The Health Care Landscape

Bill EvansUniversity of Notre Dame

1

Two Goals

• Four issues every health care reform proposal should confront

• Outline what the recently passed legislation does for each of these issues

2

What issues must health care reform address?

• Access

• Cost (both the level and rate of change)

• Medicare

• Tax equity

3

4

Uninsurance rates, 2007

• Overall 15.3%• By race

– White, NH 10.4%– Black, NH 19.5%– Asian, NH 16.8%– Hispanic

32.1%• Nativity

– Native 12.7%– Naturalized 17.6%– Not citizen 43.8%

• Age– <18 11.0%– 18-24 28.1%– 25-34 25.7%– 35-44 18.3%– 45-64 14.0%– 65+ 1.9%

• HH income– <$25K 24.5%– $25-$50K 21.1%– $50-$75K 14.5%– >$75K 7.8%

5

% Firms offering health insurance

Firm Size 1999 2004 20093-9 56% 52% 46%10-24 74% 74% 72%25-49 86% 87% 87%50-199 97% 92% 95%200+ 99% 99% 98%

6

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

• $7,400 per capita

• 16.2% of GDP

• Projected, 2018

• $4.4 billion

• $13,100 per capita

• 20.3% of GDP

9

10

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000

FinlandJapan

ItalyUK

IrelandDenmarkSweden

AustraliaNetherlands

AustriaCanada

BelgiumFranceIcelandNorway

SwitzerlandLuxembourg

US

Per capita spending on health care

90% more thanCanada

145% morethan the UK

Average Annual PremiumsCovered Workers, 2008 (KFF)

• Individual plan– $4,704 total

• Family plan– $12,690

11

12

12.0%

18.0%

14.0%

12.2%

10.3%

8.5%

5.9%

4.0%

0.8%

3.0%

5.3%

8.2%

10.9%

12.9%13.9%

11.2%

9.2%

7.7%

6.1%5.5%

4.7%

0%

4%

8%

12%

16%

20%

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Perc

ent C

hang

e

Year

% Changes: Overall Inflation and Health Insurance Premiums

Overall Inflation Health Insurance Premiums

13

Price Changes, 1999 to 2008

29% 34%

119%

0%

40%

80%

120%

160%

Overall inflation Earnings Healthinsurancepremiums

Pri

ce C

han

ges

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

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

• All not available 20-30 years ago. Now, commonplace

15

16

HIV/AIDS Drugs

• Early 1990s, 32% annual mortality rates for patients w/ AIDS

• 1995:4, 1996:1, three new ARVs

• Usage rates increase immediately

• Mortality falls 70% in 18 months

17

0%

20%

40%

60%

0%

3%

6%

9%

1994.1 1995.1 1996.1 1997.1 1998.1 1999.1 2000.1 2001.1

% U

sin

g E

piv

ir a

nd

/or P

I

% D

yin

g N

ex

t Qu

art

er

Year:Quarter

Quarterly Mortality Rate and Use of PI/Epivir

Epivir/PI

Mortality

18

• ARVs are expensive, $12K/year in some cases

• AIDS patients are expensive, $20K/year

• ARVs ↑ lifespan after diagnosis by 8 years

• Lifetime cost of treating an AIDS patient increases by about $256K

What is accurate picture of US?

• Innovator to the world – tremendous gains to new advances

• Wasteful spender of tremendous resources with little return

19

Fatality Rates 2000*

Homicide TrafficUnited States 7.3 15.3 Whites 3.2 Blacks 26.1Canada 1.4 9.3Germany 0.9 10.1Japan 0.6 8.3Sweden 1.2 4.9United Kingdom 0.7 6.0

20* Deaths per 100,000 people

Life Expectancy

Actual StandardizedUnited States 75.3 76.9Switzerland 77.6 76.6Norway 77.0 76.3Canada 77.3 76.2Germany 75.4 75.4Japan 78.7 76.0Sweden 77.7 76.1United Kingdom 75.6 75.7

21

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

22

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%

23

24

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

• Unnecessary care

25

26

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 to

tal e

xp

end

itu

res

27

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

28

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

29

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 tax30

31

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

32

13.9 14.315.2

16.417.2

18.018.7

10.410.9 11.0 11.2 11.3 11.4

12.0

6

8

10

12

14

16

18

20

1950 1960 1970 1980 1990 2000 2005

Rem

ain

ing

Yea

rs

Year

Remaining Life Years at Ages 65 and 75

At age 65

At age 75

Per Capita Health Care Spending by Age (2004)

Age GroupSpending

Per capitaO-18 $2,65019-44 $3,37045-54 $5,21055-64 $7,88764-75 $10,77875-84 $16,38985+ $25,691

33

34

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

35

What issues must health care reform address?

• Access

• Cost (both the level and rate of inflation)

• Medicare

• Tax equity

36

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

37

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

38

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

39

Inequalities

• Costs Fed. Govt. over $243 billion/year• Tax break only available to people who

receive insurance from their firm– High income more likely to have insurance

• Higher income families have higher tax rates• Regressive tax

– Benefits much higher in upper income groups

40

41

Overview of Senate Bill

• Plan builds out from existing system• Tries to fill in the gaps in coverage• Large scale insurance industry reform

– Community rating– Eliminate pre-existing conditions

• Aggressive effort to reduce growth of Medicare fees

• Biggest unknown: controlling costs

Coverage Expansions

• Individual mandate (tax of 2.5% of AGI)• Pay or play: employer mandates• Expand Medicaid to 133% of FPL• Provide tax credits for the low income in

individual market• Establish health insurance exchange where

people can purchase insurance

42

Why is coverage mandatory?

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

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

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

43

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

• Where coverage will come from

44

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?

45

CBO Estimates

• Fines will generate $20 bill per year

• @ $2000/head, 10 million not receiving health care from their firm

• There are roughly 16 million uninsured

workers

46

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• Tax on people without insurance• 40% tax on high-cost insurance• Reductions in Medicare reimbursements

47

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

48

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

• Expenditures

• Expand private $ 466

• Expand public $ 434

• Small firm TC $ 40

• Total $ 940

• Revenues

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

• Diff is $118 billion reduction in deficit

49

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

50

What is missing?

Cost controls

51

• No supply response at all– Catholic hospitals have become attractive

• Lots of studies – little guess of future

52

53

54

0%

10%

20%

30%

40%

50%

60%

1990 1993 1996 1999 2002 2005 2008

Per

cen

t

Year

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

Public

55

0%

10%

20%

30%

40%

50%

60%

1990 1993 1996 1999 2002 2005 2008

Per

cen

t

Year

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

Uninsured

Public

56

0%

10%

20%

30%

40%

50%

60%

1990 1993 1996 1999 2002 2005 2008

Per

cen

t

Year

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

Uninsured

Private

Public

57