—Five Highest and Five Lowest
DRG
DRG Title
Weights
Mean Length
of Stay
Highest Weights
103
Heart transplant
19.8195
57.5
483
Tracheostomy
15.2827
41.0
504
Extensive 3rd degree burns
w/skin graft
13.8097
33.6
480
Liver transplant
10.6132
22.8
495
Lung transplant
8.8879
16.2
Lowest Weights
33
Concussion, age 0-17
0.2075
1.6
382
False labor
0.1607
1.3
343
Circumcision, age 0-17
0.1533
1.7
391
Normal newborn
0.1519
3.1
448
Allergic reactions, age 0-17
0.0970
2.9
Source: The Economics of Health and Health Care, Folland, Goodman, and Stano (2007), Table 20-2a.
U.S. Cost-containment Strategies
 Hospitals: Diagnosis-related groups (DRGs)
 Prospective payment based on point system
 Economic impact of DRGs
 Reduced hospitalization; shorter stays
 Increase in outpatient care
 DRG creep
 Physicians’ practices: Resource-based Relative
Value Scale (RBRVS)
 Establishing a value scale
 Work effort
 Overhead cost
 Liability insurance premiums
 Monetary conversion factor: (6 units) x $38 = $228
Managed Care Strategies
Types
 HMOs
 PPOs
Cost Control Strategies
 Practice guidelines
Restricted choice of providers
Second opinions required
Prior authorization
Case management
Market Alternatives
Managed competition
 Require employers to offer employees a
choice of health plans
Medical savings accounts
 Tax-free savings accounts for routine
medical expenses
 High deductible catastrophic insurance
Suppose employer pays $7000
for your family’s major medical
and routine insurance coverage
Employer buys $3500 catastrophic
insurance policy and deposits other
$3500 into MSA