Health care reform in the United States: Next Steps. Now that Republican legislative reform efforts have failed, what's next?

1. Healthcare Reform:
Next Steps
David Doney CPA
August 2017
1

2. Healthcare Reform
1. Recent Repeal Efforts
2. Sabotage
3. Cost Overview
4. Why Costs Are Higher
5. Solutions
2

3. Affordable Care Act (ACA) / Obamacare
3Source: Kaiser Family Foundation – The Uninsured: A Primer (November 2016)
Three-Legged Stool
 Subsidies
 Mandates
 Guaranteed issue &
community rating
Funding
 Tax increases on the
top 6% earners
Mechanism
 Exchanges
 Medicaid expansion

4. Population
325
Under 65 yrs.
272
Employer-Based
155
Other Coverage
90
Medicaid & CHIP
57
ACA Exchange
12
ACA Medicaid
11
Other
10
Uninsured
27
Over 65 yrs.
Medicare
53
Sources: CBO, Kaiser Family Foundation
Sources of Health Insurance Coverage in 2016 (Millions of Persons)
4

5. Major Provisions (Senate BCRA)
1. Eliminate employer and individual mandates and related penalties.
2. States gets more flexibility to set essential health benefits / policy content.
3. Change tax credit / subsidy formulas used to help pay for insurance premiums
(initially age-based in AHCA, later modified to income-based).
4. Eliminate a "cost-sharing subsidy" that reduced out-of-pocket costs.
5. Provide funding to health insurers to stabilize premiums and promote marketplace
participation, via a "Long-Term State Stability and Innovation Program" with
features analogous to a high-risk pool.
6. Reduce income ceiling used for Medicaid eligibility and substitute a tax credit for
those below 100% of the poverty line.
5Source: CBO H.R. 1628, Better Care Reconciliation Act of 2017

6. Major Provisions (Senate BCRA)
7. Reduce Medicaid payments relative to current law, by capping the growth in per-
enrollee payments for non-disabled children and non-disabled adults, by using a
lower inflation index.
8. Repeal taxes on high-income earners established under ACA/Obamacare, repeal
the annual fee on health insurance providers, and delay the excise tax on high
premium health plans (the so-called "Cadillac tax").
9. Allow insurers to charge premiums up to five times as much to older people vs.
young people, instead of three times, unless the state sets a different limit.
10.Remove federal cap on the share of premiums that may go to insurers'
administrative costs and profits (the "minimum medical loss ratio").
6Source: CBO H.R. 1628, Better Care Reconciliation Act of 2017

7. 7
Republican Bills Would Increase the Number Uninsured by 20 million
Source: NYT “The CBO Did the Math. These are the Key Takeaways from the Senate Healthcare Bill” (June 26, 2017)

8. 8Source data: CBO reports
ORRA 22%
AHCA 19%
BCRA 18%
HCFA 16%
ACA 10%
2026
0%
5%
10%
15%
20%
25%
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
CBO Projections of Persons Uninsured Under 65 Years of Age (%)
Each 1% is about 3 million people without insurance

9. 9
Republican Proposals Would Slightly Reduce the Deficit
Bill Deficit
Reduction
$ Billions
(10 years)
Deficit
Reduction %
(10 years)*
AHCA (House) -119 1.3%
BCRA (Senate) -321 3.4%
ORRA (Senate
Partial Repeal)
-473 5.0%
HCFA (Senate
Skinny Repeal)
-184 2.0%
*CBO January 2017 baseline includes $9,426
billion in total deficits over 10 years. This is
the denominator in the deficit reduction %
equation.

10. BCRA: Insurance Premiums
 Prior to 2020, premiums 10-20% higher for benchmark policy, relative to current law
 Removing penalties induces fewer healthy persons to sign up, raising costs
 After 2020, premiums up to 20-30% lower for benchmark policy
 “Actuarial Value” is amount of costs the insurance policy is designed to cover
 Lower-quality benchmark plan (58% actuarial value vs. 70% today for Silver and 60%
Bronze)
 Higher deductible for benchmark plan ($6,000 similar to Bronze plan, vs. $3,500 for
Silver plan)
 CBO: “Despite being eligible for premium tax credits, few low-income people would
purchase any plan.”
 Can’t afford Silver: Premiums too high after reduced subsidies
 Can’t afford Bronze: Deductible too high
10Source: CBO: H.R. 1628, Better Care Reconciliation Act of 2017

11. 11Source: Tax Policy Center “Who gains and who loses under the AHCA?” (March 2017)
AHCA: Republican Proposals Would Worsen Income Inequality
House Bill (AHCA)
 Top 6% (income over $200,000) receive 70% of the benefits
 Income over $1 million (top 0.4%) receive 46% of the benefits
 Those earning under $50k incur a net cost, on average

12. Healthcare Reform
1. Recent Repeal Efforts
2. Sabotage
3. Cost Overview
4. Why Costs Are Higher
5. Solutions
12

13. Sabotaging the ACA
13
1. Lawsuits, both successful (Medicaid expansion limited) and unsuccessful (mandates
and insurance subsidies upheld).
2. Nineteen states did not expand Medicaid, reducing coverage by 2.6 million people.
This forced them into the marketplace; they tend to be more expensive patients,
increasing premium costs on the exchanges.
3. Lawsuits pending, such as whether cost-sharing subsidies (paid by government to
insurance companies to help lower premiums) must be paid. President Trump is
threatening not to pay these subsidies.
4. Prevention of appropriations for transitional financing ("risk corridors") to steady
insurance markets, resulting the bankruptcy of many co-ops offering insurance.
5. Weakening of the individual mandate through IRS-related executive orders to limit
penalty collection.
NYT-Abbe Gluck “How the GOP Sabotaged Obamacare” (May 25, 2017)
Washington Post-Dana Milbank “The GOP Masterminds behind the Obamacare Sabotage” (March 14, 2017)

14. Sabotaging the ACA
14
6. Reduced advertising and time period for the 2017 exchange enrollment period.
7. Reduced value of ACA insurance plans (“Rule to Increase Patients’ Health Insurance
Choices for 2018”) which reduces value of premium tax credit.
8. Use of Obamacare funds to finance public relations drive against it.
9. Termination of contracts for health care “in-person assisters” (process guides) in 18
cities.
10. Ongoing insistence, despite CBO assertions to the contrary, that the exchanges are
unstable or in a "death spiral“, while denying any contribution towards that end.
NYT-Thomas Edsall “Killing Obamacare Softly” (July 27, 2017)

15. Sabotaging Cost-Sharing Reduction (CSR) Payments
15Kaiser Family Foundation “The Effects of Ending the ACA’s Cost Sharing Reduction Payments” (April 2017)
What are CSR Payments?
 Insurers lower cost-sharing (deductibles and co-pays) for lower-income persons in exchange for
government payments
 CBO estimates the cost of these payments at $7 billion in fiscal year 2017, rising to $10 billion by
2018 and $16 billion by 2027
Sabotage Approach
 U.S. House of Representatives sued Dpt. of HHS, challenging the legality of making the cost-
sharing reduction (CSR) payments without an explicit appropriation
 A district court judge has ruled in favor of the House; ruling appealed and payments continue
pending resolution
 President Trump has threatened to stop making payments
Consequences
 Insurers would have to raise silver premiums by about 19% to compensate for the loss of CSR
payments…assuming they continue to offer policies.
 Since premiums go up, subsidies go up…the government actually pays about $2.3 billion MORE in
2018 if CSR payments are cut

16. Sabotaging the ACA
16NYT-Thomas Edsall “Killing Obamacare Softly” (July 27, 2017)
Tom Price is the Secretary of Health and
Human Services!

17. You Sabotage It, You Own It
17NYT-Thomas Edsall “Killing Obamacare Softly” (July 27, 2017)
NYT, Edsall:

18. Healthcare Reform
1. Recent Repeal Efforts
2. Sabotage
3. Cost Overview
4. Why Costs Are Higher
5. Solutions
18

19. U.S. Healthcare Costs: Historical Trend
Source: CDC National Center for Health Statistics / FastStats; OECD Health Statistics
U.S. healthcare costs have risen
consistently relative to the size
of the economy (% GDP).
Rapid economic growth slowed
this trend in the 1990’s, as did a
lower rate of cost increases
following the Great Recession
of 2007-2009.
During 2015:
Per capita national health
expenditures were $10,000,
with total expenditures of $3.2
trillion or 17.8% GDP.
19

20. U.S. Healthcare Costs
20
 Per Capita Expenditures $10,000 in 2015
 5% annual growth rate 2000-2015
 Total Cost Increases: 73% Rate, 27% Volume
Since 2000, HC inflation 3.7% vs. 2.2% overall
Sources: CDC National Center for Health Statistics / FastStats; OECD Health Statistics
BEA: Introducing the New BEA Health Care Satellite Account (January 2015)

21. Health Insurance Premiums: Employer Market (155m)
21
Source: CBO Private Health Insurance Premiums and
Federal Policy (February 2016)
For 2016
 Single premium: $6,435
 Family premium: $18,142
 Federal government provides
~$300 billion/year in subsidies
 Income exclusion $250B raises
premiums 10-15% net (people
buy more extensive coverage)
 Obamacare subsidies $40B paid
to 10m people

22. Health Insurance Costs: Employer Market (155m)
22Source: 2017 Economic Report of the President
Health insurance premiums
used to go up 5.6% per year;
now they go up 3.1% per year.
Total out-of-pocket costs used
to go up 5.1% per year; now
they go up 2.4%.

23. Obamacare Subsidies Rise with Premium Costs (12m)
23Source: Kaiser Family Foundation “2017 Premium Changes and Insurer Participation in the ACA’s Health Insurance Marketplaces (October 2016)
[40-year old non-smoker]

24. Healthcare Spend by Category (%)
Hospital care (32%)
Physician services (20%)
Prescription drugs (10%)
These three are 62% of
costs
24Source: CDC National Center for Health Statistics / FastStats (2014)

25. U.S. Healthcare Costs are High Relative to Other Countries
Source: OECD Health Statistics 2016
http://stats.oecd.org/Index.aspx?DataSetCode=SHA 25
 U.S. spends about 5% GDP more than
the next most expensive country
 $1 trillion per year or $3,000/person

26. Relative Cost and Performance
Source: Commonwealth Fund “International Comparison Reflects Flaws and Opportunities for Better U.S. Healthcare” (July 2017)
26
Performance reflects:
 Care process (#5)
 Access (#11)
 Admin efficiency (#10)
 Equity (#11)
 Healthcare outcomes (#11)

27. Life Expectancy
27
U.S. Ranks 20th-29th on life expectancy measures
These include from birth and from age 65

28. Impact on Federal Budget: “Unsustainable”
Costs for major healthcare
programs will go up by 4.6% GDP
over the next 30 years.
Historically, the budget deficit is
about 3% GDP.
“Excess cost growth” represents
the extent to which the growth
rate of healthcare spending per
capita exceeds the growth rate of
potential GDP per capita.”
2.8% GDP of the 4.6% GDP
increase from 2017-2047 is due
to excess cost growth.
Source: CBO Long Term Budget Outlook (March 2017) 28

29. Healthcare Reform
1. Recent Repeal Efforts
2. Sabotage
3. Cost Overview
4. Why Costs Are Higher
5. Solutions
29

30. Why Have Costs Grown Over Time?
CBO: Technological Change and the Growth of Health Care Spending (January 2008) 30

31. Why are U.S. Healthcare Costs So High? (David Cutler, Harvard)
PBS: “Why does healthcare cost so much in America? Ask Harvard’s David Cutler” (November 2013)
1. Administrative costs
 About 25% of healthcare costs associated with administration (other countries at 10-15%)
 Duke University has 900 hospital beds and 1,300 billing clerks
 Billing different insurers for different systems drives cost (i.e., not single payer)
2. Higher costs for same products & services
 Branded drugs higher cost in U.S. than other countries; U.S. government won’t buy in bulk
like other countries
 Doctors earn more for doing the same thing
 Suppliers charge more for medical equipment
3. More medical care provided per person than in other countries (volume of services)
 More open heart surgeries and facilities in U.S. vs. Canada, but one-year mortality after
heart attack same
31

32. Forbes: Why are U.S. Healthcare Costs So High?
Forbes: Todd Hixon “Why are U.S. Healthcare Costs So High?” (March 2012)
1. Cost of physicians per capita is 5x peer countries (37% of gap with other countries)
 Specialist doctors charge 3-6x other countries
 Higher per-procedure rates
2. Higher income per capita ($1,200 per capita or 34% of gap)
 Higher income correlated with higher healthcare spending elsewhere as well
3. Cost variation without outcome variation geographically ($750 per capita or 21% of gap)
 If reduce to spending to lowest quintile nationally
 Other: Pharma pricing, higher admin costs for payments versus single payer models, U.S.
tort system / defensive medicine
 Note: Some double-counting across categories; source estimates 50-75% of the gap from
top 3 reasons, not 92% as shown
32

33. The Atlantic: Why are U.S. Healthcare Costs So High?
Source: The Atlantic: Victor R. Fuchs “Why Do Other Rich Nations Spend So Much Less on Healthcare?” (July 2014)
1. More expensive mix of services vs. OECD average / higher utilization of services
 Higher proportion of doctor visits are to more expensive specialists, who get higher
fees and order more diagnostics and therapeutic procedures
 Per capita, U.S. delivers 3x mammograms, 2.5x MRI scans, and 31% more C-sections
 More equipment (1.66 MRI machines per 6,000 annual scans vs. 1.06)
Why the more expensive mix?
 Produces more income for drug manufacturers, specialists, and others with policy
influence
 Some patients prefer access to the more expensive mix
 Some believe employers pay for their healthcare (don’t connect it to lower wages)
 Extra money government spends on healthcare not viewed in terms of trade-offs (e.g.,
better education & infrastructure)
 Life expectancy in other countries may be higher, but may be attributable to non-
medical factors such as lower poverty rates
33

34. The Atlantic: Why are U.S. Healthcare Costs So High? (Continued)
Source: The Atlantic: Victor R. Fuchs “Why Do Other Rich Nations Spend So Much Less on Healthcare?” (July 2014)
2. Higher prices for drugs and specialists
 Prices of branded prescription drugs roughly double those of other countries
 Fees of specialist physicians 2-3x as high
 Overseas, lower prices and fees achieved by governments, who pay 75% of all
medical care vs. 50% in U.S.
 U.S. government prevented from using its size as bargaining power in certain cases
by legislation
3. High administrative costs of private insurance due to complexity
 Premium estimation across several million employers and 20-30 million individuals
 Multiple billing processes for hospitals, clinics, and individual physicians
 Other countries use regional or single payer processing of payments, even where
care is private-sector driven
 Complex insurance offerings make it difficult for consumers to select best option
34

35. Summary: Why U.S. Costs Are Higher
Private
Incentives &
Behavior
Culture
Government
and Taxation
Process &
Technology
 Obesity and related chronic
conditions
 Fee for service vs. outcome,
resulting in over-utilization
 Higher compensation of
Medical professionals vs.
other countries
 Shortage of doctors and
nurses
 Tolerance for rationing by
price vs. government-
mandated inclusion
 Expectations for heroic
intervention at end-of-life
 High cost concentration
 Private insurance
overhead & profits
 Number and use of MRI
machines
 Decentralized payment
and delivery IT systems
 Process variation;
significant delivery cost
differences by region
 Tax exemption / subsidy for
employer-based healthcare
 No Medicare budget limits
 Medicare fraud
 Defensive medicine / Tort
reform Higher Pharma costs
35

36. Healthcare Reform
1. Recent Repeal Efforts
2. Sabotage
3. Cost Overview
4. Why Costs Are Higher
5. Solutions
36

37. Cover the Uninsured
37
Who are the 27m uninsured < 65 yrs?
 Low-income persons in states that
didn’t expand Medicaid (2.6m)
 Coverage gap (2.6m) – Income above
Medicaid limit but below threshold for
subsidies (~44% to 100% poverty)
 Undocumented immigrants (5.4m)
 People who decided insurance too
expensive
Other facts
 46% cite cost as a barrier
 Nearly 12 million are eligible for ACA
financial help either via Medicaid
expansion or the exchangesKaiser: “Estimates of Eligibility for ACA Coverage among the Uninsured in 2016 (October 2016)
Kaiser: “Key Facts about the Uninsured Population” (September 2016)

38. Expand Medicaid in Remaining 19 States
38
 31 states plus DC have adopted
the Medicaid expansion, covering
11m
 19 states have not; estimated
2.6m could gain coverage
VOX – Sarah Kliff - There are 28 million uninsured under Obamacare. Here’s who they are. (June 29, 2017)

39. Bi-Partisan House “Problem Solvers” Proposals
39
1. Make the cost-sharing reduction (CSR) payments to insurers ($8B)
2. Dedicated stability fund for states to lower premiums and limit insurer losses by
covering their most expensive patients
3. Exempt more small businesses from the employer mandate; lift requirement to provide
insurance or pay a tax to 500 employees vs. 50 today
4. Repeal the Medical Device Tax
5. Set guidelines for insurers to sell across state lines (ACA technically allows already).
Major hurdle is setting up networks spanning multiple states.
Note: The caucus is 40 members of the House, both Democrat and Republican, co-chaired by Tom Reed (R-NY) and Josh Gottheimer (D-NJ)
Source: VOX – Jeff Stein – The new bipartisan House proposal to fix Obamacare, explained (July 31, 2017)

40. Other Cost Reduction Ideas
1.
Admin
Costs
2.
Cost
Variation
3.
Obesity
4.
Fraud
5.
Drug
Costs
6.
Defensive
Medicine
40
Estimated Cost Savings (Annual)
Admin Costs $350B
Cost Variation $200B
Obesity $120B
Fraud $ 60B
Drug Costs $ 50B
Def Medicine $ 20B
$800B
Approximately $1 trillion savings
required to match next most expensive
country.

41. 1. Administrative Costs / Single Payer
41
 About 25% of healthcare costs associated with administration
 Other countries at 10-15%
 $3,500B healthcare spending per year x (25% - 15%) = $350B potential savings
 Price Waterhouse study estimated savings at $210B on unnecessary billing &
administrative costs (2009)
 Much of this savings is jobs, so there would be an offset with unemployment and
transitional costs (retraining)
 Long-run, savings in healthcare represents demand in other industries, creating jobs there
Sources:
Physicians for a National Health Program “Beyond the Affordable Care Act: A Physicians’ Proposal for Single‐Payer Health Care Reform”
James E. Dalen MD - American Journal of Medicine – “We Can Reduce U.S. Healthcare Costs” (March 2010)

42. 2. Cost Variation
PBS: “Why does healthcare cost so much in America? Ask Harvard’s David Cutler” (November 2013)
James E. Dalen MD - American Journal of Medicine – “We Can Reduce U.S. Healthcare Costs” (March 2010)
 Roughly 33% of healthcare spending ($1 trillion
per year) is not associated with improved
outcomes.
 If 20% of this variation can be eliminated,
savings potential $200B/year
 Insurance companies should charge more for
unnecessary services (i.e., beyond what the
literature says is necessary.)
 Demand side: Higher co-payment is a good way
to steer “shoppers” to less expensive providers
of given service.
 Supply side: Pay for outcome (capped amount
by ailment) vs. “fee for service.”
 Palliative care vs. heroic intervention
42

43. 3. Fraud & 4. Obesity
Obama Whitehouse Archives: Improper Payments Elimination and Recovery Act: Cutting Waste and Fraud in Government (July 22, 2010)
NBC/AP Mike Stobbe “Obesity care may cost twice previous estimates” – November 2010
3. Healthcare Fraudulent Payments
 $110B cited in 2010 by Obama Administration
 Set target to cut this roughly in half
 More auditors and enforcement resources
 More severe penalties
4. Obesity
 Studies estimate 10-17% of healthcare costs ($350 - 600B/year)
 Reducing obesity rates by 30% would save $400B x 30% = $120B
 Taxes on non-nutritious foods and higher healthcare premiums for obese
43

44. 5. Allow Medicare to Negotiate Drug Costs
44
Source: CBO “Options for Reducing the Deficit 2017-2026” Chapter 5 (December 2016)
Kaiser Family Foundation “Searching for Savings in Medicare Drug Price Negotiations”
James E. Dalen MD - American Journal of Medicine – “We Can Reduce U.S. Healthcare Costs” (March 2010)
CBO
 $145B over 10 years (maybe)
 Allow Medicare to negotiate drug prices
 Require manufacturers to pay a rebate to the
federal government for brand name drugs sold
to Medicare Part D (LIS enrollees only; about
30% of enrollees).
 As under Medicaid, the rebate would be at least
23.1 percent of the drug’s average
manufacturer price (AMP)
Other Source (Dalen-AJM)
 Other countries pay 20-40% less for drugs
 If drug costs are 10% of overall spending:
($3,500B x 10% x 30% savings = $105B per year)
U.S. at $1,026 / person
vs. $515 for OECD

45. 6. Defensive Medicine / Tort Reform
45
 Reduce healthcare spending by 0.5% or
~$20B per year
 Reduce budget deficit by $54B total over
10 years
 Curb defensive medicine; providers would
order fewer tests and procedures
 Lower malpractice insurance premiums
CBO: Policy ChangesCBO: Effects
Source: CBO – Analysis of the Effects of Proposals to Limit Costs Related to Medical Malpractice (Tort Reform) – October 9, 2009
James E. Dalen MD - American Journal of Medicine – “We Can Reduce U.S. Healthcare Costs” (March 2010)
Note: Other studies estimate considerably more, $50-100B/year

46. Conclusions
46
 Obamacare has dramatically expanded coverage by about 20 million people
 About 27 million remain uninsured
 There are proven methods for expanding coverage further (Medicaid expansion)
 Obamacare opponents have an active sabotage campaign underway
 U.S. healthcare is the most expensive in the world by far
 Other countries have figured out how to deliver quality care at 50% - 75% the cost
 There are many known areas to explore for savings