December 9, 2010
Health Care Cost
A Perspective
Donna Lynne, DrPH, President
Kaiser Permanente Colorado
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Introduction
Health Care: Why is it so expensive?
What we will cover:
• How much we spend in the U.S.
• What is unique in Colorado
• Where the money goes
• Where the money is misspent
• Opportunities for improvement
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How much we spend
Health Care Costs Rise Internationally (1970 – 2007)
Source: OECD Health Data 2009. Health care cost rise based on total expenditure on health
as % of GDP. Countries are USA, Germany, Austria, Switzerland, United Kingdom and Canada.
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Physician Fees
C-Section (US$)
4
Hospital Charges
Average Cost Per Hospital Day (US$)
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Total Hospital and Physician Costs
Hip Replacement (US$)
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And what we get
US ranks poorly in results . . .
Relative
Ranking
Australia
Canada
Germany
New
Zealand
United
Kingdom
United
States
Life
Expectancy
1
2
4
3
4
6
Infant
Mortality
2
2
1
4
4
6
Tobacco
Use
3
2
6
4
5
1
Obesity
3
2
1
4
5
6
Avoidable
Death
1
2
3
4
5
6
Health Exp
Per Capita
$3,128
$3,326
$3,287
$2,330
$2,724
$6,401
Source: Organization for Economic Cooperation and Development, 2005
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How much we spend in U.S.
U.S. health care spending
(in billions of dollars)
4.4 Trillion
2,113
2,241
2,379
1,353
28
75
253
714
Source: Centers for Medicare and Medicaid Services
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2,509
Sources of coverage
Colorado
Uninsured: 16%
United States
Uninsured: 17%
Employer: 55%
Other
Public: 1%
Other
Public: 3%
Employer: 49%
Medicare: 12%
Medicare: 10%
Individual: 5%
Individual: 6%
Medicaid: 16%
Medicaid: 10%
Source: Kaiser Family Foundation
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Employer-sponsored insurance
Colorado
U.S.
Firms offering health insurance
55%
55%
Firms offering insurance < 50 employees
43%
41%
Firms offering insurance > 50 employees
97%
96%
Employer contribution for single coverage
79%
80%
Employer contribution for family coverage
75%
73%
Source: Kaiser Family Foundation
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But Colorado is a bit healthier than U.S.
Colorado
U.S.
6.1
6.8
79.1
78
Overweight/obese children
27.2%
31.6%
Overweight/obese adults
53.3%
60.8%
Adults with diabetes
5.7%
8.3%
Heart disease death rates per 100,000 pop.
145.3
190.9
Participate in moderate or vigorous
exercise
57.0%
50.9%
Infant mortality per 1,000 live births
Life expectancy at birth
Source: Kaiser Family Foundation
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Health Care Cost Continuum
1% of people
% of
Healthcare
Expenditures
100%
80%
% of
Costs
30% total cost
60%
40%
20%
10% total cost
0% total cost
0%
0%
20%
40%
60%
80%
100%
% of Membership
70% of people
20% of people
Source: Milliman USA Healthcare Cost Guidelines, 2001 Claims Probability Distribution, non-KP.
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% of People 
Where we misspend
Buckets of wasteful spending:
• Behavioral
= $303 billion to $403 billion
wasted
$1.2
= trillion
in waste
• Clinical
= $312 billion wasted
• Operational
= $126 billion to 315 billion wasted
Source: PriceWaterhouseCoopers’ Health Research Institute
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Where we misspend
Behavioral
($303 billion to $403 billion wasted)
• Obesity ($200 billion)
• Smoking ($567 million to $191 billion)
• Non-adherence ($100 billion)
• Alcohol abuse ($2 billion)
Source: PriceWaterhouseCoopers’ Health Research Institute
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Where we misspend
Behavioral
The opportunities
• Make change easier or
financially advantageous
• Obesity
• Smoking
• Non-adherence
• Alcohol abuse
− Incentives
− Easy access to coaching/advice
• Provide options
− Healthy catering/cafeteria
− Healthy communities
Source: PriceWaterhouseCoopers’ Health Research Institute
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Where we misspend
Clinical
($312 billion wasted)
• Defensive medicine ($210 billion)
• Preventable hospital readmissions ($25 billion)
• Poorly managed diabetes ($22 billion)
• Medical errors ($17 billion)
• Unnecessary ER visits ($14 billion)
• Treatment variations ($10 billion)
• Hospital acquired infections ($3 billion)
• Over-prescribing antibiotics ($1 billion)
Source: PriceWaterhouseCoopers’ Health Research Institute
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Where we misspend
Clinical
The opportunities
• Defensive medicine
• Electronic Medical Records
• Preventable hospital
readmissions
• Disease registries
• Poorly managed diabetes
• Patient empowerment
• Medical home
• Medical errors
− Online access to own medical
record
• Unnecessary ER visits
− Access to clear information
• Treatment variations
• Hospital acquired infections
• Over-prescribing of
antibiotics
Source: PriceWaterhouseCoopers’ Health Research Institute
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Where we misspend
Operational
($126 billion to $315 billion wasted)
• Claims processing ($21 billion to 210 billion)
• Ineffective use of IT ($81 billion to $88 billion)
• Staffing turnover ($21 billion)
• Paper prescriptions ($4 billion)
Source: PriceWaterhouseCoopers’ Health Research Institute
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Where we misspend
Operational
The opportunities
• Claims processing
• Greater investment in IT
• Ineffective use of IT
• Streamline regulation
• Staffing turnover
• Investment in training and
development of health care
professionals
• Paper prescriptions
Source: PriceWaterhouseCoopers’ Health Research Institute
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The opportunities
America’s Big Cost Drivers in Health Care:
ABCD’s of chronic disease . . .
• Asthma
• Blood pressure control (hypertension)
• Coronary artery (heart) disease / Congestive heart failure
• Diabetes
• Depression
Modifiable risk factors:
All heavily impacted by weight, diet,
smoking, adherence to treatment
plans, and physical activity.
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The opportunities
Prevention is part of the cure
Condition
Preventive
strategy
Cost per
individual for
prevention
Cost per
individual for
treatment
Colon Cancer
Early detection
(colonoscopy)
$1,300/procedure
$14,451/year
Lung Cancer
Smoking cessation
(nicotine patch)
$300/program
$20,833/year
Heart Disease
Exercise
(gym membership)
$402/year
$4,215/year
Diabetes
Nutritional counseling $50 to $200/session
$2,414/year
Skin Cancer
Wearing
sunscreen
$665/visit
$11/bottle
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Employer-Based System
The US (and Colorado) is predominately an
employer-based system
– Employers cover approximately 60% of all people in the
health care system
– Employers have engaged is extensive cost shifting of
health care costs to employees
– Employers have largely been unsuccessful in slowing
the cost of health care; current focus wellness
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Health Insurance Premiums
Cumulative Changes in Health
Insurance Premiums, Inflation,
and Workers’ Earnings, 1999-2008
Source: Centers for Medicare and Medicaid Services
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The workplace perspective
Employers and employees pay more:
Average health insurance premiums for family plans
Worker contribution
Employer contribution
1999
$1,543
2000
$3,515
$4,247
$5,790
$9,860
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Total per family per year
$13,375
Total per family per year
Colorado
State of Colorado
• State Paid $178 million in FY 2008-2009 for Health
Insurance – 71%
• Employees paid $71 million in FY 2008-2009 for
Health Insurance – 29%
• Offers a choice of two health plans to its employees
– Kaiser Permanente
– United Healthcare
• Retiree medical provided through PERA
– Unfunded liability
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Retiree Health Benefits
Among All Large Firms (200 or More Workers)
Offering Health Benefits to Active Workers,
Percentage of Firms Offering Retiree Health
Benefits, 1988-2009*
**Tests found no statistical difference from estimate for the previous year shown (p<.05).No statistical tests are conducted for years prior to 1999.
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2009; KPMG Survey of Employer-Sponsored Health Benefits, 1991, 1993, 1995, 1998; The
Health Insurance Association of America (HIAA), 1988.
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December 9, 2010
Health Care Cost
A Perspective
Donna Lynne, DrPH, President
Kaiser Permanente Colorado
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