minnesota health care market trends and strategies for cost containment health care transformation...
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Minnesota Health Care Market Trends and Strategies for Cost
Containment
Health Care Transformation Task Force
July 30, 2007
Julie Sonier
Director, Health Economics Program
Minnesota Department of Health
Overview of Presentation
Background Recent trends in health insurance coverage in
Minnesota– Factors contributing to the decline in employer coverage
Cost trends: private markets and public programs Drivers of health care cost increases Cost containment strategies to date:
– Private market– State government
Background
- Health care cost growth is not a new problem- Most health care spending is incurred for a small share of the population- Minnesota health care spending
Historical Perspective: Health Care Spending Growth is Not a New Problem
Growth in National Health Care Spending,Adjusted for Inflation
0%
3%
6%
9%
12%
15%
18%
1970 1975 1980 1985 1990 1995 2000 2005
Total Private health insurance Medicare/Medicaid
Source: Centers for Medicare and Medicaid Services
From: “The Sad History of Health Care Cost Containment as Told in One Chart,” Drew Altman and Larry Levitt, Health Affairs, Web Exclusive, January 23, 2002
Health Care Spending as a Share of Gross Domestic Product
5.2%
7.2%
9.1%
12.4%13.8%
16.0%17.5%
19.6%
0%
5%
10%
15%
20%
1960 1970 1980 1990 2000 2005 2011* 2016*
*Projected. Source: Centers for Medicare and Medicaid Services. Spending estimates as of January 2007; projections as of February 2007.
Health Spending is Highly Concentrated Among Relatively Few People
27%
55%
69%
97%
0%
20%
40%
60%
80%
100%
Top 1% ofPopulation
Top 5% ofPopulation
Top 10% ofPopulation
Top 50% ofPopulation
Sh
are
of t
ota
l sp
en
din
g
Source: Berk and Monheit, “The Concentration of Health CareExpenditures, Revisited,” Health Affairs, March/April 2001. Expenditure estimates for civilian non-institutionalized population.
Health Care Spending Trends: Minnnesota and U.S.
2000 2005
Total Health Care Spending
Minnesota
U.S.
$19.3 billion
$1,264.4 billion
$29.4 billion
$1,860.9 billion
Health Care Spending Growth, 2000 to 2005 (avg. annual):
Minnesota
U.S.8.8%
8.0%
Per Capita Health Care Spending:
Minnesota
U.S.
$3,917
$4,476
$5,742
$6,276
Health Care Spending as a Share of the Economy:
Minnesota
U.S.10.5%
12.8%
12.7%
15.0%
Sources: MDH Health Economics Program, Centers for Medicare and Medicaid Services (spending for health services and supplies, a subset of total national health spending)
Minnesota Health Care Spending by Source of Funds, 2005
Medicare14.6%
Medical Assistance
17.8%Other Private
3.0%
Out-of-Pocket14.0%
Private Health Insurance
43.5%
Other Public Spending
7.0%
Source: MDH Health Economics Program
Total Spending $29.4 Billion
Minnesota Health Care Spending by Type of Service, 2005
Other Spending15.2%
Prescription Drugs11.9%
Physician Services21.7%
Hospital Care29.3%
Long Term Care (including Home
Care)15.4%
Other Professional Services
3.1%
Dental Services3.5%
Source: MDH Health Economics Program
Total Spending $29.4 Billion
What Savings Are Needed to Achieve 20% Reduction in Health Care Spending by 2011?
2005 Minnesota Health Care Spending $29.4 billion
Projected growth rate of national spending, 2005 to 2010
39.7% total growth
6.9% avg annual growth
2010 Minnesota spending (assuming national projected growth rate)
$41.1 billion
20% savings $8.2 billion
Recent Trends in Health Insurance Coverage
Uninsurance Rate Trends in Minnesota
6.3%
5.4%*5.7%
7.4%*
0%
1%
2%
3%
4%
5%
6%
7%
8%
1995 1999 2001 2004
*Indicates statistically significant difference (95% level) from prior survey year.Source: 1995, 1999, 2001, 2004 Minnesota Health Access Surveys
Sources of Insurance in Minnesota, 2001 and 2004
68.4%
4.7%
21.2%
5.7%4.6%7.4%*
25.1%*
62.9%*
0%
10%
20%
30%
40%
50%
60%
70%
80%
Employer Individual Public Uninsured
2001 2004
Source: 2001 and 2004 Minnesota Health Access Surveys
* Indicates a statistically significant difference from 2001.
Factors Contributing to a Decline in Employer Coverage
Lower share of population employed in 2004 vs 2001 (72.3% vs 75.0%)
Changes in job characteristics. For example:– Increase in temporary/seasonal jobs– Smaller share of population working for very
large employers, where employer-based coverage is more likely
Decline in employer coverage was largely the result of declining access, not take-up
Access to Employer Coverage: Offer, Eligibility, and Take-up Rates, 2001 and 2004
Non-Elderly Minnesotans' Access to Employer-Based Insurance
84.1%
97.7% 95.3%
80.3%*
95.7%* 95.0%
0%
20%
40%
60%
80%
100%
Connection to Employer OfferingCoverage
Of Those With Connection, %Eligible
Of Those Eligible, % Enrolled(Take-up)
2001 2004
*Indicates a statistically significant difference from 2001.Source: 2001 and 2004 Minnesota Health Access Surveys
Private and Public Cost Pressures
Private Health Insurance Premium and Spending Trends, 1995 to 2005
Per Minnesota Resident With Private Health Insurance
0.9% 1.0%0.5%
8.8%
12.1%
16.0%
12.2%
9.8%9.0%
11.2%
4.5%
7.3%
4.3%
2.1%
15.5%
10.5%
7.4%6.8%
7.9%8.9%
10.1%
12.9%
0%
4%
8%
12%
16%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
% c
ha
ng
e fr
om
pre
vio
us
yea
r
Premiums Expenses
Source: MDH Health Economics Program. Fully-insured market only.
Key Minnesota Health Care Cost and Economic Indicators, 1995 to 2005
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Per
cent
cha
nge
from
pre
viou
s ye
ar
Health care cost Per capita income Inflation Workers' wages
Notes: health care cost is MN privately insured spending on health care services per person, and doesnot include enrollee out of pocket spending for deductibles, copayments/coinsurance, and servicesnot covered by insurance..Sources: Health care cost data from Minnesota Department of Health, Health Economics Program; per capitapersonal income from U.S. Department of Commerce, Bureau of Economic Analysis; inflation data fromU.S. Bureau of Labor Statistics (consumer price index); workers’ wages from MN Department of Employment and Economic Development
Total Cost Per Person and Health Plan/Enrollee Shares, 1997 to 2005
Minnesota Fully-Insured Private Market
$1,637 $1,781 $2,011 $2,217$2,560 $2,829 $3,039 $3,247
$433$489
$1,517
$340$382
$297$221
$184$197
$152
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
1997 1998 1999 2000 2001 2002 2003 2004 2005
Health Plan Cost Enrollee Cost
Source: MDH Health Economics Program.
Medical Assistance Enrollment and Spending Growth
-10%
-5%
0%
5%
10%
15%
20%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
% c
ha
ng
e fr
om
pre
vio
us
yea
r
Enrollment Total Spending Spending per Enrollee
Source: Minnesota Department of Human Services.
MinnesotaCare Enrollment and Spending Growth
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
% c
ha
ng
e fr
om
pre
vio
us
yea
r
Enrollment Total Spending Spending per Enrollee
Source: Minnesota Department of Human Services.
GAMC Enrollment and Spending Growth
-30%
-20%
-10%
0%
10%
20%
30%
40%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
% c
ha
ng
e fr
om
pre
vio
us
yea
r
Enrollment Total Spending Spending per Enrollee
Source: Minnesota Department of Human Services.
Summary: Private and Public Cost Pressures
Erosion in private insurance coverage is likely linked to rising costs
Public programs face dual sources of cost pressure:– Rising enrollment– Rising cost per person
Despite recent slower cost growth, current trends not sustainable in the long run– Cost of private insurance still growing much faster
than incomes, inflation
Drivers of Health Care Cost Growth
Drivers of Health Care Spending: Many Levels of Analysis
$ Spent on Health Care
Who pays (employers, consumers, govt, etc.)?What services are purchased (hospital, drugs, etc.)?
What causes changes in spending for a particular category of service? Price Quantity Change in mix of services provided
Factors affecting price:-Market structure-Labor costs & other inputs-Technology-Economy/general inflation-Other factors
Factors affecting quantity/type of services:-Prevalence of disease -Demographics -Lifestyle/behavior -Genetics -Environment-Technology-Consumer and provider incentives- Other factors
Health Care Cost Drivers: Spending Growth and Shares of Total Growth by Service, 2003 to 2005
Minnesota Fully-Insured Private Market
7.1%
13.8%
9.2% 8.5% 8.2%
3.9%
24.2%
13.1%10.7%
20.9%
12.7%
18.6%
5.9%
0%
5%
10%
15%
20%
25%
30%
Total
Outpatient hospital
Other medical
Admin.
Inpatient hospital
Prescription drugs
Physician
Outpatient hospital
Other medical
Admin.
Inpatient hospital
Prescription drugs
Physician
Note: growth rates calculated as annual growth per enrollee over the 2-year period. “Other medical” includes skilled nursing facilities, home health care, emergency services, services of health professionals other than physicians and dentists, durable medical goods, and chemical dependency/mental health.Source: MDH Health Economics Program.
Growth Rate Share of Spending Growth
How Is Minnesota’s Age Distribution Changing?
30% 29% 27% 26% 25%
25% 20% 21% 20% 18%
29% 35% 35% 32% 31%
16% 16% 18% 23% 26%
0%
20%
40%
60%
80%
100%
1990 2000 2010 2020 2030
60+
35 to 59
20 to 34
Under 20
Sources: U.S. Census Bureau and Minnesota State Demographic Center
Projected Minnesota Population Growth,by Age Group
0% 20% 40% 60% 80% 100% 120%
2000-2030
2000-2020
2000-2010
60+
40 to 59
20 to 39
Under 20
Source: Minnesota State Demographic Center
Variation in Health Care Spending by Age
Per Capita U.S. Health Care Spending by Age, 2004
$1,855$1,074 $1,445
$2,165$2,747
$3,496
$6,694
$9,017$9,914
$2,711
$6,452
$3,571
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Under5
5 to 14 15 to24
25 to34
35 to44
45 to54
55 to64
65 to74
75+ Under65
65+ Total
Source: Agency for HeatlhCare Research and Quality, Medical Expenditure Panel Survey, data for per capita spending by age group in the Midwest. Excludes spending for long-term care institutions.
Obesity Trends* Among U.S. AdultsBRFSS, 1990
No Data <10% 10%–14%
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 1991
No Data <10% 10%–14% 15%–19%
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 1992
No Data <10% 10%–14% 15%–19%
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 1993
No Data <10% 10%–14% 15%–19%
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 1993
No Data <10% 10%–14% 15%–19%
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 1994
No Data <10% 10%–14% 15%–19%
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 1994
No Data <10% 10%–14% 15%–19%
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 1995
No Data <10% 10%–14% 15%–19%
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 1996
No Data <10% 10%–14% 15%–19%
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 1997
No Data <10% 10%–14% 15%–19% ≥20
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 1998
No Data <10% 10%–14% 15%–19% ≥20
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 1999
No Data <10% 10%–14% 15%–19% ≥20
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 2000
No Data <10% 10%–14% 15%–19% ≥20
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 2001
No Data <10% 10%–14% 15%–19% 20%–24% ≥25%
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
(*BMI 30, or ~ 30 lbs overweight for 5’4” person)
No Data <10% 10%–14% 15%–19% 20%–24% ≥25%
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Obesity Trends* Among U.S. AdultsBRFSS, 2002
Obesity Trends* Among U.S. AdultsBRFSS, 2003
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
No Data <10% 10%–14% 15%–19% 20%–24% ≥25%
Obesity Trends* Among U.S. AdultsBRFSS, 2004
No Data <10% 10%–14% 15%–19% 20%–24% ≥25%
(*BMI ≥30, or ~ 30 lbs overweight for 5’ 4” person)
Impact of Rising Obesity on Health Care Costs (National study)
Increasing prevalence– Between 1987 and 2001, obesity prevalence increased 10.3
percentage points, while normal weight prevalence declined 13 percentage points
Widening gap between health care spending for obese vs normal weight population– Difference grew from 15% to 37%
As a result of both these factors, obesity-related health spending accounted for an estimated 27% of inflation-adjusted per capita health spending increases– 41% of the rise in heart disease spending– 38% of the rise in diabetes-related spending
Source: Thorpe et al., “The Impact of Obesity on Rising Medical Spending,” Health Affairs, October 2004.
Technology
Advances in technology can be reflected in:– Better diagnosis – more cases identified– Better treatment – more cases treatable– Higher (or lower) cost per treated case
Most economists agree that advances in technology have accounted for a majority of increases in health care spending over time
Recently, we have seen renewed policy concerns about a “medical arms race”– MDH report to the legislature on medical facilities highlighted
distorted signals that current payment systems send to markets
Technology
Cutler, “Your Money or Your Life”:– In general, technological advance has been
“worth it” in terms of benefits that exceed costs– However, there are pervasive problems:
• Opportunities to prevent the need for high-tech interventions are missed
• Overuse, misuse, and underuse of care
– “You get what you pay for”: The system we have pays well for intensive interventions and doesn’t pay well for care management and prevention
David Cutler, “Your Money or Your Life,” Oxford University Press, 2004
Medical Facilities Investment: Why is this an issue?
Competition does not necessarily lead to lower prices:– Consumer price sensitivity is limited because most
bills are paid by insurance– Some types of facilities have high fixed costs: building
more of them than needed results in each facility spreading these costs over a smaller number of people
– Because consumers prefer broad provider networks, health plans often do not have leverage to discourage unnecessary facilities by excluding them from provider networks
Medical Facilities Investment: Why is this an issue?
Regions with higher supply of health care resources have higher use of “supply-sensitive” care and higher costs, but do not have better health outcomes.
Physician self-referral may lead to overuse of certain types of services
Payment systems distort investment incentives by overpaying for some types of services and underpaying for others
Quality of care: health outcomes for some types of services are better at high-volume providers. In these cases, it is preferable to encourage a small number of “centers of excellence.”
Factors Influencing Medical Facility Investment
Technological advance Demographics: population growth, aging, illness burden (e.g.,
rise in obesity) Renovation/replacement of existing facilities Variation in profitability by type of service
– Competition for market share in profitable service lines: cardiac care
– Cross subsidies from profitable to unprofitable services– Cost shifting among payers
Physician self-referral System efficiency
Major Study Findings
Current payment systems send distorted market signals that influence medical facility investments.– Need to adjust payment mechanisms to accurately reflect
relative costs of services. “Fixing” the payment system cannot be separated from larger
issues related to cost and quality:– Even with accurate payments, problems associated with
paying for volume of procedures will remain– Paying for volume discourages efficiency and does nothing
to ensure value and quality of services
Market Responses/Cost Containment Strategies
Market Structure Strategies
Pooled purchasing– Reduces overhead and increases bargaining power– However, impact on medical costs is limited– Adverse selection likely to be a problem in voluntary pools
Strategies to increase competition among plans Strategies to increase competition among providers
– Price/quality transparency initiatives– New forms of health care delivery: retail clinics
Strategies to control investment in new facilities
Technology-Related Strategies
Prior to widespread use of new technology, more consistent evidence of effectiveness and cost-effectiveness vs. existing treatments– Current national debate on evaluation of cost-effectiveness
Proposals to control or limit investment in expensive new facilities
In addition to overuse, underuse and misuse of technology are also problems– Incentives for appropriate use
Lifestyle/Behavior Related Strategies
PreventionSome employers are encouraging and
rewarding healthy lifestyles– Reimbursement for health club
membership (if used)– Different premiums for smokers/non-
smokers
Consumer/Provider Incentives
Insurance benefit design– Structure of deductibles, copays, etc.– Comprehensiveness of benefits
• E.g., limited benefit products for young adults
Tiered networks– Incentives for consumers to use lower-
cost, higher-quality providersPrice/quality transparency initiatives
Quality/Value
Management of chronic disease– Better management of patients with chronic disease (such
as diabetes or asthma) may reduce complications and save money
– Current payment systems pay well for high-tech interventions, but not necessarily for care management that would prevent the need for intervention
Value-based purchasing/pay for performance– Create incentives that rewards high quality, cost-effective
care
Patient safety
Variation in Use of Care
Research studies have shown large regional variation in patterns of care, but more care does not necessarily lead to better outcomes– Example: Medicare enrollees in high-spending regions
received 60% more care but did not have better quality or outcomes of care
Potential for cost savings by reducing variation in care practices – by one estimate, Medicare savings could be close to 30%*
Need for more research/knowledge about effectiveness and outcomes
*”Geography and the Debate Over Medicare Reform,” John E. Wennberg et al., Health Affairs web exclusive, 13 February 2002.
Conclusions
Many factors that are driving increased costs are not directly controllable, but opportunities to reduce cost growth do exist
Need to focus on activities that contain costs rather than shifting them around (to other services or to other payers)
Consumers need to play a role in cost containment, but need more and better information in order to make better decisions
All stakeholders (health plans, providers, employers, consumers and government) need to play a role in finding solutions