Health Care Reform: The Tradeoffs Before Us

1
Health Care Reform The Tradeoffs Before Us

• Merton D. Finkler, Ph.D.
• Professor and Chair of Economics
• Lawrence University
• Tuesday, October 26, 2004

2
Overview

• A Brief History of Health Care Policy Reform
• Nature of the Problem Cost, Quality, and Access
• Primary Choices Single Payer, Consumer Directed
  Choice, and Managed Competition
• Bush Plan
• Kerry Plan
• The Tradeoffs Access vs. Cost vs. Quality
• Primary Conclusion Neither Bush nor Kerry plan
  will contain health care expenditures. Both shift
  costs. No one should be surprised.

3
The History of Health Care Policy in the United
States

• Universal coverage/care finds its way onto the
  political agenda every 10 15 years
• Policy history reflects incremental change each
  time we add either more coverage or expand
  eligibility
• Benefit changes must generate enough income for
  the winners to justify support
• History of cost containment is component-focused
  Whack a Mole Strategy

4
The Politics of Health Care
5
J. D. Kleinke - Oxymorons

• Health care in America combines the tortured,
  politicized complexity of the U.S. tax code with
  a cacophony of intractable political, cultural,
  and religious debates about personal rights and
  responsibilities.
• Central reality the primary producers and
  consumers of medical care are uniquely,
  stubbornly self-serving as they chew through vast
  sums of other peoples money.

6
Health Care Expenditures

• HC (/service)x(services/person)x(people
  served)
• 1990 2001
• 33 - general inflation
• 22 - medical pricesgt inflation
• 16 - population/ demographic change
• 29 - intensity of service
• Growth in Inflation-Adjusted HC per person
  driven by new technology and services per person
  
• Average - 3.6 per year since 1960 but not smooth
• Not Unique to the US (1960 -2002)
• US HC growth GDP growth 2.7
• Other G6 countries HC growth GDP growth 2.0

7
The Cost of Health Care
8
10 of the Population Accounts for 69 of Health
Care Expenses
9
Health Spending Exceeds Wage Growth
10
Wage Share of Labor Compensation Has Declined
Steadily Since 1968
11
The Burden of Illness for Those with Chronic
Disease The Largest Opportunity

• Working age pop. with chronic disease generates
  expenses 3 x non-chronic pop.
• Chronic disease accounted for 56 of growth in
  health care spending from 1987-2000
• Burden of illness includes both outlays for
  medical services and lost productivity
• Ave. impairment 2 to 11 days / 30 workdays
• Total burden over 1 trillion per year

12
The Burden of Unhealthy Workers
13
Quality Is American Healthcare the Best in the
World?

• Variety of definitions of quality exist
• Comparisons of life expectancy and infant
  mortality suggest 2nd tier rank for US but
  largely unrelated to medical care
• Studies of the outcomes for specific diseases put
  US in a variety of spots
• Very little opportunity to buy based on quality
• To Err is Human IOM report (1999)
• 44K to 98K preventable deaths/year - errors
• Patient safety has received much more attention
• MBGH report (2003) estimated cost of poor quality
  at 1,700 per person per year.
• Rand Study suggests big gaps in appropriate care
• Americans receive 55 of recommended care

14
Rand Health National Report Card on Quality
JAMA 2003
15
More Spending Doesnt Always Mean Higher Quality
of Care
16
Access Insurance and Medical Care

• The Uninsured CPS Survey
• Almost 45 million uninsured
• 80 have at least one worker in family
• Poor more likely to lack insurance
• Rich gain advantages of tax exemption for
  insurance-
• 188 B of foregone taxes per year
• Access to Care
• Indicators include usual source of care, unmet
  need and delayed care
• 25 of uninsured people with poor or fair health
  went without needed care unchanged 1997 to 2003

17
Uninsured by Income Level
18
Insurance Improves Access
19
Four Ways to Control HC Growth

• ? the efficiency of the delivery system
• ? the financial incentives for patients to reduce
  their use of medical services
• ? the administrative controls on the use of
  services
• Limit the resources available to the health care
  system
• Paul Ginsburg, Controlling Health Care Costs,
  New England Journal of Medicine, October 14, 2004

20
Efficient Use of Resources

• Identify and discourage high cost, low value
  services evidence-based medicine
• ? expensive adverse events for those with
  chronic illness disease management
• ? the risk profile of population primary
  prevention
• ? bargaining power of healthcare providers
  anti-trust and purchasing groups
• Pay for good performance compatible incentives
• Requires strong, committed leadership at various
  levels

21
The OPM Principle
22
Consumer Directed Health Care Gives Incentives
for Patients to Economize

• Health Savings Accounts
• Large deductible low premium insurance
• Increased cost sharing consumers decide
• Response to OPM (other peoples money) disease
• Information at improve decision-making
• Concerns
• Attractive to young and healthy
• Worsens tradeoffs for those with chronic disease
• Addresses the 50 who only spend 3 of total
• Very limited availability and enrollment so far
• Money taken out of the general pool and given to
  individuals

23
Cheap Insurance
24
Administrative Rules / Managed Care

• PPO, POS, and HMOs Selective contracts
• HMOs often feature fixed payment to providers,
  limited choice of provider, and directed practice
• Offered good coverage for prevention
• Kept growth low in the 1990s
• Differed in their ability to deliver quality
• Rejected by many who wanted more choice of
  physician and treatment at someone elses expense

25
Single Payer - Monopsony

• Canadian- style plan State as sole purchaser
• Total expenditures controlled by province or
  country
• Priorities set by professionals or politicians
• Most run out of funds each year explicit
  rationing
• Presently Medicare and Medicaid expenditures sum
  to about 2,500 per capita and cover about 23 of
  population. Canadas Medicare spends about
  3,000 per capita and covers entire population.
• Total U.S. spending per capita is approaching
  6,000 per year
• To whom will we say no?

26
Reducing the Number of Uninsured

• Ideal To provide insurance to those not
  previously covered
• Problems
• Induce a switch from private coverage
• Employers drop coverage
• Benefits dont accrue to the needy
• Three ways to implement
• Mandate or bribe individuals
• Mandate or bribe businesses
• Enroll people in public programs

27
The Bush Plan

• Key Theme Encourage consumers to economize on
  care since they are spending their own dollars
• Tax credits for low income families (lt25K)
• Tax credits for businesses that provide Health
  Savings Accounts (High Deductibles)
• Tax deductible contributions to these HSAs
• Encourage joint purchasing for small business
  exemption from state laws

28
Effects of Bush Plan

• of Uninsured Drop by 1.3 to 10 million
  depending upon shifting out of private plans
• Federal Cost (net of offsets) 50B to 125B
  less than half targeted to those presently w/o
  insurance
• Shift burden on to consumers of care
• Few cost containment provisions, more tax-exempt
  spending
• Largely targets the young and healthy
• Reinhardt a 401k for the chronically healthy
• Conclusion not too expensive, not too effective

29
The Kerry Plan

• Theme Use all three approaches to target
  uninsured
• Federalize Medicaid for children
• Enroll uninsured parents lt 200 of FPL
• Add FEHBP II for small businesses that do not
  offer insurance including tax credit for those
  with salaries lt300 of FPL
• Premium support for uninsured between ages 55 and
  64
• Government Stop-Loss Insurance for expenses gt30K
  if use disease management (Top 1 of spenders)

30
Effects of the Kerry plan

• Estimated reduction in of uninsured by 25 to 27
  million
• Cost shifting from employee to taxpayer and from
  state to federal government
• Primary beneficiaries of Medicaid expansion are
  low income and in fair or poor health
• Cost estimates range from 650B to 1,249B for
  Federal expenditures (w/o offsets)
• Does largely address the uninsured problem but
  not cost or political feasibility

31
Effects on those with chronic disease

• Bush plan does not target many with chronic
  disease would have to decide whether to purchase
  medicine or not.
• Medicare Modernization Act initiates demo
  projects for voluntary chronic care improvement
  programs for fee-for-service enrollees
• Kerry plan One disease management component as
  part of stop loss federal re-insurance program

32
Estimated Effects of Plans
33
Cost in Perspective
Plans 10 year Increase HC Spending Percentage of Total HC Spending Percentage of Public HC Spending
Bush Proposal 100 Billion 0.3 0.8
Kerry Proposal 900 Billion 2.7 7.2
34
Medicare in Brief

• Now, Parts A D after Medicare Modernization Act
• A Hospital/SNF insurance payroll tax funded
  (50 of Medicare expenditures)
• B MD and Outpatient Hospital 25 premium and
  75 general tax revenue (33 of Medicare )
• C Medicare Advantage (managed care) funds
  combine A and B (14 of Medicare )
• D New Prescription Drug Program funded
  similar to part B
• Medicare covered 41 million people (2004) 13
  of US population
• Cost - approaching 320B for FY 2005

35
2004 Medicare Trustees Report

• Total Medicare to rise from 2.6 of GDP to 3.4
  of GDP by 2006 and to 7.7 by 2035
• Part A trust fund exhausted by 2019 but outlays
  for Part A gt revenues (including interest) by
  2010 so start liquidation of assets
• Part B now 9 of Federal Income Tax 14 by
  2010 and 29 by 2030 despite 17 rise in premium
  to enrollees this year.
• Part D Funded similar to Part B but potentially
  even greater draw on general revenue (estimated
  123B 2013)

36
Federal Budget and Medicare

• 13 of Federal Budget FY 2005
• Estimated 16 by FY 2007
• Short Run More than 25 of projected increases
  in Federal spending will come from Medicare in
  next 4 years
• Assuming 5 cut in payments to MDs
• No additional benefits
• Long Run Trustees estimate 1.1 (not 2.7)
  excess HC growth which suggests 15 increase in
  taxes
• Something has to give long run benefits,
  eligibility, or taxes must change.

37
The Fundamental Question Who Will Pay for
Expanded Coverage and Service?

• Bush Shifts burden onto consumers
• Kerry Shifts burden onto Federal Tax payers
• Tax Policy Center estimates 550 to 650B in
  revenue generation from rollback of tax cuts to
  those earning 200,000 per year to cover all
  Kerry programs.

38
Political Reality

• An aging society new drugs, diagnostics, and
  treatments and popular desire for the latest and
  best at someone elses expense means
  continued growth in demand
• Presidential candidates focus on promising to do
  things for voters not on taking things away
  from them. Not surprisingly they duck the
  question.
• Alfred E. Neumans Cosmic Law of Health Care
  Every of HC Spending Someones HC Income
  (including waste, fraud and abuse)

39
Conclusions

• The links between money and politics suggest
  small changes in health care policy
• No political will exists to face the cost of
  expanding coverage
• Thus, we will continue to have more care and
  high healthcare expenditures.
• Pluralistic American preferences mean it remains
  difficult to reach a consensus on one approach.

40
Prognosis Stalemate

• To be serious would require admitting that the
  basic problem does not lie with insurance
  companies, trial lawyers, hospitals, or any of
  the usual suspects. It lies with public opinion.
  We Americans want the impossible. We want our
  health care system to provide everyone with good
  care covered by comprehensive insurance, prevent
  insurance companies or government bureaucrats
  from dictating our choice of doctors, hospitals
  or treatments, and hold down costs. Well, we can
  have any two of these goals but not all three.
  If everyone has coverage and choice, costs will
  skyrocket. No one is empowered to control them.
  But controlling costs involves limits on
  insurance or choice.
• Robert J. Samuelson Washington Post, September
  22, 2004

41
Predictions

• Result 1 Minor changes in public policy
• Result 2 Continued growth in cost of care
• Result 3 Continued significant gaps in access
  to and quality of care
• Result 4 Postponement of paying the bill for
  expansion
• A healthy economy with lots of borrowing from the
  Chinese and the Japanese has allowed us to
  postpone the tough choices.

42
The Big Tradeoff
43
American Values

• You can always count on Americans to do the
  right thing - after theyve tried everything
  else. W. Churchill
• When faced with second-best trade-off between
  cost-conscious choice and no choice at all,
  however, Americans may grumble but select the
  former. J. Robinson

44
Former Governor Richard Lamm

• The dilemma of democracy is that citizens want
  more services as consumers than they are willing
  to pay for as taxpayers.
• The ultimate challenge to an aging,
  technology-based society is to adjust public
  expectations to what the society can
  realistically afford.

45
The Budget Cake is Only so Big