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A Detailed Look at
U.S. Health Care Spending

         Julie A. Schoenman, Ph.D.
National Institute for Health Care Management Foundation


      Medical Industry Leadership Institute
           Actuarial Seminar Series
                   October 25, 2012
What We Will Cover Today

1. Big Picture Orientation

2. Distribution of Personal Health Care Spending

3. Spending through Government Entitlement
   Programs

4. Spending through Private Health Insurance

5. What’s Behind the High and Rising Spending?
What We Will Cover Today

1.Big Picture Orientation
2. Distribution of Personal Health Care Spending

3. Spending through Government Entitlement
   Programs

4. Spending through Private Health Insurance

5. What’s Behind the High and Rising Spending?
Total National Health Spending
          Continues to Increase
    3                                                                                                                        $8,402   $9,000
                National Health Expenditures (trillions)                                                            $8,149
                                                                                                           $7,911
                                                                                                  $7,628                              $8,000
                Per Capita Health Spending                                               $7,251
  2.5                                                                           $6,868                                        2.6
                                                                       $6,488                                        2.5              $7,000
                                                              $6,114
                                                                                                            2.4
                                                                                                   2.3
    2                                                $5,687                               2.2                                         $6,000
                                            $5,241                               2.0
                                   $4,878                               1.9
                          $4,601                                                                                                      $5,000
                 $4,367                                        1.8
  1.5   $4,169                                        1.6
                                             1.5                                                                                      $4,000
                                    1.4
                           1.3
    1     1.1     1.2                                                                                                                 $3,000

                                                                                                                                      $2,000
  0.5
                                                                                                                                      $1,000

    0                                                                                                                                 $0
         1997    1998     1999     2000     2001     2002     2003     2004     2005     2006     2007     2008     2009     2010
% GDP   13.7%     13.7%    13.8%    13.8%    14.5%    15.4%     15.9%    16.0%     16.1%    16.2%     16.4%       16.8%    17.9%
17.9%

NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
U.S. Health Spending is a
      Dramatic Outlier Internationally
   United States
    Netherlands
                                                                                                                    17.4
         France
       Germany
       Denmark
     Switzerland
        Canada
         Austria
        Belgium
   New Zealand
        Sweden
United Kingdom
         Iceland
         Norway
            Spain                                                                       Most developed
              Italy
          Ireland                                                                       countries spent
        Slovenia
         Finland                                                                        ~9.5 to 12% of
Slovak Republic
             Chile                                                                      GDP on health
Czech Republic
            Israel
                                                                                        care in 2009
    Luxembourg
         Poland
        Hungary
         Estonia
           Korea
         Mexico                                                                                       % GDP, 2009

                      0.0   2.0      4.0         6.0         8.0        10.0        12.0       14.0       16.0      18.0
NIHCM Foundation analysis of data from the Organisation for Economic Cooperation and Development.
U.S. Spends More than Expected
       Based on Our Wealth
               $9,000
                                                                   United States
               $8,000

               $7,000
                        Chile, Mexico, Poland,
               $6,000   Estonia, Hungary, Slov                          Switzerland            Norway
               $5,000   ak Republic, Czech                                                                Luxembourg
                        Republic, Korea, Israel
Per Capita Health
Spending, 2009




               $4,000   , Slovenia, New
                        Zealand
               $3,000

               $2,000                                       Spain, Italy, France, Finland, United
                                                            Kingdom, Belgium, Germany, Iceland, Sweden,
               $1,000                                       Denmark, Canada, Austria, Ireland, Netherlands
                    $0
                    $10,000     $20,000       $30,000          $40,000         $50,000          $60,000       $70,000
                                                   Per Capita GDP, 2009

NIHCM Foundation analysis of data from the Organisation for Economic Cooperation and Development.
What Does $8,400 Per Person Buy?
                         Public                       Investment, $48                   16% of spending
                      Health, $267                           3
      Administration, $                                                                 ($1,320) is not
            570                                                                         related to
                                                                                        personal health
                                                                                        care services
 Rx, DME & Other                                                    Hospital
      Medical                                                     Care, $2,637
 Products, $1,106

                                                                                        84% of
                            Home Health &                                               spending
                             LTC, $1,107                  MD & Clinical
                                                         Services, $1,670
                                                                                        ($7,080) is for
         Dentists & Other
                                                                                        personal health
              Health                                                                    care services
         Professionals, $
               560
NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
Health Spending Growth has
 Slowed, But Usually Outpaces GDP
              Growth
                                      16
                                                                                              Health Spending
                                      14                                                      GDP
  Percent Change from Previous Year




                                      12
                                                                                            Lowest growth rates in history of
                                      10                                                    National Health Expenditure Accounts

                                      8

                                      6

                                      4

                                      2

                                      0
                                           1961   1966   1971   1976   1981   1986   1991   1996      2001      2006
                                      -2

                                      -4

NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
Historically, Health Spending Has Grown
      1.0 - 2.5 Percentage Points Faster than
                         GDP
                         Pct. Points
                          3.0
                                                 1975-2008        1980-2008         1985-2008              1990-2008
                          2.5
Average Annual Rate of




                                   2.5
“Excess” Cost Growth




                          2.0            2.2
                                                           2.0
                                                                                         1.9                 1.9 1.9
                                                     1.8                           1.8         1.8
                          1.5                                    1.7                                                   1.7
                                               1.5
                                                                                                     1.4                     1.4
                          1.0                                          1.2
                                                                             1.0
                          0.5


                          0.0
                                       Medicare              Medicaid                 All Other            All Health Spending
                                                                                   HealthSpending


NIHCM Foundation analysis of information presented in CBO’s “The Long-Term Budget Outlook.” Revised August 2011.
The Recent Slowdown in
                         Spending
•
     Temporary Blip or Systemic Change?
     Continuation of slowdown underway since 2002
• Factors related to recent slowing in spending:
     o Recession
          Massive loss of jobs and employer-sponsored insurance
          Declining real income, substantial loss of wealth, people more cautious about spending
          Reduced demand for health care services, even among those with insurance
     o Drugs – ongoing shift to generics, expiring drug patents, fewer new drugs coming on
       line
     o Medicare – provider payment cuts, stabilization in Part D enrollment
     o Medicaid – provider payment cuts, higher drug rebates, benefit restrictions
     o Ongoing shift to policies with more cost-sharing, employees paying higher share of
       rising premiums

• Factors likely to affect future spending:
     o   Economic recovery, pent-up demand for health care, higher need due to delayed care
     o   ACA - 2014 coverage expansions and other industry changes
     o   Aging population
     o   Delivery/payment system changes emphasizing paying for value, informed consumers
     o   Ongoing consolidation among providers
Sources: Martin et al. “Growth in US Health Spending Remained Slow in 2010; Health Share of GDP Was Unchanged from 2009.”
Health Affairs, 31(1):208-19, Jan. 2012 & McKinsey Center for U.S. Health System Reform. “Accounting for the Cost of U.S. Health
Care.” Dec. 2011.
2011 Uptick
    Return to Higher Spending Growth, or Not?




Altarum analysis of monthly health spending data from the Bureau of Economic Analysis.
A Growing Share of National Health
   Spending is From Public Sources
100%
                                            Other Private Revenues
 90%

 80%                                                                                             Private
                                                      Households
 70%
              Private                                                                            Sources
              Source                                                                             = 55%
 60%          s=
 50%
              68%
                                                   Private Business
 40%

 30%
              Public                            Federal Government                               Public
 20%          Source                                                                             Source
              s=                                                                                 s=
 10%
              32%                          State and Local Government                            45%
  0%
    1987       1989       1991      1993      1995      1997      1999      2001   2003   2005   2007   2009
NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
A Closer Look at Public & Private
   Health Care Spending, 2010
 Private Sources (55%)                                               Public Sources (45%)
Total Spending by Private Sources               $1,430           Total Spending by Public Sources       $1,164
                                                B                                                       B
Private Business (20.6%)                                         Federal Government (28.6%)
 Private Health Insurance Premiums               $414.1             Private Health Insurance Premiums    $28.5
 Medicare Payroll Taxes                           $79.7             Medicare Payroll Tax                  $4.0
 Workers Compensation, Disability                                   Direct Medicare Program Spending     $254.0
 Insurance & Worksite Health                      $40.7
                                                                    Direct Medicaid Program Spending     $278.1
Households (28.0%)
                                                                    All Other Health Spending            $178.0
 Private Health Insurance Premiums               $263.1
                                                                 State/Local Government (16.2%)
 Medicare Payroll Taxes and Premiums             $162.8
                                                                    Private Health Insurance Premiums    $134.1
 Out of Pocket Spending                          $299.7
                                                                    Medicare Payroll Tax                 $11.4
Other Private Sources (6.6%)                                        Direct Medicaid Program Spending     $135.9
 Philanthropy, Investment, Etc.                  $169.9             All Other Health Spending            $139.6


 Source: NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
What We Will Cover Today

1. Big Picture Orientation

2. Distribution of Personal Health
   Care Spending
3. Spending through Government Entitlement
   Programs
4. Spending through Private Health Insurance
5. What’s Behind the High and Rising Spending?
A Word about Data Sources

National Health Expenditure              Medical Expenditure Panel Survey
Accounts (NHEA)                          (MEPS)
Synthetic database derived from          Annual survey of households about
myriad secondary sources                 their health spending
Covers total US population, including    Covers civilian, non-institutionalized
military, nursing home residents, etc.   population
Includes expenditures beyond personal    Designed to capture payments from
health care services (e.g., public       all sources (public, private, self-pay)
health, research, investments in         for personal health care services
infrastructure, administration)
Latest available year is 2010            Latest available year is 2009
Total spending reported = $2.594T        Total spending reported = $1.259T
Relatively Few People Account
                              for Most Personal Health Spending
                                         100                                                                                                           100.0

                                          90                        Top 1% of spenders account for >20% of spending ($275
  Cumulative Percent of Total Spending




                                                                    billion)
                                          80                                                                                                           78.2

                                          70
                                                        Top 5% of spenders account for almost half of spending ($623
                                          60            billion)
                                          50                                   Total Personal Health Care
                                                                                                                                                50.5

                                          40                                             Spending
                                                                                     = $1.259 Trillion                                   34.8
                                                                              $36 Billion          $1,223 Billion
                                          30
                                                                                                                               18.8
                                          20
                                                                                                                      10.4
                                          10                                                               5.6
                                                                                    1.3         2.9                                                       99
                                                        0.0   0.1       0.4                                                                          95
                                          0             15.
                                               0   10    4   20           30          40           50         60         70         80          90            100
                                                        Percent of Civilian Non-Institutionalized Population Ordered by Health Care Spending


NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
Greatest Potential for Savings
                                           Focus on High Spenders
                          $100,000
                                                                                             Total spending by top            $90,061
                           $90,000                                                           1% = $275 billion
                           $80,000
Mean Annual Expenditure




                           $70,000                                                            Total spending by top
                                                                                              5% = $623 billion
                           $60,000
                                                                    Total spending by top
                           $50,000                                  10% = $821 billion
                                     Total                                                                  $40,682
                           $40,000
                                     spending by
                           $30,000   bottom 50% =                                         $26,767
                                     $36 billion
                           $20,000
                                                                        $12,265
                           $10,000
                                                       $7,980
                                        $236
                               $0
                                     Lowest 50%       Top 50%           Top 30%           Top 10%            Top 5%               Top 1%
                                                                                           30.7M pop.         15.3M           3.06M pop.
                                                                                                               pop.
                                           Percent of Civilian Non-Institutionalized Population Ordered by Health Care Spending

NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
High Spenders are Older
100%                                  1.4
                                      2.7
 90%                     7.0
                                                          21.1                       24.8
 80%                    12.5
                                                                                             75+
 70%                    14.0                              17.1                               65-74
                                                                                     15.1
                                                                                             55-64
 60%
                                                                                             45-54
 50%                    27.8                              22.1
                                                                                     26.1    35-44
 40%                                                                                         19-34
 30%                                                      16.2                               0-18
                                                                                     13.2
 20%                                                       8.7
                        34.5                                                         7.3
 10%                                                       8.5                       5.9
                                                           6.3                       7.6
   0%
                   Lowest 50%                           Top 5%                      Top 1%
NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
High Spenders
                         Report Worse Health
100%                                  0.8
                                      4.3
  90%                                                      18.5
                                                                                     26.0
                         22.1
  80%
  70%                                                      25.2
  60%                                                                                        Poor
                         32.3                                                        31.4
                                                                                             Fair
  50%
                                                                                             Good
  40%                                                      28.9
                                                                                             Very Good
  30%                                                                                23.4    Excellent
  20%                    40.4
                                                           19.9
  10%                                                                                13.4
                                                            7.5                      5.8
    0%
                   Lowest 50%                            Top 5%                     Top 1%

NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
High Spenders Have More Chronic
  Conditions & Functional Limits
100%                                      1.9                                     1.3
                                          3.4
90%                        8.2
80%                                                                31.5
                                                                                         Functional limitation only
70%                        36.5
60%                                                                                      Chronic condition, help with ADLs

50%                                                                28.9
                                                                                         Chronic condition, functional
                                                                                         limitation
40%
                                                                                         Chronic condition only
30%
                           50.0                                    30.9
20%                                                                                      No chronic condition, no
                                                                                         functional limitation
10%
                                                                    7.4
  0%
                      Other 95%                           Top 5% Spenders

NIHCM Foundation analysis of data contained in The Lewin Group, "Individuals Living in the Community with Chronic
Conditions and Functional Limitations: A Closer Look," January 2010.
Considerable Persistence in
                                    Spending Patterns Over Two
                           80%
                                     73.9%
                                              Years
                                                 75.0%
                           70%
Percent with Same Ranking in




                                                             63.1%
                           60%
                                                                         54.4%
                           50%                                                             44.8%
            2009




                           40%                                                                               38.0%

                           30%
                                                                                                                                 20.0%
                           20%

                           10%

                               0%
                                    Bottom 50%   Top 50%    Top 30%      Top 20%           Top 10%            Top 5%             Top 1%
                                                       Percentile Rank by Health Care Spending, 2008
Source: Cohen SB and Yu W. "The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the
U.S. Population, 2008-2009." Agency for Healthcare Research and Quality, Statistical Brief #354. January 2012.
Persistent High Spenders:
      Older People & Those Whose Health Remains a Problem

                   Age (end of 2009)                                                  Health Status (end of 2008)
   100                                                                      100                       6.1
    90                                      19.2                              90
                                                                                           13.2                     24.8
    80            42.9                                                        80

    70                                                                        70
                                            26.4            65+                            27.3                                       Excellent
    60                                                      45-64             60                                    30.9              Very Good
    50                                                      30-44             50                                                      Good
    40                                       27             18-29             40                                                      Fair
                  40.1                                                                     29.6
                                                            0-17                                                                      Poor
    30                                                                        30                                    26.9
    20                                      16.6                              20

    10            10.6        3.1                                             10           23.9                     14.1
                              3.4           10.9                                                                               3.3
      0                                                                        0
          Top 10% in bothTop 10% in 2008, Bottom 75% in 2009
                          years                                                    Top 10% in both years in 2008, Bottom 75% in 2009
                                                                                                 Top 10%


                             Of top 10% of spenders in 2008:
          44.8% remained in top 10% and 25.4% moved to the bottom 75% in 2009
Source: Cohen SB and Yu W. "The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the U.S.
Population, 2008-2009." Agency for Healthcare Research and Quality, Statistical Brief #354. January 2012.
Long-Term Persistence of High Spending
    Among Medicare Beneficiaries
100

90
                                                                         Bottom 75%         Top 25%
80
                                                                         Died by Jan. 1     Not in FFS
70

60

50

40

30

20

10

  0
        1993         1994          1995         1996         1997          1998      1999   2000    2001
Source: Congressional Budget Office. “High-Cost Medicare Beneficiaries.” May 2005.
Challenges of Controlling
        Costs Among High Spenders
• Chronic health problems and persistence in high spending imply a role for
  disease management. But…
  • many of the same chronic problems are also highly prevalent in lower-spending
    groups, especially among the elderly
  • accurate prospective targeting of those who can most benefit from disease management
    can be tricky

• Managing high spending at the end of life can be problematic
  • not all with high spending will die soon
  • predicting timing of death and distinguishing between care that could extend life in a
    meaningful way and care that does little good is often very difficult
  • societal reluctance to discuss end of life care, fears of rationing

• Not all high spending is predictable or persistent.
  • hard to control the random events
  • may be able to manage some episodes more efficiently (e.g., clinical pathways for
    cancer)
What We Will Cover Today

1. Big Picture Orientation

2. Distribution of Personal Health Care Spending

3. Spending through Government
   Entitlement Programs
4. Spending through Private Health Insurance

5. What’s Behind the High and Rising Spending?
Government Health Entitlement
                        Programs
       36 Percent of National Health Spending in 2010
                                           Investment, 6%
                          Public Health, 3%
                Other Third Party                                 Out of
                   Payers &                                     Pocket, 12%
                 Programs, 7%

                DOD & VA, 3%




                             Medicaid & CHIP =                            Private Health
                               $413.1B, 16%                              Insurance, 33%




                                               Medicare =                               2010 Total Spending = $2.594 T
                                              $524.6B, 20%


NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
Government Health Entitlement Programs
           21 Percent of U.S. Federal Spending in 2011
            Federal Revenues                                            Federal Spending ($3.598T)
      ($2.302T, excluding borrowing)                                                   6%
                                                                                                               Net Interest


                                                                                      18%
                                                                                                               Non-Defense
                                                                                                               Discretionary
                                                                                      19%
                                      6%                                                                       Defense
                                                                                                               Discretionary
      Other Revenue
                                     23%                                              15%
                                                                                                               Other Mandatory
      Payroll Taxes                                                                                            Spending
                                      5%                                              20%
      Corporate Income                                                                                         Social Security
      Taxes                                                                            8%
                                     30%
      Individual Income                                           21%                 13%                      Medicaid & Other
      Taxes
                                                                                                               Health
      Borrowing (Deficit)                                                                                      Entitlements

                                     36%




NIHCM Foundation analysis of data from CBO’s “The Budget and Economic Outlook: Fiscal Years 2012 to 2022,” Jan. 2012.
Structure of the Medicare
                  Program
PART A            • Hospital Insurance (HI) Trust Fund
Inpatient &       • Mandatory program
Post-Acute Care   • Eligible if > 40 quarters of covered employment
                    (self/spouse)
                  • Payroll tax, SS income tax if high income, premiums if
                    buying into program, interest on Trust Fund reserves
PART B            •   Supplemental Medical Insurance (SMI) Trust Fund
Physician &       •   Voluntary programs
Outpatient Care   •   Premiums from enrollees (~25% of program costs)
                  •   Fees on manufacturers/importers of brand name drugs (B)
PART D            •   Transfers from state Medicaid programs (D)
Outpatient Rx     •   General revenues (balance SMI Trust Fund each year)
PART C            • Capitated arrangements with private health plans
Managed Care      • Financed from both trust funds
Current Claims on the Part A Trust
 Fund Require General Revenues
% of Taxable Payroll                          A Pay-As-We-Go System
    7%
                                                                                              Part A Expenditures
                       Part A Operating Deficit:             Baby boomers retiring
     6%
                                                             ~10,000/day
                       Covered by Redemption of
                       Trust Fund
     5%                Assets, Requiring General
                       Revenues                                                                       Part A Income
     4%

                                                                2024: Part A Trust Fund Exhausted
     3%


     2%
                       Periods of Operating Surplus:
                       Trust Fund Assets Accumulate
     1%
                       and are Lent to the Federal
                       Government, Earning Interest
     0%
       1970       1980     1990      2000      2010      2020      2030      2040      2050    2060    2070   2080

Source: A Summary of the 2012 Annual Reports, Social Security and Medicare Boards of
Trustees, www.ssa.gov/OACT/TRSUM
The Big Picture for Medicare:
                Dedicated Revenue <
%GDP
                    Expenditures     historical   projecte
 7%                                               d                                     Total Medicare Expenditures
                                                              Part A Trust
                                                              Fund Deficit
 6%                                                Part A
                                                   Trust




                                                                                                                      Non-interest program income
                                                   Fund
 5%                                                exhauste
                                                   d

 4%                                                                 General Revenue Transfers to Parts B &
                                                                    D

 3%

                                                                   Premiums, State Transfers, & Drug Fees
 2%

 1%                                                                                                      Tax on SS
                                                                    Payroll Tax                          Benefits
 0%
      1970     1980      1990     2000      2010       2020     2030      2040         2050   2060    2070    2080


Source: A Summary of the 2012 Annual Reports, Social Security and Medicare Boards of
Trustees, www.ssa.gov/OACT/TRSUM
A Beneficiary Lifetime
    Perspective: Payroll Contributions <
                                   Expected Benefits
 $400,000
                    Medicare Expected Benefits (Net of                    $357,000                             $357,000
 $350,000           Premiums), Lifetime

 $300,000           Medicare Payroll Taxes, Lifetime


 $250,000


 $200,000                Female     $188,00

                            Male     $170,000
 $150,000
                                                                                             $119,000
 $100,000
                  $60,000                               $60,000
  $50,000


        $0
                       Single, Average WageOne-EarnerOne-Earner Couple, Average Wage Couple, Average Couple, Average
             Single, Average Wage                    Couple, Average Wage   Two-Earner Two-Earner Wages
                Wage
Source: Steuerle CE and Rennane S. "Social Security and Medicare Taxes and Benefits Over a Lifetime.” Washington, DC:
The Urban Institute. June 2011.
But the Public Perception is Very
         Different from Reality
Thinking about Medicare, do you believe that over the course of
your career you [will] have paid…
   Not enough, others will support me                     Enough to support myself      More than I'll receive

             56+                  32%                                 34%                  34%

          36-55              21%                       30%                           49%

          18-35         13%                   29%                                 58%

All Ages (18+)              21%                        31%                           49%

                   0%       10%        20%       30%        40%       50%   60%   70%    80%     90%    100%

Source: Stony Brook Poll, December 2010. http://tinyurl.com/9qteyxm
Structure of the Medicaid Program
•   Covers ~60 million low-income individuals

•   Jointly financed by states and federal government

•   Voluntary program for states, all now participate

•   Categorical eligibility: children, pregnant women, parents with dependent
    children, people with disabilities, seniors (income thresholds vary by
    category)

•   States run their programs; must meet federal standards but can deviate
    with a waiver or exceed standards using own funds

•   Very few states have expanded to cover “childless adults”

•   ACA removed categorical eligibility and expanded eligibility to all non-
    elderly persons under 138% FPL

•   Supreme Court decision makes this expansion optional for states
Medicaid
           Enrollment vs. Spending, FY
                      2009
100%
 90%                         15%
                                                1/4
 80%                         10%                                         43%            $15,453 per enrollee
 70%                                                   2/3
 60%                         26%
 50%                                                                                    $13,186      Disabled
                                                                         23%
 40%
                                                                                                     Elderly
 30%                                                                     14%            $2,926
                             49%
 20%                                                                                                 Adults (<65)
 10%                                                                     21%            $2,313
                                                                                                     Children
  0%
                          Enrollees                                  Spending
                     ~15% of enrollees                          ~40% of spending
                     are dual eligibles                         is for dual eligibles
Source: Kaiser Family Foundation, “The Medicaid Program at a Glance.” September 2012.
Medicaid Spending is a Large and
 Growing State & Federal Burden
       Total State Expenditures, FY2011                                      Total Medicaid Spending ($billions)
                   (estimated)                                        450

                                                                      400
                                                                                    Federal Spending                                    273

                                                                                    State Spending                                251
                                                                      350
                                                                                                                           201
                                         Medicaid                                                                    191
             All Other                                                300                                      181
                                           24%                                                         176 182                   63-64%
             Spending
                                                                                                 162
               34%                                                    250                                                        ARRA
                                                                                          148
                                                                      200           130
                                                                             118                 56-57%
                                              K-12                    150
                                                                                                                       158
                                            Education                                                          142 150     147 156
                                                                                                       133 137
                                              20%                     100                 112 122
  Public                                                                     89 98
Assistance                    Higher                                   50
   2%                        Education
 Corrections Transport         10%                                       0
     3%                                                                      2000         2002         2004   2006         2008         2010
                7%


NIHCM Foundation depiction of data from National Association of State Budget Officers. “State Expenditure Report.” Dec.
2011.
Mandatory Federal Health Spending
       Projected to More Than Double in 10
                      Years
   $ billions      Exchanges
                   Medicaid
   $1,800          Medicare (net offsetting receipts)                                                            6.7%     7.0%
                                                                                               6.2%     6.4%
                   Other Mandatory Health Spending (net)                              6.1%
   $1,600          Percent of GDP                        5.8%                5.8%                                 123
                                                                                                                          6.0%
                                                                                                         118
   $1,400                                                   5.8%
                                                  5.5%                                          111
                                          5.3%                                101      107                                5.0%
   $1,200       5.1%                                                 91                                           592
                         4.7%    4.9%
                                                            75                                           549
   $1,000                                           46                                          514                       4.0%
                                                                                       479
                                           24                                 446
                                  1                         382      416
     $800                                                                                                                 3.0%
                                                   341
                                          305
     $600       275      253     267
                                                                                                                  899     2.0%
     $400                                                                                       750      806
                                                                              632      696
                                                   539      589      608
                480      466     494      514                                                                             1.0%
     $200
                                                                                                                   45
        $0                                                                                                                0.0%
                 2011    2012   2013     2014     2015     2016     2017     2018     2019     2020      2021     2022
                actual
NIHCM analysis of data from CBO’s “An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022,” Aug. 2012.
And That’s the Good
                News
• CBO’s baseline projections assume current laws remain in
  place and will be implemented as written, most notably:
  • Deep cuts in Medicare physician payment rates under the SGR
    formula
  • 2% reductions in Medicare payment rates under Budget Control Act
    sequestration
  • Cuts in Medicare provider payment updates under the ACA

• Overriding any of these cuts will increase Medicare spending
• Other big unknowns:
  • extent to which states will expand Medicaid (implications for
    Federal match)
  • extent to which people will seek subsidized coverage in the
    exchanges
Faster Growth in Health Entitlement Spending
    Will Dramatically Worsen Projected Deficit
                                                 10    historical   projected
Primary Surplus (+) or Deficit (-) as % of GDP




                                                  5

                                                  0
                                                                                                                  Growth at GDP
                                                  -5

                                                 -10                                                                GDP + 1%

                                                 -15
                                                                                                          GDP + 2%
                                                 -20                                                      (~Historical Average)
                                                 -25
                                                    2000     2010       2020    2030   2040   2050         2060   2070     2080
                   Source: “2011 Fiscal Report of the U.S. Government.” Supplemental Information, Chart
                   5, http://www.fms.treas.gov/finrep11/supp_info/fr_supplement_info_alternative.html#chart5
Triangle of Painful Choices
          Tradeoffs Needed to Balance Budget by 2035
                                                Health Spending Growth Relative to Potential GDP
                              10%
                                          -4%     -3%      -2%         -1%                                         +1%
                                      A                                               0%
                              9%                                                                                      B
 Defense & Other Non-Health
   Spending as % of GDP




                              8%
                                                                          D
                              7%

                              6%

                              5%

                              4%

                              3%
                                           C
                              2%
                                18%             19%      20%        21%       22%      23%                24%             25%
                                                               Tax Revenue as % of GDP
Source: Roehrig, C. Altarum Center for Sustainable Health Spending. As presented in The Incidental Economist Blog, Aug.
15, 2012.
What We Will Cover Today

1. Big Picture Orientation
2. Distribution of Personal Health Care Spending
3. Spending through Government Entitlement
   Programs

4. Spending through Private Health
   Insurance
5. What’s Behind the High and Rising Spending?
Private Health Insurance Premiums
           One-Third of National Health Spending, 2010
                                          Investment, 6%
                    Public Health, 3%
           Other Third Party
              Payers &                                       Out of
            Programs, 7%                                   Pocket, 12%


           DOD & VA, 3%



                                                                 Private Health
                            Medicaid &                            Insurance =
                            CHIP, 16%                            $848.7B, 33%




                                         Medicare, 20%
                                                                                        2010 Total Spending = $2.594 T



NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
Private Health Insurance Markets
 Employer-Based or Group Market               Individual or Non-Group Market
• Coverage purchased by employer for        • Coverage purchased directly from insurer
  workers, dependents
  and, perhaps, retirees.                   • Individual/family is own risk pool. Health
                                              underwriting and pre-existing conditions
• Risks pooled by employer group.             can make coverage expensive or
                                              unavailable.
• Employers and employees generally
  contribute to premium                     • Purchaser pays full premium.

• Premiums excluded from taxes in most      • Preferential tax treatment of premiums
  cases. Value of tax exclusions = $145       only for self-employed
  billion in 2011.
                                            • Most people purchasing coverage in this
• Small, medium, large group based on         market do not have access to employer-
  number of employees                         based coverage
                                              •   self-employed
• 60 percent of workers with employer-        •   employed but not offered coverage
  based coverage were in “self-insured”       •   non-dependent students
  plans (2012)
                                              •   early retirees
• Larger employers most likely to self        •   between jobs
  insure, but growing trend among smaller
  employers
Private Coverage is Dominated
   by Employment-Based Insurance
100%                                                                                   Govt. employer
 90%                                                                                   contributions
                                                                                       (20.4%)
 80%
 70%                                                                                   Private
 60%                                                                                   employer
                           89.2%                                   94.9%               contributions
 50%                                                                                   (52.0%)
 40%
                                                                                                                Employer-
 30%                                                                                                            Based
                                                                                       Employee
 20%                                                                                   contributions            Coverage
                                                                                       (27.6%)                  Individual
 10%
                           10.8%                                                                                Market
   0%                                                               5.1%

                        Enrollees                                Premiums
                       174.4M (2011)                          $839.8B
Sources: Fronstin P. “Sources of Heath Insurance…” EBRI Issue Brief 376, Sept. 2012; NIHCM analysis of data from the
                                                              (2010)
2010 National Health Expenditure Accounts, Sponsor Highlights.
Private-Sector Workers Paying an
         Increasing Share of Increasing Premiums
                                       Employment-Based Coverage

                 Individual Policy                                                  Family Policy
16000                                                       150%   16000                                           146%      150%
                                                  142%
14000                                                              14000
                                                                                                                          $1502
                                                                                                                           122%
12000                                                              12000                                                   114%
                                                     97%
                                                            100%                                                             100%
10000                                                              10000

 8000                                                 87%
                                                                    8000 $677

 6000                                              $522             6000
                                                            50%                                                              50%
                                                   2
 4000                                                               4000
         $2655
 2000                                                               2000

     0                                                      0%          0                                                    0%
         2000    2002   2004    2006     2008    2010                       2000   2002    2004    2006    2008    2010

                        Employee (EE) Contribution to Premium            Employer (ER) Contribution to Premium
                        Cumulative Pct. Change, EE Contribution          Cumulative Pct. Change, ER Contribution
                        Cumulative Pct. Change, Total Premium

Source: NIHCM analysis of data from the Medical Expenditure Panel Survey, Insurance Component. Data not available for
2007.
And Facing Higher Out-of-Pocket Costs
              via Deductibles
                Average Deductible for those with a Deductible - Individual Policy
                                                                                                       78%        78%
 $2,500         Average Deductible for those with a Deductible - Family Policy                                              80%
                                                                                             74%
                Percent of Enrollees with a Deductible                          71%                                $2,220
                                                                                                                            70%
                                                                                                        $1,975
 $2,000                              59%                   66%
                                               64%                                           $1,761                         60%
                         52%                                                      $1,658
              48%
                                                                                                                            50%
 $1,500
                                                            $1,351
                                                $1,232
                                     $1,143                                                                   $1,123
                                                                                                                            40%
                          $1,079                                                                   $1,025
                $958                                                                       $917
 $1,000                                                                       $869                                          30%
                                                         $714
                                              $652
                                   $573                                                                                     20%
                       $518
   $500    $446

                                                                                                                            10%

      $0                                                                                                                    0%
             2002        2003       2004       2005       2006       2007       2008        2009       2010       2011

Source: NIHCM analysis of data from the Medical Expenditure Panel Survey, Insurance Component. Data not available for
2007.
Health Spending by American Families
     More Than Doubled in Past Decade
                       Family of Four, Employer-Based PPO Coverage
$21,000                                                                                                                   $20,72
                Employee Out-of-Pocket Costs                                                                 $19,39       8
                                                                                                   $18,07    3             3470
                Employee Contribution to Premium
                                                                                       $16,77      4           3280
                Employer Contribution to Premium                            $15,60     1             3005
                                                                 $14,50     9            2820
                                                                 0            2675                                         5114
$14,000                                               $13,382                                                  4728
                                        $12,21                     2420                             4325
                                $11,192 4               2210                             4004
                     $10,16               2035                                3492
                                  1920                             3171
           $9,23     8                                  2810
                       1760
             1580                             2666
                                   2522
 $7,000                 2354
             2055
                                                                                                               11385      12144
                                                                                         9947       10744
                                                                   8909       9442
                                              7513      8362
                        6054       6750
             5600


     $0
             2002       2003       2004       2005      2006       2007       2008       2009       2010       2011        2012

Source: NIHCM Foundation analysis of data presented in the annual Milliman Medical Index reports, 2005-2012. Values for
component parts for 2002-2005 were estimated using component growth rates reported by Milliman.
Premiums and Deductibles Also
          Continue to Rise in the Non-Group
                       Market
                   Individual Policy                                                             Family Policy
                                                                             $5,000                                                    4968     80%
$5,000                                                                 80%
                                                                                                                      4596     4704
                                                           71%               $4,500                   4392     4428                       69%
$4,500
                                                                       70%                                                                      70%
                                                                                              4128
$4,000                                                                       $4,000 3888
                                                                       60%                                                               3879   60%
$3,500                                                                       $3,500
                                                                       50%                                                                      50%
$3,000                                                          2935         $3,000                                     3128
                                                       2632                                                                      3531
                                                                             $2,500                             2760                            40%
$2,500                                                                 40%                              2610
                                      2084                                                      2486
                             1972               2326                                   2294
$2,000              1864                                      2196           $2,000                                                     28%
           1721                                                        30%                                                                      30%
                                    1908            2004
                           1896
$1,500   1728     1776                       1932              27%           $1,500
                                                                       20%                                                                      20%
$1,000                                                                       $1,000

                                                                       10%                                                                      10%
 $500                                                                         $500

    $0                                                                 0%       $0                                                              0%
         2005     2006     2007     2008     2009   2010      2011                    2005     2006    2007    2008    2009     2010    2011
                                  Mean Annual Premium                          Mean Deductible
                                  Cumulative Pct. Change - Premium             Cumulative Pct. Change - Deductible

NIHCM Foundation analysis of data contained in eHealthInsurance reports “The Costs and Benefits of Individual and Family
Health Insurance Plans” (Nov. 2008 and Nov. 2011) and “2009 Summer Cost Report for Individual and Family Policy
Holders.”
High-Deductible Health Plans
            are Becoming Much More Prevalent
         Health Plan Enrollment by Plan Type for Covered Workers
   20…
   20…
   20…                                                                                                             Conventional
   20…                                                                                                             HMO
   20…                                                                                                             PPO
   20…                                                                                                             POS
   20…                                                                                                             HDHP/SO
   20…

      0%       10%       20%       30%       40%       50%       60%       70%       80%       90%      100%
         Health Plan Enrollment by Plan Type for Privately Insured Individuals
   20…
   20…
   20…                                                                                                               Traditional
   20…                                                                                                               HDHP
   20…
                                                                                                                     CDHP
   20…
   20…

      0%       10%       20%       30%       40%       50%        60%       70%       80%       90%      100%
Sources: Kaiser Family Foundation/Health Research & Educational Trust. “Employer Health Benefits, 2012 Annual Survey.”
Sept. 2012 (top graph); Employee Benefit Research Institute. “Findings from the 2011 EBRI/MGA Consumer Engagement in
Health Care Survey.” EBRI Brief No. 365, Dec. 2011 (bottom graph).
HSA-Qualified HDHP Enrollment Rising
                       Especially in the Large Group Market
    2005         1.0
                                                                                                    Individual
    2006
                                                                                                    Small Group
    2007                                                                                            Large Group
    2008                                                                                            Group, Size Not Known
    2009                                                                                            Market Not Known
    2010
    2011
    2012                                                                                                         13.5

           0                 2          4              6              8              10             12                14 million
    2005                                64%                                    17%               19%
    2006                         42%                         25%                           33%
    2007               26%                     25%                                 49%
    2008               25%                     30%                                  46%                          Individual
    2009           23%                        30%                                  47%                           Small Group
    2010          21%                        30%                                   50%                           Large Group
    2011          21%                   24%                                    55%
    2012         18%                   22%                                   59%

           0%     10%            20%   30%     40%         50%     60%       70%         80%     90%     100%
Source: America’s Health Insurance Plans. “January 2012 Census Shows 13.5 Million People Covered by HSA/HDHPs.” May
2012.
Health Care Premiums Growing
         Quickly as a Share of Personal
                     Income




                                                                      • Employee share of premium up 63%.
                                                                      • Per-person deductibles doubled.

Source: Schoen C, Fryer AK, Collins SR and Radley DC. “State Trends in Premiums and Deductibles, 2003-2010: The
Need for Action to Address Rising Costs.” The Commonwealth Fund, November 2011.
Insurance Premiums Pay for
    Health Care Services for Enrollees
                                                                                                      Net Cost
                                                                                                         of
                                     Personal Health Care Services (88%)                              Insuranc
                                                                                                          e
                             34                            28                   14          9     3     12




                                                   Physician & Clinical        Rx &
                       Hospital Care                    Services               DME

                                                                          Dental & Other
                                                                           Professional
Total Private Insurance Premium Revenue =                                    Services
$848.7B                                                                                 Home Health & Other
                                                                                      LTC Facilities & Services
NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
Net Cost of Health Insurance
• Defined by NHEA framework as the difference between premiums collected
  and benefits paid out
• All administrative costs
  •   Claims processing
  •   Sales and marketing
  •   Member enrollment and customer service
  •   Actuarial analysis and underwriting
  •   Product development and provider contracting
  •   Medical management
  •   Quality improvement
  •   Wellness programs

• Rate credits to policyholders and dividends to stockholders
• Taxes to government
• Additions to reserves
• Profits (or losses)
Private Health Insurance Spending Rose
        Almost 15 Percent in Five Years
             $900
                              14.7%
                              increase                                                                       $848.7 billion
             $800
                        $740.2 billion                                                                          102.7                Net Cost of Insurance




                                                          [-------- Personal Health Care Spending --------
                                                                                                                              23.5
             $700             99.6                                                                               75.8                Home Health & Other LTC
$ Billions




                                              19.5                                                                                   Facilities & Services
             $600            66.3                                                                               121.4                Dental & Other Professional




                                                                           88% of Premiums
                                                                                                                                     Services
             $500            106.0
                                                                                                                                     Prescription Drugs & DME
             $400                                                                                               239.4
                                                                                                                                     Physician & Clinical Services
                             211.4
             $300
                                                                                                                                     Hospital Care
             $200
                                                                                                                285.8
             $100            237.5
                                                          -]




              $0
                              2006                                                                               2010
Source: NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
Higher Spending for Hospital & Physician Services
                      Drove More than 70 Percent of the Premium
                                        Growth
                                   $120                                                                                         3% of net
                                                                                                                 4% of net
                                                                                               9% of net                         change
                                                                                                                  change
                                                                              14% of net        change
2006 to 2010 Change ($ Billions)




                                   $100                                        change
                                                                                                                                   $3.1
                                                                                                  $9.5             $4.0
                                                            26% of net
                                    $80                      change              $15.4


                                    $60   45% of net          $28.0
                                           change                                                                                                  $108.5
                                    $40
                                                                       97 percent of change in
                                    $20
                                             $48.3                     premiums was due to growth in
                                                                       insurers’ spending for health
                                     $0                                care services
                                          Hospital Care      Physician &       Prescription   Dental & Other   Home Health &   Net Cost of    Total Change in
                                                          Clinical Services   Drugs & DME      Professional      Other LTC   Health Insurance   Premiums
                                                                                                 Services       Facilities &
2006-2010                                                                                                         Services
% Change                                     20.3%              13.2%               14.5%             14.3%               20.5%             3.1%
14.7%
Source: NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
What We Will Cover Today

1. Big Picture Orientation
2. Distribution of Personal Health Care Spending
3. Spending through Government Entitlement
   Programs
4. Spending through Private Health Insurance

5. What’s Behind the High and
   Rising Spending?
Deconstructing the
       Rising Health Spending
Spending increases may be driven by:
 • unit price effect - rising prices per unit of service
 • volume or utilization effect - higher volume of
   services, due to
  • more users of services and/or
  • more services used per capita
 • intensity or service mix effect - shift to more
   expensive mix of services or to more expensive
   providers
It Really is the Prices (Stupid)
             Evidence from Massachusetts, 2007-2009
              Decomposition of Spending Growth for Privately Insured Patients
                                                                                         Shift to More
                  Change in Total                                 Number of               Expensive
                    Spending            Pure Price Effect       Stays/Services            Providers              Service Mix

                            7.3%
                                           6.5% 6.4%
Inpatient           5.7%
Stays                                                                                                            1.0% 1.1%
                                                                                         0.2% 0.3%

                    9.4%                                                  -0.5%
                                                                  -2.1%
Hospital                    4.6%           5.1% 5.5%
                                                                  3.9%
Outpatient
Care                                                                      0.1%            0.1% 0.3%              0.2%

                                                                                                                        -1.3%
                                                   2007-2008              2008-2009
Source: Massachusetts Division of Health Care Finance and Policy. “Massachusetts Health Care Cost Trends: Trends in
Health Expenditures.” June 2011.
It Really is the Prices (Stupid)
  Evidence from Several National Payers, 2010-2011

                                 Per Capita Spending                 Unit Price           Utilization   Intensity
            10.0                                      9.6


                         5.9                    7.2
             5.0                                                              6.2
                                                                                    3.5                       3.7
                   4.9                                                                                  4.5
                                                            2.1                           1.6
                                                                                                1.0                 1.2

             0.0
  Percent




                               -0.6 -0.3                                                                                  -0.4


            -5.0                                                  -4.2


                    Inpatient Care              Outpatient Visits             Other Outpatient           Professional
                                                                                                         Procedures


Source: Health Care Cost Institute, “Health Care Cost and Utilization Report: 2011,” September 2012.
U.S. Pays More for Hospital Services
                               Select Countries & Services
(US$, 2007)
$35,000
                                                                        $34,358

                       Australia
$30,000
                       Canada
$25,000                France
                       Sweden
$20,000                United States                                   $21,218
                                                                                               $17,406

$15,000
                                                                                         $11,162

$10,000                                          $7,962                                                             $8,917

                         $4,451           $4,558
 $5,000                                                                                                 $3,093
                     $2,591

     $0
             Normal Delivery         Appendectomy                 CABG            Hip Replacement           Hernia Repair

Source: Koechlin F, Lorenzoni L and Schreyer P. “Comparing Price Levels of Hospital Services Across Countries.”
OECD Health Working Papers No. 53, July 2010.
U.S. Pays More for Hospital Services
                Composite Index, 29 Inpatient Services

                Comparative Price Levels, Hospital Services, 2007
       United States                                                                                              164
                 Italy                                                                                140
            Australia                                                                       123
              France                                                                       121
                                                                                                U.S. hospital
            Sweden                                                                       114
                                                                                                prices 64%
             Canada                                                                      113
                                                                                                higher than
             Finland                                                             98             OECD average
            Portugal                                                       85
               Israel                                          62
            Slovenia                                          59
               Korea                                         57                 OECD Average

                              0        20        40        60        80       100       120       140       160        180
Source: Koechlin F, Lorenzoni L and Schreyer P. “Comparing Price Levels of Hospital Services Across Countries.” OECD
Health Working Papers No. 53, July 2010.
U.S. Pays Physicians More for the Same
                        Services
                      Especially Private Payers and Specialty Care

    Primary Care - Office Visit Fees                                       Specialty Care – Hip Replacement
 $140                                                                133   $4,500
                                                               129
                                                                                                                                         3,996
                                                                           $4,000
 $120
                                                         104               $3,500
 $100
                                                                           $3,000
  $80                                                                      $2,500
                                66                                                                                                  2,160
                 59                  60                                                                             1,943
  $60                                                                      $2,000
                                                                                                           1,634
                           46                 45
                                                                           $1,500                  1,251                    1,340
  $40     34          32                               34                            1,046
                                                                           $1,000                      1,181
                                                                                                 674
  $20
                                                                            $500           652

   $0                                                                         $0
                 Public Payers                     Private Payers                          Public Payers               Private Payers

     Australia        Canada         France   Germany       UK       US        Australia     Canada        France   Germany         UK      US

Source: Laugesen MJ and Glied SA. “Higher Fees Paid to US Physicians Drive Higher Spending for Physician Services
Compared to Other Countries.” Health Affairs, 30(9):1647-56. September 2011.
U.S. Physicians Earn More
                              Particularly Specialists
 $500,000
                     Australia          Canada            France           Germany        UK         US
                                                                                                                              442,450
 $450,000

 $400,000

 $350,000
                                                                                                                    324,138

 $300,000

 $250,000
                                                                                         208,634
                                                                 186,582       187,609                    202,771
 $200,000
                                                       159,532                                     154,380
 $150,000                 125,104            131,809

                 92,844             95,585
 $100,000

  $50,000

        $0

                       Primary Care Physicians                                            Orthopedic Surgeons

Source: Laugesen MJ and Glied SA. “Higher Fees Paid to US Physicians Drive Higher Spending for Physician Services
Compared to Other Countries.” Health Affairs, 30(9):1647-56. September 2011.
Summary and Implications
• Health care spending is a heavy and increasingly
  unmanageable burden to federal and state
  governments, employers and individuals.

• Recent slowing in health spending growth offers a ray of
  hope. But is the slowdown sustainable?
  • Real and sustained gains in efficiency and value will be needed to
    offset the demographic and other pressures driving health spending
    upward.

• The highly concentrated nature of personal health care
  expenditures suggests a strategy for controlling spending.
  But there are real challenges in managing the care of high
  spending patients.
Summary and Implications
        (continued)
• Private premium increases are driven by underlying
  increases in spending for medical care for enrollees.
  Controlling spending for hospital and physician/clinical
  services will be essential to moderating growth in private
  premiums.

• We pay more than other countries for the same
  services, and rising prices have been the dominant factor
  behind our growing spending. Attention to these high
  prices is warranted.

• Sizing the challenge is the easy part. Finding real
  solutions is much harder.
For more information or
additional hard copies of our publications,
 please contact me or visit our website:

            jschoenman@nihcm.org
                 202-296-4192

               www.nihcm.org

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Health care spending slides mili - schoenman

  • 1. A Detailed Look at U.S. Health Care Spending Julie A. Schoenman, Ph.D. National Institute for Health Care Management Foundation Medical Industry Leadership Institute Actuarial Seminar Series October 25, 2012
  • 2. What We Will Cover Today 1. Big Picture Orientation 2. Distribution of Personal Health Care Spending 3. Spending through Government Entitlement Programs 4. Spending through Private Health Insurance 5. What’s Behind the High and Rising Spending?
  • 3. What We Will Cover Today 1.Big Picture Orientation 2. Distribution of Personal Health Care Spending 3. Spending through Government Entitlement Programs 4. Spending through Private Health Insurance 5. What’s Behind the High and Rising Spending?
  • 4. Total National Health Spending Continues to Increase 3 $8,402 $9,000 National Health Expenditures (trillions) $8,149 $7,911 $7,628 $8,000 Per Capita Health Spending $7,251 2.5 $6,868 2.6 $6,488 2.5 $7,000 $6,114 2.4 2.3 2 $5,687 2.2 $6,000 $5,241 2.0 $4,878 1.9 $4,601 $5,000 $4,367 1.8 1.5 $4,169 1.6 1.5 $4,000 1.4 1.3 1 1.1 1.2 $3,000 $2,000 0.5 $1,000 0 $0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 % GDP 13.7% 13.7% 13.8% 13.8% 14.5% 15.4% 15.9% 16.0% 16.1% 16.2% 16.4% 16.8% 17.9% 17.9% NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
  • 5. U.S. Health Spending is a Dramatic Outlier Internationally United States Netherlands 17.4 France Germany Denmark Switzerland Canada Austria Belgium New Zealand Sweden United Kingdom Iceland Norway Spain Most developed Italy Ireland countries spent Slovenia Finland ~9.5 to 12% of Slovak Republic Chile GDP on health Czech Republic Israel care in 2009 Luxembourg Poland Hungary Estonia Korea Mexico % GDP, 2009 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 NIHCM Foundation analysis of data from the Organisation for Economic Cooperation and Development.
  • 6. U.S. Spends More than Expected Based on Our Wealth $9,000 United States $8,000 $7,000 Chile, Mexico, Poland, $6,000 Estonia, Hungary, Slov Switzerland Norway $5,000 ak Republic, Czech Luxembourg Republic, Korea, Israel Per Capita Health Spending, 2009 $4,000 , Slovenia, New Zealand $3,000 $2,000 Spain, Italy, France, Finland, United Kingdom, Belgium, Germany, Iceland, Sweden, $1,000 Denmark, Canada, Austria, Ireland, Netherlands $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 Per Capita GDP, 2009 NIHCM Foundation analysis of data from the Organisation for Economic Cooperation and Development.
  • 7. What Does $8,400 Per Person Buy? Public Investment, $48 16% of spending Health, $267 3 Administration, $ ($1,320) is not 570 related to personal health care services Rx, DME & Other Hospital Medical Care, $2,637 Products, $1,106 84% of Home Health & spending LTC, $1,107 MD & Clinical Services, $1,670 ($7,080) is for Dentists & Other personal health Health care services Professionals, $ 560 NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
  • 8. Health Spending Growth has Slowed, But Usually Outpaces GDP Growth 16 Health Spending 14 GDP Percent Change from Previous Year 12 Lowest growth rates in history of 10 National Health Expenditure Accounts 8 6 4 2 0 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 -2 -4 NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
  • 9. Historically, Health Spending Has Grown 1.0 - 2.5 Percentage Points Faster than GDP Pct. Points 3.0 1975-2008 1980-2008 1985-2008 1990-2008 2.5 Average Annual Rate of 2.5 “Excess” Cost Growth 2.0 2.2 2.0 1.9 1.9 1.9 1.8 1.8 1.8 1.5 1.7 1.7 1.5 1.4 1.4 1.0 1.2 1.0 0.5 0.0 Medicare Medicaid All Other All Health Spending HealthSpending NIHCM Foundation analysis of information presented in CBO’s “The Long-Term Budget Outlook.” Revised August 2011.
  • 10. The Recent Slowdown in Spending • Temporary Blip or Systemic Change? Continuation of slowdown underway since 2002 • Factors related to recent slowing in spending: o Recession  Massive loss of jobs and employer-sponsored insurance  Declining real income, substantial loss of wealth, people more cautious about spending  Reduced demand for health care services, even among those with insurance o Drugs – ongoing shift to generics, expiring drug patents, fewer new drugs coming on line o Medicare – provider payment cuts, stabilization in Part D enrollment o Medicaid – provider payment cuts, higher drug rebates, benefit restrictions o Ongoing shift to policies with more cost-sharing, employees paying higher share of rising premiums • Factors likely to affect future spending: o Economic recovery, pent-up demand for health care, higher need due to delayed care o ACA - 2014 coverage expansions and other industry changes o Aging population o Delivery/payment system changes emphasizing paying for value, informed consumers o Ongoing consolidation among providers Sources: Martin et al. “Growth in US Health Spending Remained Slow in 2010; Health Share of GDP Was Unchanged from 2009.” Health Affairs, 31(1):208-19, Jan. 2012 & McKinsey Center for U.S. Health System Reform. “Accounting for the Cost of U.S. Health Care.” Dec. 2011.
  • 11. 2011 Uptick Return to Higher Spending Growth, or Not? Altarum analysis of monthly health spending data from the Bureau of Economic Analysis.
  • 12. A Growing Share of National Health Spending is From Public Sources 100% Other Private Revenues 90% 80% Private Households 70% Private Sources Source = 55% 60% s= 50% 68% Private Business 40% 30% Public Federal Government Public 20% Source Source s= s= 10% 32% State and Local Government 45% 0% 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
  • 13. A Closer Look at Public & Private Health Care Spending, 2010 Private Sources (55%) Public Sources (45%) Total Spending by Private Sources $1,430 Total Spending by Public Sources $1,164 B B Private Business (20.6%) Federal Government (28.6%) Private Health Insurance Premiums $414.1 Private Health Insurance Premiums $28.5 Medicare Payroll Taxes $79.7 Medicare Payroll Tax $4.0 Workers Compensation, Disability Direct Medicare Program Spending $254.0 Insurance & Worksite Health $40.7 Direct Medicaid Program Spending $278.1 Households (28.0%) All Other Health Spending $178.0 Private Health Insurance Premiums $263.1 State/Local Government (16.2%) Medicare Payroll Taxes and Premiums $162.8 Private Health Insurance Premiums $134.1 Out of Pocket Spending $299.7 Medicare Payroll Tax $11.4 Other Private Sources (6.6%) Direct Medicaid Program Spending $135.9 Philanthropy, Investment, Etc. $169.9 All Other Health Spending $139.6 Source: NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
  • 14. What We Will Cover Today 1. Big Picture Orientation 2. Distribution of Personal Health Care Spending 3. Spending through Government Entitlement Programs 4. Spending through Private Health Insurance 5. What’s Behind the High and Rising Spending?
  • 15. A Word about Data Sources National Health Expenditure Medical Expenditure Panel Survey Accounts (NHEA) (MEPS) Synthetic database derived from Annual survey of households about myriad secondary sources their health spending Covers total US population, including Covers civilian, non-institutionalized military, nursing home residents, etc. population Includes expenditures beyond personal Designed to capture payments from health care services (e.g., public all sources (public, private, self-pay) health, research, investments in for personal health care services infrastructure, administration) Latest available year is 2010 Latest available year is 2009 Total spending reported = $2.594T Total spending reported = $1.259T
  • 16. Relatively Few People Account for Most Personal Health Spending 100 100.0 90 Top 1% of spenders account for >20% of spending ($275 Cumulative Percent of Total Spending billion) 80 78.2 70 Top 5% of spenders account for almost half of spending ($623 60 billion) 50 Total Personal Health Care 50.5 40 Spending = $1.259 Trillion 34.8 $36 Billion $1,223 Billion 30 18.8 20 10.4 10 5.6 1.3 2.9 99 0.0 0.1 0.4 95 0 15. 0 10 4 20 30 40 50 60 70 80 90 100 Percent of Civilian Non-Institutionalized Population Ordered by Health Care Spending NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
  • 17. Greatest Potential for Savings Focus on High Spenders $100,000 Total spending by top $90,061 $90,000 1% = $275 billion $80,000 Mean Annual Expenditure $70,000 Total spending by top 5% = $623 billion $60,000 Total spending by top $50,000 10% = $821 billion Total $40,682 $40,000 spending by $30,000 bottom 50% = $26,767 $36 billion $20,000 $12,265 $10,000 $7,980 $236 $0 Lowest 50% Top 50% Top 30% Top 10% Top 5% Top 1% 30.7M pop. 15.3M 3.06M pop. pop. Percent of Civilian Non-Institutionalized Population Ordered by Health Care Spending NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
  • 18. High Spenders are Older 100% 1.4 2.7 90% 7.0 21.1 24.8 80% 12.5 75+ 70% 14.0 17.1 65-74 15.1 55-64 60% 45-54 50% 27.8 22.1 26.1 35-44 40% 19-34 30% 16.2 0-18 13.2 20% 8.7 34.5 7.3 10% 8.5 5.9 6.3 7.6 0% Lowest 50% Top 5% Top 1% NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
  • 19. High Spenders Report Worse Health 100% 0.8 4.3 90% 18.5 26.0 22.1 80% 70% 25.2 60% Poor 32.3 31.4 Fair 50% Good 40% 28.9 Very Good 30% 23.4 Excellent 20% 40.4 19.9 10% 13.4 7.5 5.8 0% Lowest 50% Top 5% Top 1% NIHCM Foundation analysis of data from the 2009 Medical Expenditure Panel Survey.
  • 20. High Spenders Have More Chronic Conditions & Functional Limits 100% 1.9 1.3 3.4 90% 8.2 80% 31.5 Functional limitation only 70% 36.5 60% Chronic condition, help with ADLs 50% 28.9 Chronic condition, functional limitation 40% Chronic condition only 30% 50.0 30.9 20% No chronic condition, no functional limitation 10% 7.4 0% Other 95% Top 5% Spenders NIHCM Foundation analysis of data contained in The Lewin Group, "Individuals Living in the Community with Chronic Conditions and Functional Limitations: A Closer Look," January 2010.
  • 21. Considerable Persistence in Spending Patterns Over Two 80% 73.9% Years 75.0% 70% Percent with Same Ranking in 63.1% 60% 54.4% 50% 44.8% 2009 40% 38.0% 30% 20.0% 20% 10% 0% Bottom 50% Top 50% Top 30% Top 20% Top 10% Top 5% Top 1% Percentile Rank by Health Care Spending, 2008 Source: Cohen SB and Yu W. "The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the U.S. Population, 2008-2009." Agency for Healthcare Research and Quality, Statistical Brief #354. January 2012.
  • 22. Persistent High Spenders: Older People & Those Whose Health Remains a Problem Age (end of 2009) Health Status (end of 2008) 100 100 6.1 90 19.2 90 13.2 24.8 80 42.9 80 70 70 26.4 65+ 27.3 Excellent 60 45-64 60 30.9 Very Good 50 30-44 50 Good 40 27 18-29 40 Fair 40.1 29.6 0-17 Poor 30 30 26.9 20 16.6 20 10 10.6 3.1 10 23.9 14.1 3.4 10.9 3.3 0 0 Top 10% in bothTop 10% in 2008, Bottom 75% in 2009 years Top 10% in both years in 2008, Bottom 75% in 2009 Top 10% Of top 10% of spenders in 2008: 44.8% remained in top 10% and 25.4% moved to the bottom 75% in 2009 Source: Cohen SB and Yu W. "The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the U.S. Population, 2008-2009." Agency for Healthcare Research and Quality, Statistical Brief #354. January 2012.
  • 23. Long-Term Persistence of High Spending Among Medicare Beneficiaries 100 90 Bottom 75% Top 25% 80 Died by Jan. 1 Not in FFS 70 60 50 40 30 20 10 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 Source: Congressional Budget Office. “High-Cost Medicare Beneficiaries.” May 2005.
  • 24. Challenges of Controlling Costs Among High Spenders • Chronic health problems and persistence in high spending imply a role for disease management. But… • many of the same chronic problems are also highly prevalent in lower-spending groups, especially among the elderly • accurate prospective targeting of those who can most benefit from disease management can be tricky • Managing high spending at the end of life can be problematic • not all with high spending will die soon • predicting timing of death and distinguishing between care that could extend life in a meaningful way and care that does little good is often very difficult • societal reluctance to discuss end of life care, fears of rationing • Not all high spending is predictable or persistent. • hard to control the random events • may be able to manage some episodes more efficiently (e.g., clinical pathways for cancer)
  • 25. What We Will Cover Today 1. Big Picture Orientation 2. Distribution of Personal Health Care Spending 3. Spending through Government Entitlement Programs 4. Spending through Private Health Insurance 5. What’s Behind the High and Rising Spending?
  • 26. Government Health Entitlement Programs 36 Percent of National Health Spending in 2010 Investment, 6% Public Health, 3% Other Third Party Out of Payers & Pocket, 12% Programs, 7% DOD & VA, 3% Medicaid & CHIP = Private Health $413.1B, 16% Insurance, 33% Medicare = 2010 Total Spending = $2.594 T $524.6B, 20% NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
  • 27. Government Health Entitlement Programs 21 Percent of U.S. Federal Spending in 2011 Federal Revenues Federal Spending ($3.598T) ($2.302T, excluding borrowing) 6% Net Interest 18% Non-Defense Discretionary 19% 6% Defense Discretionary Other Revenue 23% 15% Other Mandatory Payroll Taxes Spending 5% 20% Corporate Income Social Security Taxes 8% 30% Individual Income 21% 13% Medicaid & Other Taxes Health Borrowing (Deficit) Entitlements 36% NIHCM Foundation analysis of data from CBO’s “The Budget and Economic Outlook: Fiscal Years 2012 to 2022,” Jan. 2012.
  • 28. Structure of the Medicare Program PART A • Hospital Insurance (HI) Trust Fund Inpatient & • Mandatory program Post-Acute Care • Eligible if > 40 quarters of covered employment (self/spouse) • Payroll tax, SS income tax if high income, premiums if buying into program, interest on Trust Fund reserves PART B • Supplemental Medical Insurance (SMI) Trust Fund Physician & • Voluntary programs Outpatient Care • Premiums from enrollees (~25% of program costs) • Fees on manufacturers/importers of brand name drugs (B) PART D • Transfers from state Medicaid programs (D) Outpatient Rx • General revenues (balance SMI Trust Fund each year) PART C • Capitated arrangements with private health plans Managed Care • Financed from both trust funds
  • 29. Current Claims on the Part A Trust Fund Require General Revenues % of Taxable Payroll A Pay-As-We-Go System 7% Part A Expenditures Part A Operating Deficit: Baby boomers retiring 6% ~10,000/day Covered by Redemption of Trust Fund 5% Assets, Requiring General Revenues Part A Income 4% 2024: Part A Trust Fund Exhausted 3% 2% Periods of Operating Surplus: Trust Fund Assets Accumulate 1% and are Lent to the Federal Government, Earning Interest 0% 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 Source: A Summary of the 2012 Annual Reports, Social Security and Medicare Boards of Trustees, www.ssa.gov/OACT/TRSUM
  • 30. The Big Picture for Medicare: Dedicated Revenue < %GDP Expenditures historical projecte 7% d Total Medicare Expenditures Part A Trust Fund Deficit 6% Part A Trust Non-interest program income Fund 5% exhauste d 4% General Revenue Transfers to Parts B & D 3% Premiums, State Transfers, & Drug Fees 2% 1% Tax on SS Payroll Tax Benefits 0% 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 Source: A Summary of the 2012 Annual Reports, Social Security and Medicare Boards of Trustees, www.ssa.gov/OACT/TRSUM
  • 31. A Beneficiary Lifetime Perspective: Payroll Contributions < Expected Benefits $400,000 Medicare Expected Benefits (Net of $357,000 $357,000 $350,000 Premiums), Lifetime $300,000 Medicare Payroll Taxes, Lifetime $250,000 $200,000 Female $188,00 Male $170,000 $150,000 $119,000 $100,000 $60,000 $60,000 $50,000 $0 Single, Average WageOne-EarnerOne-Earner Couple, Average Wage Couple, Average Couple, Average Single, Average Wage Couple, Average Wage Two-Earner Two-Earner Wages Wage Source: Steuerle CE and Rennane S. "Social Security and Medicare Taxes and Benefits Over a Lifetime.” Washington, DC: The Urban Institute. June 2011.
  • 32. But the Public Perception is Very Different from Reality Thinking about Medicare, do you believe that over the course of your career you [will] have paid… Not enough, others will support me Enough to support myself More than I'll receive 56+ 32% 34% 34% 36-55 21% 30% 49% 18-35 13% 29% 58% All Ages (18+) 21% 31% 49% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: Stony Brook Poll, December 2010. http://tinyurl.com/9qteyxm
  • 33. Structure of the Medicaid Program • Covers ~60 million low-income individuals • Jointly financed by states and federal government • Voluntary program for states, all now participate • Categorical eligibility: children, pregnant women, parents with dependent children, people with disabilities, seniors (income thresholds vary by category) • States run their programs; must meet federal standards but can deviate with a waiver or exceed standards using own funds • Very few states have expanded to cover “childless adults” • ACA removed categorical eligibility and expanded eligibility to all non- elderly persons under 138% FPL • Supreme Court decision makes this expansion optional for states
  • 34. Medicaid Enrollment vs. Spending, FY 2009 100% 90% 15% 1/4 80% 10% 43% $15,453 per enrollee 70% 2/3 60% 26% 50% $13,186 Disabled 23% 40% Elderly 30% 14% $2,926 49% 20% Adults (<65) 10% 21% $2,313 Children 0% Enrollees Spending ~15% of enrollees ~40% of spending are dual eligibles is for dual eligibles Source: Kaiser Family Foundation, “The Medicaid Program at a Glance.” September 2012.
  • 35. Medicaid Spending is a Large and Growing State & Federal Burden Total State Expenditures, FY2011 Total Medicaid Spending ($billions) (estimated) 450 400 Federal Spending 273 State Spending 251 350 201 Medicaid 191 All Other 300 181 24% 176 182 63-64% Spending 162 34% 250 ARRA 148 200 130 118 56-57% K-12 150 158 Education 142 150 147 156 133 137 20% 100 112 122 Public 89 98 Assistance Higher 50 2% Education Corrections Transport 10% 0 3% 2000 2002 2004 2006 2008 2010 7% NIHCM Foundation depiction of data from National Association of State Budget Officers. “State Expenditure Report.” Dec. 2011.
  • 36. Mandatory Federal Health Spending Projected to More Than Double in 10 Years $ billions Exchanges Medicaid $1,800 Medicare (net offsetting receipts) 6.7% 7.0% 6.2% 6.4% Other Mandatory Health Spending (net) 6.1% $1,600 Percent of GDP 5.8% 5.8% 123 6.0% 118 $1,400 5.8% 5.5% 111 5.3% 101 107 5.0% $1,200 5.1% 91 592 4.7% 4.9% 75 549 $1,000 46 514 4.0% 479 24 446 1 382 416 $800 3.0% 341 305 $600 275 253 267 899 2.0% $400 750 806 632 696 539 589 608 480 466 494 514 1.0% $200 45 $0 0.0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 actual NIHCM analysis of data from CBO’s “An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022,” Aug. 2012.
  • 37. And That’s the Good News • CBO’s baseline projections assume current laws remain in place and will be implemented as written, most notably: • Deep cuts in Medicare physician payment rates under the SGR formula • 2% reductions in Medicare payment rates under Budget Control Act sequestration • Cuts in Medicare provider payment updates under the ACA • Overriding any of these cuts will increase Medicare spending • Other big unknowns: • extent to which states will expand Medicaid (implications for Federal match) • extent to which people will seek subsidized coverage in the exchanges
  • 38. Faster Growth in Health Entitlement Spending Will Dramatically Worsen Projected Deficit 10 historical projected Primary Surplus (+) or Deficit (-) as % of GDP 5 0 Growth at GDP -5 -10 GDP + 1% -15 GDP + 2% -20 (~Historical Average) -25 2000 2010 2020 2030 2040 2050 2060 2070 2080 Source: “2011 Fiscal Report of the U.S. Government.” Supplemental Information, Chart 5, http://www.fms.treas.gov/finrep11/supp_info/fr_supplement_info_alternative.html#chart5
  • 39. Triangle of Painful Choices Tradeoffs Needed to Balance Budget by 2035 Health Spending Growth Relative to Potential GDP 10% -4% -3% -2% -1% +1% A 0% 9% B Defense & Other Non-Health Spending as % of GDP 8% D 7% 6% 5% 4% 3% C 2% 18% 19% 20% 21% 22% 23% 24% 25% Tax Revenue as % of GDP Source: Roehrig, C. Altarum Center for Sustainable Health Spending. As presented in The Incidental Economist Blog, Aug. 15, 2012.
  • 40. What We Will Cover Today 1. Big Picture Orientation 2. Distribution of Personal Health Care Spending 3. Spending through Government Entitlement Programs 4. Spending through Private Health Insurance 5. What’s Behind the High and Rising Spending?
  • 41. Private Health Insurance Premiums One-Third of National Health Spending, 2010 Investment, 6% Public Health, 3% Other Third Party Payers & Out of Programs, 7% Pocket, 12% DOD & VA, 3% Private Health Medicaid & Insurance = CHIP, 16% $848.7B, 33% Medicare, 20% 2010 Total Spending = $2.594 T NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
  • 42. Private Health Insurance Markets Employer-Based or Group Market Individual or Non-Group Market • Coverage purchased by employer for • Coverage purchased directly from insurer workers, dependents and, perhaps, retirees. • Individual/family is own risk pool. Health underwriting and pre-existing conditions • Risks pooled by employer group. can make coverage expensive or unavailable. • Employers and employees generally contribute to premium • Purchaser pays full premium. • Premiums excluded from taxes in most • Preferential tax treatment of premiums cases. Value of tax exclusions = $145 only for self-employed billion in 2011. • Most people purchasing coverage in this • Small, medium, large group based on market do not have access to employer- number of employees based coverage • self-employed • 60 percent of workers with employer- • employed but not offered coverage based coverage were in “self-insured” • non-dependent students plans (2012) • early retirees • Larger employers most likely to self • between jobs insure, but growing trend among smaller employers
  • 43. Private Coverage is Dominated by Employment-Based Insurance 100% Govt. employer 90% contributions (20.4%) 80% 70% Private 60% employer 89.2% 94.9% contributions 50% (52.0%) 40% Employer- 30% Based Employee 20% contributions Coverage (27.6%) Individual 10% 10.8% Market 0% 5.1% Enrollees Premiums 174.4M (2011) $839.8B Sources: Fronstin P. “Sources of Heath Insurance…” EBRI Issue Brief 376, Sept. 2012; NIHCM analysis of data from the (2010) 2010 National Health Expenditure Accounts, Sponsor Highlights.
  • 44. Private-Sector Workers Paying an Increasing Share of Increasing Premiums Employment-Based Coverage Individual Policy Family Policy 16000 150% 16000 146% 150% 142% 14000 14000 $1502 122% 12000 12000 114% 97% 100% 100% 10000 10000 8000 87% 8000 $677 6000 $522 6000 50% 50% 2 4000 4000 $2655 2000 2000 0 0% 0 0% 2000 2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010 Employee (EE) Contribution to Premium Employer (ER) Contribution to Premium Cumulative Pct. Change, EE Contribution Cumulative Pct. Change, ER Contribution Cumulative Pct. Change, Total Premium Source: NIHCM analysis of data from the Medical Expenditure Panel Survey, Insurance Component. Data not available for 2007.
  • 45. And Facing Higher Out-of-Pocket Costs via Deductibles Average Deductible for those with a Deductible - Individual Policy 78% 78% $2,500 Average Deductible for those with a Deductible - Family Policy 80% 74% Percent of Enrollees with a Deductible 71% $2,220 70% $1,975 $2,000 59% 66% 64% $1,761 60% 52% $1,658 48% 50% $1,500 $1,351 $1,232 $1,143 $1,123 40% $1,079 $1,025 $958 $917 $1,000 $869 30% $714 $652 $573 20% $518 $500 $446 10% $0 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: NIHCM analysis of data from the Medical Expenditure Panel Survey, Insurance Component. Data not available for 2007.
  • 46. Health Spending by American Families More Than Doubled in Past Decade Family of Four, Employer-Based PPO Coverage $21,000 $20,72 Employee Out-of-Pocket Costs $19,39 8 $18,07 3 3470 Employee Contribution to Premium $16,77 4 3280 Employer Contribution to Premium $15,60 1 3005 $14,50 9 2820 0 2675 5114 $14,000 $13,382 4728 $12,21 2420 4325 $11,192 4 2210 4004 $10,16 2035 3492 1920 3171 $9,23 8 2810 1760 1580 2666 2522 $7,000 2354 2055 11385 12144 9947 10744 8909 9442 7513 8362 6054 6750 5600 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: NIHCM Foundation analysis of data presented in the annual Milliman Medical Index reports, 2005-2012. Values for component parts for 2002-2005 were estimated using component growth rates reported by Milliman.
  • 47. Premiums and Deductibles Also Continue to Rise in the Non-Group Market Individual Policy Family Policy $5,000 4968 80% $5,000 80% 4596 4704 71% $4,500 4392 4428 69% $4,500 70% 70% 4128 $4,000 $4,000 3888 60% 3879 60% $3,500 $3,500 50% 50% $3,000 2935 $3,000 3128 2632 3531 $2,500 2760 40% $2,500 40% 2610 2084 2486 1972 2326 2294 $2,000 1864 2196 $2,000 28% 1721 30% 30% 1908 2004 1896 $1,500 1728 1776 1932 27% $1,500 20% 20% $1,000 $1,000 10% 10% $500 $500 $0 0% $0 0% 2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011 Mean Annual Premium Mean Deductible Cumulative Pct. Change - Premium Cumulative Pct. Change - Deductible NIHCM Foundation analysis of data contained in eHealthInsurance reports “The Costs and Benefits of Individual and Family Health Insurance Plans” (Nov. 2008 and Nov. 2011) and “2009 Summer Cost Report for Individual and Family Policy Holders.”
  • 48. High-Deductible Health Plans are Becoming Much More Prevalent Health Plan Enrollment by Plan Type for Covered Workers 20… 20… 20… Conventional 20… HMO 20… PPO 20… POS 20… HDHP/SO 20… 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Health Plan Enrollment by Plan Type for Privately Insured Individuals 20… 20… 20… Traditional 20… HDHP 20… CDHP 20… 20… 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sources: Kaiser Family Foundation/Health Research & Educational Trust. “Employer Health Benefits, 2012 Annual Survey.” Sept. 2012 (top graph); Employee Benefit Research Institute. “Findings from the 2011 EBRI/MGA Consumer Engagement in Health Care Survey.” EBRI Brief No. 365, Dec. 2011 (bottom graph).
  • 49. HSA-Qualified HDHP Enrollment Rising Especially in the Large Group Market 2005 1.0 Individual 2006 Small Group 2007 Large Group 2008 Group, Size Not Known 2009 Market Not Known 2010 2011 2012 13.5 0 2 4 6 8 10 12 14 million 2005 64% 17% 19% 2006 42% 25% 33% 2007 26% 25% 49% 2008 25% 30% 46% Individual 2009 23% 30% 47% Small Group 2010 21% 30% 50% Large Group 2011 21% 24% 55% 2012 18% 22% 59% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: America’s Health Insurance Plans. “January 2012 Census Shows 13.5 Million People Covered by HSA/HDHPs.” May 2012.
  • 50. Health Care Premiums Growing Quickly as a Share of Personal Income • Employee share of premium up 63%. • Per-person deductibles doubled. Source: Schoen C, Fryer AK, Collins SR and Radley DC. “State Trends in Premiums and Deductibles, 2003-2010: The Need for Action to Address Rising Costs.” The Commonwealth Fund, November 2011.
  • 51. Insurance Premiums Pay for Health Care Services for Enrollees Net Cost of Personal Health Care Services (88%) Insuranc e 34 28 14 9 3 12 Physician & Clinical Rx & Hospital Care Services DME Dental & Other Professional Total Private Insurance Premium Revenue = Services $848.7B Home Health & Other LTC Facilities & Services NIHCM Foundation analysis of data from the 2010 National Health Expenditure Accounts.
  • 52. Net Cost of Health Insurance • Defined by NHEA framework as the difference between premiums collected and benefits paid out • All administrative costs • Claims processing • Sales and marketing • Member enrollment and customer service • Actuarial analysis and underwriting • Product development and provider contracting • Medical management • Quality improvement • Wellness programs • Rate credits to policyholders and dividends to stockholders • Taxes to government • Additions to reserves • Profits (or losses)
  • 53. Private Health Insurance Spending Rose Almost 15 Percent in Five Years $900 14.7% increase $848.7 billion $800 $740.2 billion 102.7 Net Cost of Insurance [-------- Personal Health Care Spending -------- 23.5 $700 99.6 75.8 Home Health & Other LTC $ Billions 19.5 Facilities & Services $600 66.3 121.4 Dental & Other Professional 88% of Premiums Services $500 106.0 Prescription Drugs & DME $400 239.4 Physician & Clinical Services 211.4 $300 Hospital Care $200 285.8 $100 237.5 -] $0 2006 2010 Source: NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
  • 54. Higher Spending for Hospital & Physician Services Drove More than 70 Percent of the Premium Growth $120 3% of net 4% of net 9% of net change change 14% of net change 2006 to 2010 Change ($ Billions) $100 change $3.1 $9.5 $4.0 26% of net $80 change $15.4 $60 45% of net $28.0 change $108.5 $40 97 percent of change in $20 $48.3 premiums was due to growth in insurers’ spending for health $0 care services Hospital Care Physician & Prescription Dental & Other Home Health & Net Cost of Total Change in Clinical Services Drugs & DME Professional Other LTC Health Insurance Premiums Services Facilities & 2006-2010 Services % Change 20.3% 13.2% 14.5% 14.3% 20.5% 3.1% 14.7% Source: NIHCM Foundation analysis of data from the National Health Expenditure Accounts.
  • 55. What We Will Cover Today 1. Big Picture Orientation 2. Distribution of Personal Health Care Spending 3. Spending through Government Entitlement Programs 4. Spending through Private Health Insurance 5. What’s Behind the High and Rising Spending?
  • 56. Deconstructing the Rising Health Spending Spending increases may be driven by: • unit price effect - rising prices per unit of service • volume or utilization effect - higher volume of services, due to • more users of services and/or • more services used per capita • intensity or service mix effect - shift to more expensive mix of services or to more expensive providers
  • 57. It Really is the Prices (Stupid) Evidence from Massachusetts, 2007-2009 Decomposition of Spending Growth for Privately Insured Patients Shift to More Change in Total Number of Expensive Spending Pure Price Effect Stays/Services Providers Service Mix 7.3% 6.5% 6.4% Inpatient 5.7% Stays 1.0% 1.1% 0.2% 0.3% 9.4% -0.5% -2.1% Hospital 4.6% 5.1% 5.5% 3.9% Outpatient Care 0.1% 0.1% 0.3% 0.2% -1.3% 2007-2008 2008-2009 Source: Massachusetts Division of Health Care Finance and Policy. “Massachusetts Health Care Cost Trends: Trends in Health Expenditures.” June 2011.
  • 58. It Really is the Prices (Stupid) Evidence from Several National Payers, 2010-2011 Per Capita Spending Unit Price Utilization Intensity 10.0 9.6 5.9 7.2 5.0 6.2 3.5 3.7 4.9 4.5 2.1 1.6 1.0 1.2 0.0 Percent -0.6 -0.3 -0.4 -5.0 -4.2 Inpatient Care Outpatient Visits Other Outpatient Professional Procedures Source: Health Care Cost Institute, “Health Care Cost and Utilization Report: 2011,” September 2012.
  • 59. U.S. Pays More for Hospital Services Select Countries & Services (US$, 2007) $35,000 $34,358 Australia $30,000 Canada $25,000 France Sweden $20,000 United States $21,218 $17,406 $15,000 $11,162 $10,000 $7,962 $8,917 $4,451 $4,558 $5,000 $3,093 $2,591 $0 Normal Delivery Appendectomy CABG Hip Replacement Hernia Repair Source: Koechlin F, Lorenzoni L and Schreyer P. “Comparing Price Levels of Hospital Services Across Countries.” OECD Health Working Papers No. 53, July 2010.
  • 60. U.S. Pays More for Hospital Services Composite Index, 29 Inpatient Services Comparative Price Levels, Hospital Services, 2007 United States 164 Italy 140 Australia 123 France 121 U.S. hospital Sweden 114 prices 64% Canada 113 higher than Finland 98 OECD average Portugal 85 Israel 62 Slovenia 59 Korea 57 OECD Average 0 20 40 60 80 100 120 140 160 180 Source: Koechlin F, Lorenzoni L and Schreyer P. “Comparing Price Levels of Hospital Services Across Countries.” OECD Health Working Papers No. 53, July 2010.
  • 61. U.S. Pays Physicians More for the Same Services Especially Private Payers and Specialty Care Primary Care - Office Visit Fees Specialty Care – Hip Replacement $140 133 $4,500 129 3,996 $4,000 $120 104 $3,500 $100 $3,000 $80 $2,500 66 2,160 59 60 1,943 $60 $2,000 1,634 46 45 $1,500 1,251 1,340 $40 34 32 34 1,046 $1,000 1,181 674 $20 $500 652 $0 $0 Public Payers Private Payers Public Payers Private Payers Australia Canada France Germany UK US Australia Canada France Germany UK US Source: Laugesen MJ and Glied SA. “Higher Fees Paid to US Physicians Drive Higher Spending for Physician Services Compared to Other Countries.” Health Affairs, 30(9):1647-56. September 2011.
  • 62. U.S. Physicians Earn More Particularly Specialists $500,000 Australia Canada France Germany UK US 442,450 $450,000 $400,000 $350,000 324,138 $300,000 $250,000 208,634 186,582 187,609 202,771 $200,000 159,532 154,380 $150,000 125,104 131,809 92,844 95,585 $100,000 $50,000 $0 Primary Care Physicians Orthopedic Surgeons Source: Laugesen MJ and Glied SA. “Higher Fees Paid to US Physicians Drive Higher Spending for Physician Services Compared to Other Countries.” Health Affairs, 30(9):1647-56. September 2011.
  • 63. Summary and Implications • Health care spending is a heavy and increasingly unmanageable burden to federal and state governments, employers and individuals. • Recent slowing in health spending growth offers a ray of hope. But is the slowdown sustainable? • Real and sustained gains in efficiency and value will be needed to offset the demographic and other pressures driving health spending upward. • The highly concentrated nature of personal health care expenditures suggests a strategy for controlling spending. But there are real challenges in managing the care of high spending patients.
  • 64. Summary and Implications (continued) • Private premium increases are driven by underlying increases in spending for medical care for enrollees. Controlling spending for hospital and physician/clinical services will be essential to moderating growth in private premiums. • We pay more than other countries for the same services, and rising prices have been the dominant factor behind our growing spending. Attention to these high prices is warranted. • Sizing the challenge is the easy part. Finding real solutions is much harder.
  • 65. For more information or additional hard copies of our publications, please contact me or visit our website: jschoenman@nihcm.org 202-296-4192 www.nihcm.org

Hinweis der Redaktion

  1. Public spending must be financed by taxes or borrowing, thus the growing share of health spending that is publicly financed has increasingly important implications for the government’s fiscal situation and for our ability to spend money on other goods and services, such as education and defense.
  2. CBO’s August 2012 update to the January report did not present all of the individual data items needed for the spending part of this chart, so did not update. The revenue and spending numbers that were available did not change appreciably from those presented here.
  3. Slide has been updated to account for Supreme Court decision re: Medicaid; lowers Medicaid projections, increases exchange projections.Medicaid down initially b/c of lower FMAP, then up due to Federal share of Medicaid expansionsMedicare spending down in initially due to timing of FY12 start, then up as baby boomers retire and costs/person continue to riseFederal subsidies in the exchanges begin in 2014
  4. UPDATED TO INCLUDE 2011