1

An Overview ofAn Overview ofHealthcare CostsHealthcare Costs

andand

What Are What Are YouYou Going To Do Going To DoAbout Them?About Them?

Our health system research undertaken with generous support from Doug Hall

Executive DirectorNovember 9, 2005

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All of our reportsare available on the web:

www.nhpolicy.orgwww.nhpolicy.org

New Hampshire Center New Hampshire Center for Public Policy Studiesfor Public Policy Studies

Board of Directors

Martin L. Gross, ChairJohn B. AndrewsCotton M. ClevelandJohn D. CrosierTodd I. SeligDonna SytekGeorgie A. ThomasJames E. TibbettsKimon S. Zachos

Executive DirectorDouglas E. Hall

Deputy DirectorStephen A. Norton

“…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”

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The NH Health Care “System”

• As complex as any ecological system

• Effects are simultaneously causes

• $7.5 billion this year, 16% of the Gross State Product

• Affects everyone

• Growing in size by about 10-12% per year

• Does not differ much from national averages or national trends

• Just about 50% is funded with tax dollars

• Costs are highly concentrated in certain individuals

• Not a market system because there is no access to and little use of price or quality information; supply generates its own demand

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Estimated Personal Health Care Spending in NH, 2005(in $ million)

$2,463

$2,162

$380

$305

$949

$104

$640

$177

$360

Hospital Care

Physicians, Clinics, & Other Professional

ServicesDental Services

Home Health Care

Prescription Drugs

Durable Equipment

Nursing Home Care

Other Personal Health Care Total:

$7,539 million

Other Non-durables

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Projected Personal Health Care Expenditure in NH 2010 (in $ million)

$3,329

$3,044

$525

$449

$1,566

$126

$832

$227

$573

Hospital Care

Physicians, Clinics, & Other Professional

Services

Dental Services

Home Health Care

Prescription Drugs

Durable Equipment

Nursing Home Care

Other Personal Health Care

Total:$11,412 million

Other Non-durables

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NH Health Expenditure as % of Gross State Product (GSP)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Year

Projected

Source: Calculations by Douglas E. Hall, NH Center for Public Policy Studies, based on national projections made by Office of the Actuary, Center for Medicare and Medicaid Services, Washington DC.

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Estimated Source of Funds Personal Health Care in US, 2005

Other Public7%

Medicaid18%

Other Private4%

Medicare19%

Insurance36%

Out-of-Pocket16%

Public Sources

44%

Private Sources

56%

Note: Some of the spending that is categorized as private insurance actually originates from public funds: insurance for teachers, postal employees, and other government workers.

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Health Insurance Status, NH Residents 2003

Purchased insurance6%

Military3%

Medicare12%

Medicaid5%

Uninsured10%

Employer based insurance

64%

Source: 2004 Current Population Survey, US Bureau of the Census, http://pubdb3.census.gov/macro/032005/health/h05_000.htm

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About 130,000 are UninsuredEstimated Number of Uninsured NH Residents, 1999-2004

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

1999 2000 2001 2002 2003 2004

Year

Per

son

s

2003 survey funded by Endowment for Health and HNHfoundation

Annual estimates from Current Population Survey of the U. S. Census Bureau indicated by filled central markers

1999 & 2001 surveys funded by NH Department of Health & Human Services

95% confidence intervals shown

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Little Change in Last 5 YearsIndex of Population Lacking Health Insurance

(4 month trailing average; 2001 = 100.0)

0

20

40

60

80

100

120

140

1999

-Q1

1999

-Q2

1999

-Q3

1999

-Q4

2000

-Q1

2000

-Q2

2000

-Q3

2000

-Q4

2001

-Q1

2001

-Q2

2001

-Q3

2001

-Q4

2002

-Q1

2002

-Q2

2002

-Q3

2002

-Q4

2003

-Q1

2003

-Q2

2003

-Q3

2003

-Q4

2004

-Q1

2004

-Q2

2004

-Q3

2004

-Q4

2005

-Q1

2005

-Q2

Calendar Quarter

For the 2st Quarter 2005, the Index was 98.8

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Insurance Status of New Hampshire Adults, 2003

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

insured now and all yearinsured now, but not all yearuninsured now, insured during yearuninsured all year

6% chronically uninsured13% transitionally insured

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Common View

Insured Uninsured

Realistic View

Insured for what? drug rehab, prescription drugs, mental health, “experimental” procedures, dental, …

How much annual deductible and out-of-pocket?

Pre-existing conditions

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Applicant Insurance Statusin September 2002

at New Hampshire Hospitals(n=1,147)

55%

44%

1%

Uninsured Insured, but had a Balance Due Unknown

This slide from Financial Assistance Application Study, September 2002, NH Health Access Network

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New Hampshire Medicaid Persons by Month

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000Ja

n-86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Month

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New Hampshire Private Sector Employees and Health Insurance, 2003416,513 Full Time Employees

Work for firms that do not offer22,888

Firm offers, but ineligible33,034

Have health insurance from employer

288,184

Eligible, but turn down72,046

Data from Medical Expenditure Panel Survey - Insurance Component, Agency for Healthcare Research and Quality, US Department of Health and Human Services, 2005. Calculations by NH Center for Public Policy Studies

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New Hampshire Private Sector Employees and Health Insurance, 2003119,437 Part Time Employees

Work for firms that do not offer24,007

Firm offers, but ineligible71,477

Have health insurance from

employer11,905

Eligible, but turn down

12,048

Data from Medical Expenditure Panel Survey - Insurance Component, Agency for Healthcare Research and Quality, US Department of Health and Human Services, 2005. Calculations by NH Center for Public Policy Studies

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Private Sector Employees' Health Insurance, New Hampshire 2003

Family Coverage20.7%

2-person Coverage9.2%

Single Coverage26.2%

Work for firms that do not offer

8.8%

Firm offers, but ineligible19.5%

Eligible, but turn down15.7%

Of 536 thousand NH private sector employees, 300 thousand enrolled in their employer's health plan. These included 69.2% of all full-time employees and 10.0% of all part-time employees.

Data from Medical Expenditure Panel Survey - Insurance Component, Agency for Healthcare Research and Quality, US Department of Health and Human Services, 2005. Calculations by NH Center for Public Policy Studies

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Differences Differences Among EmployersAmong Employers

Provide many employees a health insurance benefit• Large employers• Manufacturers• High wage and full time employers

Provide few employees a health insurance benefit• Small employers• Construction, retail sales, hospitality• Low wage and part time employers

The former are effectively subsidizing the latter through family policies and cost-shifting by health care providers.

Can you name the employers in your community that are dumping the health care costs of their employees onto you?

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Family Coverage - Average Annual Health Insurance Premium

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

1997 1998 1999 2000 2001 2002 2003

Year

An

nu

al P

rem

ium

New Hampshire Average

US Average

Data from Medical Expenditure Panel Survey - Insurance Component, Agency for Healthcare Research and Quality, US Department of Health and Human Services. 95% confidence interval shown for each survey estimate.

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Use of Premiums by 5 NH Health Insurers, 2004

Claims Adjustment5%

Net Underwriting Gain (Loss)

2%General

Administration7%

Outside Referrals1%

ERs & Out of Area3%

Other Professional Services

4%

Pharmacy12% Medical/Hospital

65%

85% of premiums paid for claims while 15% was

administration and profit

Total spending:$1,210,115,847

Based on annual financial reports filed with NH Department of Insurance

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Cost-Shifting

•The allocation of unpaid costs of care delivered to one patient population through above-cost revenue collected from other patient populations.

•For hospitals, nursing facilities and physicians, the historical cause of cost shifting has been below-cost reimbursement rates paid by public programs and uncompensated care losses due to charity care and bad debt.

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Figure 1: Revenue Structure of a Health Care Provider

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

% of Gross Charges by Payer

% o

f C

ost

Pai

d

Insurance45%

Self-Pay7%

Medicare41%

Medicaid7%

0% 100%

If all payers pay 100% of COST, then the provider will break even.(If all pay 104% of cost, the provider will have a 4% operating margin)

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Figure 2: Revenue Structure of a Health Care Provider

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

% of Gross Charges by Payer

% o

f C

ost

Pai

d

Insurance45%

Self-Pay7%

Medicare41%

Medicaid7%

0% 100%

Provider sets CHARGES at 165% of cost in anticipation of negotiated discounts with insurers, fixed payments from public programs, and some care that will be uncompensated.

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Figure 3: Revenue Structure of a Health Care Provider

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

% of Gross Charges by Payer

% o

f C

ost

Pai

d

Insurance45%

Self-Pay7%

Medicare41%

Medicaid7%

0% 100%

Insurers get 30% discount from charges.

Medicare pays 45% less than charges.

Medicaid pays 55% less than charges.

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Figure 4: Revenue Structure of a Health Care Provider

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

% of Gross Charges by Payer

% o

f C

ost

Pai

d

Insurance45%

Self-Pay7%

Medicare41%

Medicaid7%

0% 100%

40% of self-pay revenue is never collected (charity care and bad debt)

#4

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Figure 5: Revenue Structure of a Health Care Provider

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

% of Gross Charges by Payer

% o

f C

ost

Pai

d

Insurance45%

Self-Pay7%

Medicare41%

Medicaid7%

0% 100%

Revenue above 100%

Shortfalls

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Figure 8: Revenue Structure of a 2nd Health Care Provider

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

% of Gross Charges by Payer

% o

f C

ost

Pai

d

Insurance31%

Self-Pay9%

Medicare51%

Medicaid8%

0% 100%

This provider has a much larger percentage of its patients who are elderly and on Medicare. It has an operating loss of 7.0%

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Figure 9: Revenue Structure of a 2nd Health Care Provider

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

% of Gross Charges by Payer

% o

f C

ost

Pai

d

Insurance31%

Self-Pay9%

Medicare51%

Medicaid8%

0% 100%

This provider could break even if the reimbursement from insurers could be raised from 124% of cost to 147% of cost.

#10

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Figure 10: Revenue Structure of a Health Care Provider

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

% of Gross Charges by Payer

% o

f C

ost

Pai

d

Insurance43%

Self-Pay8%

Medicare41%

Medicaid8%

0% 100%

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Hospital Cost-Shifting in 2004(Aggregate of 26 NH Acute Care Hospitals)

0%

50%

100%

150%

200%

250%

Percent of Gross Charges

Pay

men

t as

Per

cen

t o

f C

ost

3rd Party Payers (insurance)40%

Medicare40%

Medicaid7%

bad debt & charity

5%

self-pay1%

Total amount cost-shifted: $290 million plusNet operating gain: $153 millionOperating margin: 6.2%

other7%

208%

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Hospital Cost-Shifting in 2004(Exeter Hospital)

0%

50%

100%

150%

200%

250%

Percent of Gross Charges

Pay

men

t as

Per

cen

t o

f C

ost

3rd Party Payers (insurance)48%

Medicare41%

Medicaid4%

bad debt & charity

5%

self-pay1%

Total amount cost-shifted: $23,951,928Net operating gain: $14,553,091Operating margin: 11.1%

211%

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Hospital Cost-Shifting in 2004(Franklin Regional Hospital)

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Percent of Gross Charges

Pay

men

t as

Per

cen

t o

f C

ost

3rd Party Payers (insurance)39%

Medicare37%

Medicaid11%

bad debt & charity

7%

self-pay3%

Total amount cost-shifted: $6,551,028Net operating gain: -$4,683,376Operating margin: -18.8%

161%

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Quantifying the 2004 Cost-Shiftin 26 New Hampshire Hospitals

Actual Revenue

Revenue Needed to Meet

ExpensesExcess

(Shortfall)

ShortfallsMedicare $707,305,021 $833,667,461 -$126,362,440Medicaid $108,727,213 $153,198,319 -$44,471,106Bad/Debt/Charity $0 $114,073,476 -$114,073,476

TOTAL -$284,907,022

SurplusesInsurance $1,183,574,676 $834,901,254 $348,673,422Self-Pay & Other $281,920,905 $174,034,121 $107,886,784

TOTAL $456,560,207

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Hospital Charge $10,000

Cost of Service $4,805Cost-shift surcharge (27.1%) $1,304Operating margin fee (14.6%) $702Claim to be paid $6,812

Claim to pay $6,812Insurer admin/profit (17.6%) $1,202Premium required $8,014

Premium as % of cost of service 167%

Insurance Premium to Pay for Hospital Service, 2004

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Estimated Personal Health Care Spending in NH, 2005(in $ million)

$2,463

$380

$305

$949

$104

$640

$2,162

$360

$177

Hospital Care

Physicians, Clinics, & Other Professional

ServicesDental Services

Home Health Care

Prescription Drugs

Durable Equipment

Nursing Home Care

Other Personal Health Care Total:

$7,539 million

Other Non-durables

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Health Care is NOTA Traditional Market System

• Consumers have limited, if any, access to information on price or quality.

• There are institutional monopolies.• The seller determines what the

consumer will get; supply drives demand.

• Important health care services are often obtained at a time of personal crisis.

• Government regulation and programs alter provider behavior.

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What Are What Are YouYou Going To Do ? Going To Do ?More of the Same?More of the Same?

• Seek cheaper insurance plans including Health Savings Accounts

• Increase co-premiums and co-pays• On turnover, add part-time employees

ineligible for benefits• Drop retiree health benefits

Recognize that these actions do NOT reduce the actual cost of health care; they simply shift it onto someone else. Health care costs will be controlled only when health care providers’ costs are controlled.

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What Are What Are YouYou Going To Going To Do ?Do ?• Support efforts to end direct-to-

consumer drug advertising. Those TV ads work or the drug companies wouldn’t be adding more all the time.

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What Are What Are YouYou Going To Going To Do ?Do ?• Have your local Chamber of

Commerce or trade association create a public list of its members with the number of employees who are and are not offered health insurance benefits by each member. Recognize those that are good citizens and put pressure on those that shift their health care costs onto you.

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What Are What Are YouYou Going To Going To Do ?Do ?• Don’t play cheerleader for new

and improved health services in your community and later complain about the costs. Don’t let local providers “compete” on the basis of adding some technology already available a short distance away.

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What Are What Are YouYou Going To Going To Do ?Do ?• Talk with your state legislators

and the NH Congressional delegation about how below cost payments by Medicare and Medicaid result in a hidden tax on insurance premiums through cost-shifting, increasing your cost of doing business.

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What Are What Are YouYou Going To Going To Do ?Do ?• Insist that health insurers and

local health care providers provide you the list of prices they have agreed to for services so you can make comparisons among providers and among insurers.

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What Are What Are YouYou Going To Going To Do ?Do ?• Support regulations that will

require physician practices, laboratories, ambulatory care centers, and other non-hospital providers to submit annual financial reports. Currently we cannot see inside this major part of the health care system.

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This presentation is available for downloading on our website:

www.nhpolicy.org