The Health Care Landscape

Bill EvansUniversity of Notre Dame

1

Two Goals

• What are the issues?

• How the reform proposal deals with these issues?

2

What issues must health care reform address?

• Access

• Cost (both the level and rate of change)

• Medicare

• Tax equity

3

The Uninsured

• Percent uninsured– 1987: 12.9%– 2008: 15.4%

• Number uninsured– 1987: 31 million– 2008 46 million

4

Uninsurance Rates: 2008

• By age: – 28.6% aged 18-24– 26.5% aged 25-34

• By ethnicity– 30% for Hispanics– 19.1% for Blacks

• Income– 24.5% for those < $25K family income

5

6

Percent of Firms Offering Health Insurance

46%

72%

87%95% 98%

0%

20%

40%

60%

80%

100%

3-9 10-24 25-49 50-199 200+

% O

fferin

g In

sura

nce

Firm Size

Percent of Firms Offering Health Insurance

Uninsured Non-Elderly Population by Work Status of Family Head, 2007

7

Full-year,full-time worker,

66.7%

Full-year,part-

time worker, 6.6%

Part-year, full-time worker, 11.5%

Part-year, part-time

worker, 4.1%

Non-worker, 11.0%

What issues must health care reform address?

• Access

• Cost (both the level and rate of inflation)

• Medicare

• Tax equity

8

Expenditures on Medical Care

• Data for 2007

• $2.2 trillion on HC

• $7,290 per capita

• 16.2% of GDP

• Projected, 2018

• $4.4 trillion

• $13,100 per capita

• 20.3% of GDP

9

10

$7,290

$0

$2,000

$4,000

$6,000

$8,000

US NOR SWZ CAN IRE UK SPN JPNCountry

Per Spending on Health Care, 2007

11

$7,290

$4,763$4,417

$3,895$3,424

$2,992$2,581 $2,581

$0

$2,000

$4,000

$6,000

$8,000

US NOR SWZ CAN IRE UK SPN JPNCountry

Per Spending on Health Care, 2007

87% more than Canada

143% more than UK

Average Annual PremiumsCovered Workers, 2008 (KFF)

• Individual plan–$4,704 total

• Family plan–$12,690

12

13

Price Changes, 1999 to 2008

29% 34%

119%

0%

40%

80%

120%

160%

Overall inflation Earnings Healthinsurancepremiums

Pric

e C

hang

es

Bang per buck??

• US ranks 25 of 29 countries in life expectancy– 4.3 years shorter than Japan (highest)– 2.4 years shorter than Canada

• 24th worst of 28 countries in infant mortality– More than twice the rate of Japan (lowest)– 31% higher than Canada– 28% higher than UK

14

Are high expenditures a bad thing?

• A key driver of health care costs is technology

• Expensive items tend to be new technologies

• Think of the technologies not available 30 years ago but are commonplace today

• MRIs/CT scans, angioplasty, anti-psychotropic drugs, hip/knee replacements, neo-natal intensive care, treatments for AIDS, statin drugs

15

What is accurate picture of US?

• Innovator to the world – tremendous gains to new advances

• Wasteful spender of tremendous resources with little return

• Maybe a little of both

16

Problem?

• Life expectancy is a coarse outcome

• Some important causes of death are NOT impacted by health care

• US has very high rates of those deaths– Murders– Motor vehicle fatalities

17

18

1.4 0.9 0.6 1.2 0.70

5

10

15

20

25

30

Country

Homicide Rate, 2000(deaths per 100,000)

19

1.4 0.9 0.6 1.2 0.73.2

26.1

7.3

0

5

10

15

20

25

30

Country

Homicide Rate, 2000(deaths per 100,000)

20

9.3 10.18.3

4.96

0

5

10

15

20

Can. Ger. JPN Sweden UK USCountry

Traffic Fatality Rate, 2000(deaths per 100,000)

21

9.3 10.18.3

4.96

15.3

0

5

10

15

20

Can. Ger. JPN Sweden UK USCountry

Traffic Fatality Rate, 2000(deaths per 100,000)

22

74

75

76

77

78

79

80

SWZ NOR CAN GER JAP SWE UK USCountry

Life Expectancy, 2000

Real Standardized

23

74

75

76

77

78

79

80

SWZ NOR CAN GER JAP SWE UK USCountry

Life Expectancy, 2000

Real Standardized

Where would you rather be treated for a disease: US or elsewhere?

24

5-year Cancer Survival Rates Country Breast

(Female)Cervical

(Female)Colon

(Male)Lung

(Male)Prostate

(Male)Thyroid

(Female)

US 82.8 69.0 61.7 12.0 81.2 95.9UK 66.7 62.6 51.0 7.0 44.3 74.4Dnmk. 70.6 64.2 39.2 5.6 41.0 71.7France 80.3 64.1 49.6 8.7 67.6 77.0Swed. 80.6 68.0 51.8 8.8 64.7 83.7Switz. 79.6 67.2 52.3 10.3 71.4 78.0

25

Heart Attack TreatmentCanada vs. US (2004)

• Category Canada US

• Angioplasty 11.4% 30.5%

• Bypass 4.0% 11.4%

• 5-year mortality 21.4% 19.6%

26

27

If you want to cut costs, where do you look?

• Administrative/overhead– 3% in Canada (single payer)– 1.5% in Medicare– 8-30% in US system

• Chronic conditions– 5 conditions are responsible for 1/3 of costs– 15 conditions are responsible for 50% of growth in past 15

yrs• Unnecessary care

28

29

Percent of Total Health Care Expenses by Different Percentiles of Population, 2002

22%

49%

64%

80%

97%

0%

20%

40%

60%

80%

100%

1% 5% 10% 20% 50%Percentiles of population

% o

f tot

al e

xpen

ditu

res

30

Per Capita Medicare Spending by Hospital Referral Region, 2006

$9,000 to 16,352 (57)8,000 to < 9,000 (79)

7,500 to < 8,000 (53)7,000 to < 7,500 (42)

5,310 to < 7,000 (75)Not Populated

What issues must health care reform address?

• Access

• Cost (both the level and rate of inflation)

• Medicare

• Tax equity

31

Medicare • 2007

• 44.1 million recipients

• $432 bill. exp.

• 3.2% of GDP

• 16% of fed. budget

• 2040

• 87 million recipients

• 7.6% of GDP

• 30% of fed. budget

32

Future problems

• Rising number eligibles

• People are living longer– Older people spend a lot more on health care

• Rising costs

• Falling fraction of people to tax33

34

20.428.4

34.339.7

46.8

62.3

79.287.0

0

20

40

60

80

100

1970 1980 1990 2000 2010 2020 2030 2040

Mill

ions

of P

eopl

e

Year

Medicare Enrollment

35

13.9 14.315.2

16.417.2

18.018.7

10.4 10.9 11.0 11.2 11.3 11.412.0

6

8

10

12

14

16

18

20

1950 1960 1970 1980 1990 2000 2005

Rem

aini

ng Y

ears

Year

Remaining Life Years at Ages 65 and 75

At age 65

At age 75

36

$2,650 $3,370 $5,210

$7,887

$10,778

$16,389

$25,691

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

0-18 19-44 45-54 55-65 64-75 75-84 85+Age group

Per Person Health Care Spending, 2004

37

5.5

4.7 4.5 4.3 4.0

3.22.6 2.5

0

1

2

3

4

5

6

1970 1980 1990 2000 2010 2020 2030 2040

Ratio

Year

Ratio: 20-64 Population/Medicare

Medicare Sources as % of GDP

38

What issues must health care reform address?

• Access

• Cost (both the level and rate of inflation)

• Medicare

• Tax equity

39

Tax System Equity

• EPHI a tax-free fringe benefit• WW II era program• Greatly reduces costs of HI to consumer– Encourages more generous insurance

• Helps solve problem of adverse selection• Has encouraged the growth of EPHI– 170 million have insurance through employers

40

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

41

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

42

Inequalities

• Costs Fed. Govt. $250 billion/year

• Tax break only available to people who receive insurance from their firm – More likely high wage workers

• Regressive tax– Benefits are much higher in upper income groups

43

Patient Protection and Affordable Care Act

An outline and some likely outcomes

44

Overview

• Primary goal was coverage expansion

• Of the four areas outlined above, major changes in one, modest changes in the other– Increased coverage– Some efforts to ↓ growth of Medicare fees – Modest effort to reduce tax benefits of EPHI– No efforts to constrain costs

45

Overview

• Builds out from existing system– Tries to fill in the gaps in coverage

• Large scale insurance industry reform– Community rating– Eliminate pre-existing conditions

46

Coverage expansions

• Individual mandate (tax of 2.5% of AGI)

• Pay or play: employer mandates

• Expand Medicaid to include higher income groups

47

Coverage expansions

• Provide tax credits for the low income in individual market

• Tax credits for small firms to provide HI

• Establish health insurance exchange where people can purchase insurance

48

Why is coverage mandatory?

• Insurance industry reform– Community rating– eliminate pre-existing condition clauses

• If adopted under current system– Costs for low risk would rise – exit system– Would not buy insurance until they needed it

• Force low cost users into the system, drives down average cost

49

Impact on Uninsured

• Reduce uninsured by 32 mil. in 2019

• 60% reduction in the uninsured

• Leaves another 22 mil. uninsured

• Uninsured will overwhelmingly be Hispanics

50

Pay or play

• Firms w/ >50 employees must offer qualified health insurance and pay $2000 tax/employee

• Tax incentives/credits for small firms to provide insurance

• Language is that firms must pay “fair share”• Economists believe workers pay for insurance

in the form of lower wages• Will firms pay or play?

51

Problem?

• Small firms not subject to pay/play mandate

• Face extremely high cost of providing HI

• Workers face much lower wages if they receive HI from firm

• Gov’t now provides high subsidy rate for uninsured

52

Problem?

• Makes sense for small firms with low wage to drop coverage

• Who benefits:– Workers: after-tax wages would increase and cost

of HI declines– Firms: Don’t have to worry about HI anymore– Costs to the government will increase

53

Financing

• New taxes: on insurance companies, drug makers, medical devices

• Increase Medicare tax on high income, tax unearned income for this group

• Revenues from firms paying and not playing

54

Financing

• Tax on people without insurance

• 40% tax on high-cost insurance

• Reductions in Medicare reimbursements

• CLASS Act –long term care insurance program– Automatic enrollment– Starts in 2011. No benefits paid for 5 years

55

Balance Sheet – CBO 2010-2019(Billions of dollars)

• Expenditures

• Expand private $ 466

• Expand public $ 434

• Small firm credit $ 40

• Total $ 940

• Revenues

• Higher taxes $ 551• Reduced • Spending $ 507 • Total $1058

• $118 billion ↓ deficit• CBO adjustment of + $115

billion

56

Revenues, 2010-2019(billions of $)

• Tax on high cost health care plans $ 32• Firm/individual taxes, no ins. $ 69• Expand taxes on Medicare $ 210• Reduce Medicare reimbursements $ 437• CLASS premiums $ 70• Tax on Rx/Med device/Ins. $ 107• Other taxes $ 133• Total $1,058

57

What is missing?

Cost controls

58

• Add 32 million people to the market

• No effort to change supply (hospitals, physicians, etc.)

• Should increase price

• But with Medicare cuts, may discourage some providers from participating in program

59

60

P

Q

D

S

P1

P2

D*

61

62

0%

10%

20%

30%

40%

50%

60%

1990 1993 1996 1999 2002 2005 2008

Perc

ent

Year

Insurance rates, 1990-2009, Children 19 and Under< 200% of Federal Poverty Limit

Public

63

0%

10%

20%

30%

40%

50%

60%

1990 1993 1996 1999 2002 2005 2008

Perc

ent

Year

Insurance rates, 1990-2009, Children 19 and Under< 200% of Federal Poverty Limit

Uninsured

Public

64

0%

10%

20%

30%

40%

50%

60%

1990 1993 1996 1999 2002 2005 2008

Perc

ent

Year

Insurance rates, 1990-2009, Children 19 and Under< 200% of Federal Poverty Limit

Uninsured

Private

Public

65