Transcript Health Care Reform: An Economic Perspective Bill Evans Department of Economics and

Health Care Reform:
An Economic Perspective
Bill Evans
Department of Economics and
Econometrics
1
Motivation for talk
• No Federal reform effort since 1994
• Re-emergence as a political issue
• Reform packages from nearly all
presidential candidates
• States are forcing the issue
2
Kaiser Family Foundation
Tracking Survey – June 2007
• What two issues you would most like to hear the
presidential candidates talk about?
•
•
•
•
•
•
Iraq
Health care
Immigration
Economy
Gas price/Energy
Terrorism/Nat. Sec.
43%
21%
18%
13%
12%
7%
3
Outline of talk
• What problems must reforms address?
• What have we learned from reform?
• Outline some current alternatives
• Examine some likely economic
consequences
4
Talk may be premature
• Uncertain who the Democratic nominee
will be
– one plan will become irrelevant
• Plan of the presumptive Republican
nominee somewhat ill-formed at this point
5
What we will not talk about?
Single payer
6
• Many countries have single-payer system
• Generates low administrative costs but
(arguably) poorer quality care
• US companies process $700 billion in HC
claims each year
• The US is not about to get rid of a $700
billion industry
7
What are the issues?
• Cost/Expenditures
• Fiscal (taxes and expenditures)
• Equity
• Coverage
8
Expenditures on Medical Care
• $2 trillion annually
• 16% GDP
• $6000/person
• Twice as much as the median OECD
country
9
US
Luxembourg
Switzerland
Norway
Iceland
France
Belgium
Canada
Austria
Netherlands
Australia
Sweden
Denmark
Ireland
UK
Italy
Japan
Finland
90% more than
Canada
145% more
than the UK
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Per capita spending on health care
10
11
Average Annual Premiums
Covered Workers, 2006 (KFF)
• Individual plan
– $4,242 total
• Family plan
– $11,480
12
Change in Prices, 2000-2006
100%
85%
% Change
80%
60%
40%
20%
18%
20%
All goods
Earnings
0%
Health
insurance
premiums
13
Are high expenditures a bad thing?
• A key driver of health care costs is technology
• MRIs/CT scans, angioplasty, anti-psychotropic
drugs, hip/knee replacements, neo-natal
intensive care, treatments for AIDS, statin drugs
(Lipitor)
• All not available 20 years ago. Now,
commonplace
14
HIV/AIDS Drugs
• Early 1990s, 8% quarterly mortality rates
for patients w/ AIDS
• 1995:4, 1996:1, three new drug introduced
to fight virus
– Work by preventing the virus from replicating
in the host
• Usage rates increase immediately and
aggregate mortality falls 70% in 18 months
15
16
• AIDS drugs are expensive, $12K/year in
some cases
• AIDS patients are expensive, $20K/year
• This medical advance by construction
increases lifetime spending by a
considerably amount
17
• ARVs increase lifespan after diagnosis
with AIDS by almost 8 years
• Lifetime cost of treating an AIDS patient
increases by about $250K
• This is expensive, but compared to many
other programs, it is relatively cheap on a
cost-per-life-year saved amount
18
NICU
• Specialty wards of hospitals that provide
“constant nursing and continuous
cardiopulmonary and other support for
severely ill infants”
• Developed in late 1950 early 1970s
• Growth has been rapid
– NICU beds increased by 150% 1980-1995
19
Costs, 2001 CA
• NICU discharge $50,000
• Non-NICU, $4,500
• In CA, 10% of births are for a NICU
• Therefore, more than half the hospital cost
of childbirth are attributable to NICUs
20
Fetal Death Rate Among VLBW Infants in CA
40%
% Died within 1 Year
35%
30%
25%
20%
15%
10%
5%
0%
Level 1, Level 1, Level 2, Level 2, Level 2, Level
Level
Level
1-10
>10
1-10
11-15
>25
3a, <26 3a, 26- 3a, >50
50
Level
3b/c,
<26
Level
3b/c,
26-50
Level
3bcd,
51-100
Level
3bcd,
>100
Type of NICU Unit
21
But…. not getting the
bang per buck
• Overhead costs are high (NEJM, 2003)
– 31% in US
– < 2% in Canada
• Unnecessary care (Dartmouth Atlas)
– 30% of care has little medical benefit
• US performs poorly in comparison
– Higher infant mortality
– Lower life expectancy
22
Japan
Iceland
Switzerland
Spain
Australia
Sweden
Canada
Italy
Norway
New Zealand
France
Greece
Belgium
Austria
Netherlands
Germany
United
Finland
Ireland
Luxembourg
United States
Denmark
Portugal
Korea
Czech Republic
Mexico
Poland
Slovak Republic
Hungary
Turkey
65.0
4.3 years 2.4 years
less than Less than
Japan
Canada
70.0
75.0
80.0
85.0
Life Expectancy in Years
23
If you want to cut costs, where do
you look?
• Administrative/overhead
• Unnecessary procedures
• Chronic conditions
– 20% of people responsible for 80% spending
24
What are the issues?
• Cost/Expenditures
• Fiscal (taxes and expenditures)
• Equity
• Coverage
25
Government Insurance
• Federal government – largest health
insurance provider
• Medicaid and Medicare
– 95 million covered in 2006
– $540 billion
– 21 percent of the federal budget
26
Medicare
• 42.4 million recipients in 2006
• Costs in 2006
– $342 billion
– 14% of Federal expenditures
• Financing
– Part A financed by payroll tax (2.9%)
– Part B/D financed by premiums (25%) and
general revenues (75%)
27
Future problems
• Costs of program are expected to escalate
between now and 2030
• At the same time, fewer workers to tax
• Medicare Trustees predict
– Costs > revenues by 2011
– Trust fund exhausted by 2019
28
29
30
31
What are the issues?
• Cost/Expenditures
• Fiscal (taxes and expenditures)
• Equity
• Coverage
32
Tax System Equity
• EPHI health insurance is a tax-free fringe
benefit
• Greatly reduces the cost to consumers of
purchasing insurance
• Has encouraged the growth of EPHI
• Now, most people w/ private insurance get
is through their employers
33
Tax Benefit of EPHI
• A family w/ $70,000 in income
• 36.4% marginal tax rate
– 25% federal
– 3.4% state (Indiana)
– ~8% Social Security and Medicare
• Want to purchase $12,000 policy in
AFTER TAX DOLLARS
34
Without tax advantage:
• Receive $18,897 in income
• Pay 36.4% or $6,897 in taxes
• $12,000 left over for health insurance
• Net benefit of tax deduction is $6,897
35
Inequalities
• Tax break only available to people who
receive insurance from their firm
• Higher income families have higher tax
rates so the tax benefit to them is greater
• Costs over $210 billion/year
36
Average Tax Benefit -- EPHI
$3,000
$2,640
$2,780
$2,134
$2,000
$1,448
$1,231
$1,000
$725
$292
$102
$0
>$10K
$10$20K
$20$30K
$30$40K
$40$50K
$50$75- >$100K
$75K $100K
Family Income
37
What are the issues?
• Cost/Expenditures
• Fiscal (taxes and expenditures)
• Equity
• Coverage
38
Coverage
• Uninsurance is a persistent problem in US
• Dimensions of the problem
– 47 million people
– 16% of population
– 9 million children
• Uninsurance rates have increased steadily
over time
39
Who are the uninsured?
• Race
– White
– Black
– Hispanic
• Family Income
10.8%
20.5%
34.1%
• Age
–
–
–
–
–
<18
18-24
25-34
35-64
65+
–
–
–
–
<$25K
$25-$50K
$50-$75K
>$75K
24.9%
21.1%
14.4%
8.5%
11.7%
29.3%
26.9%
16.0%
1.5%
40
Time Series
• Number uninsured
– 31 million in 1987
– 47 million in 2006
• Percent uninsured
– 12.6 in 1987
– 15.8 in 2006
41
What have we been doing the past
13 years?
• Two major efforts aimed at coverage
– Medicare Part D
– SCHIP program
• Movement to managed care
• BUT….Most of the ‘action’ has been with
states
– unsuccessful but informative
42
Small Group Reform
• People without EPHI or small firms must
purchase insurance in the ‘Small Group’
Market
• Small groups tend to have
– Higher prices
– Higher administrative fees
– Prices that are volatile
43
• Prices are a function of the demographics
• Concern: prices for some groups too high
• Lower prices for some by “community rating”
• Nearly all states have adopted some version of
small group reform in 1990s
44
What happened?
• Increased the price for low risk customers
– Healthy 30 year old pays $180/month in PA
– $420/month in NJ with community ratings
• Low risks promptly left the market
• Which raised prices
• Policy did everything wrong
45
Lesson
• Idea was correct:
– Use low risk to subsidize the high risk
• But you cannot allow the low risk to exit
the market
46
Massachusetts Reform
47
MA Reform: Romney
• Most ambitious state reform to date
• Many features but…..
• Most striking component: Individual
mandate
– Required by law to carry insurance
48
MA Reform
• If you require insurance, you need to make
it affordable
• State subsidizes purchases for poor
• Firms must establish Section 125 plans
• Established the “Connector”
49
Connector
• Merge of individual and small group
market
• Market maker in insurance
• Community rating
• Requirements on what plans must have
50
Connector
• Cheapest individual plans cost about
$200/month
• 40-60% lower than average plan
• Was achieved primarily by higher cost
sharing
51
Results from MA
• It was estimated that 500K were uninsured
and 300K have been added to insurance
rolls
• State underestimated
– Number uninsured
– Uninsured eligible for subsidized care
• Cost of the program are exceeding
expectations
52
Exporting MA Plan?
• Plan is being studied extensively by
– Other states
– Presidential candidates
• MA is very unique so it might not travel
– Lower uninsurance rate (9%)
– Unique fiscal situation that was used to
finance the law
53
Other reform plans
• Obama and Clinton have offered detailed
plans
• Both loosely based on the MA reform
• Clinton’s is nearly identical to Edward’s
• Maintain EPHI as basis of system
• Try to lower costs to those without EPHI
so they can afford insurance
• Plans vary in detail but contain many
similarities
54
Democratic plans
Edwards
Pay or Play Yes
Obama
Yes
Clinton
Yes
‘Connector’ Yes
Type plan
Subsidize/ Yes
Tax credits
Individual
Yes
mandates
Yes
Yes
Yes
Yes
No
Yes
55
Clinton
• Those without insurance can purchase
through same insurance members of
Congress have
• Insurance subsidies for low income
• Reliance on preventive care/disease
management to reduce costs to make
affordable
• Individual mandates
56
Obama
• Mandates for children
• Employer mandates
• Expansion of SCHIP/Medicaid
57
Cost savings proposals
in Obama’s Plan
• Health IT systems
– $10 billion/year for 5 years
• Heavy emphasis on disease management
– Effort to standardize care for chronically ill
• Performance based rewards (MD’s)
• Rx reform (generics, importation, negot.)
58
Pay or Play
• Firms must pay 5% wage bill to health insurance
or pay that as a fine
• Proposed in 26 states in 2006
• Language -- firms must pay ‘their fair share’
• Problem: ignores the realities of the labor
market
59
• Insurance is one component of a
compensation package
• Increased costs in one area will be paid for
by reducing on costs in another (wages)
• In long run, costs will be borne by workers
60
Will firms pay or play?
• In March 2007, Private industry
– Average hourly comp.
– Wages/salaries
– Health insurance
$27.61
$18.34 (71%)
$ 1.83 (7.1%)
• Wal-Mart pays 5-7%
– Only 40% Wal-Mart workers receive their care
through the firm
61
Cost reduction
• Variety of ways to reduce costs
– Computer investments (medical records)
– Preventive services
– Disease management
– ‘Best practices’
• Way to ‘self finance’ plans
• Problem
– Returns are years away
– Preventive/DM not really cost saving
62
Example: Cervical Cancer
Screening
• 11,500 cases in 2007, approx. 4000
deaths
• 4th leading cause of cancer death in
women
• Cheap test available – Pap smear $40
• Expensive to treat ($30,000/case)
• Consider universal testing every three
years for women 45-64
63
•
•
•
•
37 million in this group
Cancer incidence rate of 16/100,000
Approx 6000 new cases per year
Suppose test every three years prevents
ALL cervical cancers for 3 years
• Costs $1.1 billion
• Save: $540 million
• Net – program cost $560 million
64
Result
• Universal testing is a good idea
– saves lives
– it is a COST EFFECTIVE
• However, in most cases, mass screening
is not COST SAVING
65
• “It’s a nice thing to think, and it seems like
it should be true, but I don’t know of any
evidence that preventive care actually
saves money,”
• Jon Gruber, MIT Economics professor and
architect of the Massachusetts Connector
plan
66
What is different now?
• Leaves current system intact, builds out
• Individual mandates
• Pay or play
• Belief we can generate more uniformity in
practice patterns to save costs
67
What is missing?
• Little discussion of Medicare
• Attacks costs by spending more money
• Little discussion about the need for more
cost sharing
68
McCain
• Uninsurance is a problem of cost
• Attack costs, reduce premiums, increase
coverage ,
• Offers variety of proposals designed to
drive down costs
– Increase competition in insurance
– Malpractice reform
– Increase accountability
69
Highlights
• Purchase insurance from nationwide pools
• Obtain insurance through any group, not
just employers
• Encourage retail medical outlets
• Base pay on performance
• Establish national standards for treatment
70
Tax Credits
• Eliminate tax deductibility of EPHI
• Replace with tax credit for people with
health insurance
– $2500 for individuals
– $5000 for families
• Tax benefit the same for everyone,
regardless of income
71
Concerns
• The subsidy rate is not high enough for
low income people
• What will happen to employer-provided
health insurance?
72
Summary
• Clinton
– Primarily attacks uninsurance problem
• Individual mandates
• Pay or play
– Imposes lots of (potentially costly) programs
like preventive medicine
– Individual mandates make the plan politically
challenging
73
• Obama
– Attacks costs first
– Most aggressive cost-saving but, benefits are
years away from being realized
– Some impact on uninsurance through
expansions of SCHIP/Medicaid, pay-or-play
– Benefits to working uninsured will be long in
the future when/if costs have been reduced
74
• McCain
– Riskiest program because it blows up EPHI
• Replaces with a tax credit
– Estimates suggest it will have minimal impact
on uninsurance
– Questionable impact on costs -- any benefits
are long in the future
75