Minnesota Health Care Market Trends and Strategies for Cost Containment

1
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

2
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

3
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

4
Historical Perspective Health Care Spending
Growth is Not a New Problem
Source Centers for Medicare and Medicaid Services
5
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
6
Health Care Spending as a Share of Gross Domestic
Product
Projected. Source Centers for Medicare and
Medicaid Services. Spending estimates as of
January 2007 projections as of February 2007.
7
Health Spending is Highly Concentrated Among
Relatively Few People
Source Berk and Monheit, The Concentration of
Health Care Expenditures, Revisited, Health
Affairs, March/April 2001. Expenditure estimates
for civilian non-institutionalized population.
8
Health Care Spending Trends Minnnesota and U.S.
Sources MDH Health Economics Program, Centers
for Medicare and Medicaid Services (spending for
health services and supplies, a subset of total
national health spending)
9
Minnesota Health Care Spending by Source of
Funds, 2005
Total Spending 29.4 Billion
Source MDH Health Economics Program
10
Minnesota Health Care Spending by Type of
Service, 2005
Total Spending 29.4 Billion
Source MDH Health Economics Program
11
What Savings Are Needed to Achieve 20 Reduction
in Health Care Spending by 2011?
12
Recent Trends in Health Insurance Coverage
13
Uninsurance Rate Trends in Minnesota
Indicates statistically significant difference
(95 level) from prior survey year. Source 1995,
1999, 2001, 2004 Minnesota Health Access Surveys
14
Sources of Insurance in Minnesota, 2001 and 2004
Source 2001 and 2004 Minnesota Health Access
Surveys Indicates a statistically significant
difference from 2001.
15
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

16
Access to Employer Coverage Offer, Eligibility,
and Take-up Rates, 2001 and 2004
Indicates a statistically significant
difference from 2001. Source 2001 and 2004
Minnesota Health Access Surveys
17
Private and Public Cost Pressures
18
Private Health Insurance Premium and Spending
Trends, 1995 to 2005
Source MDH Health Economics Program.
Fully-insured market only.
19
Key Minnesota Health Care Cost and Economic
Indicators, 1995 to 2005
Notes health care cost is MN privately insured
spending on health care services per person, and
does not include enrollee out of pocket spending
for deductibles, copayments/coinsurance, and
services not covered by insurance..
Sources Health care cost data from Minnesota
Department of Health, Health Economics Program
per capita personal income from U.S. Department
of Commerce, Bureau of Economic Analysis
inflation data from U.S. Bureau of Labor
Statistics (consumer price index) workers wages
from MN Department of Employment and Economic
Development
20
Total Cost Per Person and Health Plan/Enrollee
Shares, 1997 to 2005
Source MDH Health Economics Program.
21
Medical Assistance Enrollment and Spending Growth
Source Minnesota Department of Human Services.
22
MinnesotaCare Enrollment and Spending Growth
Source Minnesota Department of Human Services.
23
GAMC Enrollment and Spending Growth
Source Minnesota Department of Human Services.
24
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

25
Drivers of Health Care Cost Growth
26
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 quantity/type of services
• Prevalence of disease
• -Demographics
• -Lifestyle/behavior
• -Genetics
• -Environment
• -Technology
• -Consumer and provider incentives
• - Other factors

• Factors affecting price
• Market structure
• Labor costs other inputs
• Technology
• Economy/general inflation
• Other factors

27
Health Care Cost Drivers Spending Growth and
Shares of Total Growth by Service, 2003 to 2005
Growth Rate
Share of Spending Growth
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.
28
How Is Minnesotas Age Distribution Changing?
Sources U.S. Census Bureau and Minnesota State
Demographic Center
29
Projected Minnesota Population Growth,by Age
Group
Source Minnesota State Demographic Center
30
Variation in Health Care Spending by Age
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.
31
Obesity Trends Among U.S. AdultsBRFSS, 1990
(BMI 30, or 30 lbs overweight for 5 4
person)
32
Obesity Trends Among U.S. AdultsBRFSS, 1991
(BMI 30, or 30 lbs overweight for 5 4
person)
33
Obesity Trends Among U.S. AdultsBRFSS, 1992
(BMI 30, or 30 lbs overweight for 5 4
person)
34
Obesity Trends Among U.S. AdultsBRFSS, 1993
(BMI 30, or 30 lbs overweight for 5 4
person)
35
Obesity Trends Among U.S. AdultsBRFSS, 1993
(BMI 30, or 30 lbs overweight for 5 4
person)
36
Obesity Trends Among U.S. AdultsBRFSS, 1994
(BMI 30, or 30 lbs overweight for 5 4
person)
37
Obesity Trends Among U.S. AdultsBRFSS, 1994
(BMI 30, or 30 lbs overweight for 5 4
person)
38
Obesity Trends Among U.S. AdultsBRFSS, 1995
(BMI 30, or 30 lbs overweight for 5 4
person)
39
Obesity Trends Among U.S. AdultsBRFSS, 1996
(BMI 30, or 30 lbs overweight for 5 4
person)
40
Obesity Trends Among U.S. AdultsBRFSS, 1997
(BMI 30, or 30 lbs overweight for 5 4
person)
41
Obesity Trends Among U.S. AdultsBRFSS, 1998
(BMI 30, or 30 lbs overweight for 5 4
person)
42
Obesity Trends Among U.S. AdultsBRFSS, 1999
(BMI 30, or 30 lbs overweight for 5 4
person)
43
Obesity Trends Among U.S. AdultsBRFSS, 2000
(BMI 30, or 30 lbs overweight for 5 4
person)
44
Obesity Trends Among U.S. AdultsBRFSS, 2001
(BMI 30, or 30 lbs overweight for 5 4
person)
No Data 1519 2024 25
45
Obesity Trends Among U.S. AdultsBRFSS, 2002
(BMI 30, or 30 lbs overweight for 5 4
person)
(BMI ?30, or 30 lbs overweight for 54 person)
No Data 1519 2024 25
46
Obesity Trends Among U.S. AdultsBRFSS, 2003
(BMI 30, or 30 lbs overweight for 5 4
person)
No Data 1519 2024 25
47
Obesity Trends Among U.S. AdultsBRFSS, 2004
(BMI 30, or 30 lbs overweight for 5 4
person)
No Data 1519 2024 25
48
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.
49
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

50
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 doesnt
  pay well for care management and prevention

David Cutler, Your Money or Your Life, Oxford
University Press, 2004
51
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

52
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.

53
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

54
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

55
Market Responses/Cost Containment Strategies
56
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

57
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

58
Lifestyle/Behavior Related Strategies

• Prevention
• Some employers are encouraging and rewarding
  healthy lifestyles
• Reimbursement for health club membership (if
  used)
• Different premiums for smokers/non-smokers

59
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 providers
• Price/quality transparency initiatives

60
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

61
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.
62
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