Health Insurance: Past, Present
and Future
Prepared for OACUBO Annual Meeting, April 2009
Dr. Melissa A. Thomasson
Associate Professor, Department of Economics, Miami University
Research Associate, National Bureau of Economic Research
Health Expenditures as share of GDP
0.18
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Health Expenditures (millions of $), InflationAdjusted and Unadjusted
2500000
2000000
Adjusted
1500000
1000000
500000
0
Unadjusted
Why are costs rising?
Technology
More generous insurance coverage
• Less restrictive managed care
• More comprehensive coverage
Behavior and Demographics
• Lifestyles
• Aging
Technological Advance takes 2 forms:
• Treatment substitution
– Replace CABG with angioplasty and stents
• Treatment expansion
– Diagnose heart disease earlier, treat more people
before heart attacks.
• Either case: costly, but benefits probably
outweigh costs
• Insurance companies must ensure proper use
Changes in insurance
• Pushback in the late 1990s about strict
managed care
• Return to discounted FFS (PPO, POS plans)
– Not as effective at holding down costs
• Increasing coverage of pharmaceuticals
• Lower consumer out-of-pocket expenses
– Moral hazard: consumers spend more when it
isn’t their money
Private Health Insurance and Consumer Out of
Pocket Payments ,
% of Total Health Expenditures, 1990-2007
0.6
0.5
0.4
0.3
Consumer OOP, % of total
Health Insurance, % of total
0.2
0.1
0
Hospital, Physician, and Pharmaceutical
Expenditures as % of Total, 1990-2007
0.4
0.35
Percent of Total Expenditures
0.3
0.25
Hospital
0.2
Physician
Pharm
0.15
0.1
0.05
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Demographics and Behavior
• The good news: we are living longer.
• The bad news: we are living longer.
• Cost of medical care for the elderly is 3-5
times more expensive than for the nonelderly.
Lifestyle choices: Obesity and Smoking
•
•
•
20% of the population smokes; leading to high health care costs and productivity losses.
66.3% of population is overweight (BMI > 25) or obese (BMI > 30); 34% is obese.
Overweight and obesity linked with
– Coronary heart disease
– Type 2 diabetes
– Cancers (endometrial, breast, and colon)
– Hypertension (high blood pressure)
– Dyslipidemia (for example, high total cholesterol or high levels of triglycerides)
– Stroke
– Liver and Gallbladder disease
– Sleep apnea and respiratory problems
– Osteoarthritis (a degeneration of cartilage and its underlying bone within a joint)
– Gynecological problems (abnormal menses, infertility)
(Source: NIH, NHLBI Obesity Education Initiative. Clinical Guidelines on the Identification,
Evaluation, and Treatment of Overweight and Obesity in Adults. Available online:
http://www.nhlbi.nih.gov/guidelines/obesity/ob_gdlns.pdf (PDF-1.25Mb)
Obesity is expensive:
• $78.5 billion in medical spending attributable
to overweight/obesity in 1998. (Finkelstein,
Fiebelkorn, Wang 2003).
• Study of 11,000 Duke University workers
found workers’ comp claims were much
higher for overweight and obese workers
Medical Claims per 100 FT Employees
(Duke University study of 11,000 employees)
$51,091
$23,373
$19,661
$13,338
$7,503
Normal (BMI < 25)
Overweight (BMI=25- Mildly Obese (BMI 30- Moderately Obese (BMI
Severely Obese
29.9)
34.9)
35 - 39.9)
(BMI>40)
Source: Ostbye,T., Dement, J., Krause, K. “Obesity and Workers’Compensation.” Archives of Internal Medicine, vol.
167, April 23, 2007.
Obesity Trends* Among U.S. Adults
BRFSS, 1990, 1998, 2007
No Data
<10%
10%–14%
15%–19%
20%–24%
Source: CDC Behavioral Risk Factor Surveillance System:
http: //www.cdc.gov/brfss/
25%–29%
≥30%
How to tame costs?
• There is evidence that a
well-designed employee
wellness program can:
– Reduce sick
leave/absenteeism
– Reduce WC claims
– Lower health care costs
• Consider changes in
health insurance eligibility
and plan design
Health Insurance Eligibility
• Incentivize employees with spousal coverage
to take-up spousal coverage (and drop their
own).
• Utilize dependent eligibility audit to make sure
ineligibles aren’t using benefits.
Offer Health Savings Account
• Combines high deductible health plan with a
savings account that belongs to the employee.
• High deductibles empower employees to make
cost-conscious decisions.
• Savings account means that money not spent can
be saved:
– Used for future health and long term care expenses.
– Money belongs to the employee – they can take it
with them if they leave employment.
Important Details
• Preventive care covered 100%.
• Money contributed on pre-tax basis (cannot be
combined with an FSA).
• Only will work if consumers are knowledgeable
and have access to information:
– What does an MRI cost? What are alternatives to
emergency care?
• Once deductible is met, employees have no
incentive to reduce spending.
Do HSAs work?
• They will not solve the big problem: most
health care spending is incurred by a small
percentage of individuals with serious health
conditions.
• They will help at the margin, and can be
structured so as not to adversely affect
employees.
Will the government save us?
• Employment-based system grew in the 1940s
as employers sought to attract workers during
wage freezes.
• Tax-advantaged form of compensation.
• Insurance companies like to insure people
who are able to work because it reduces
adverse selection.
• Less attractive when firms see 20-30% of
their compensation rising at a rate greater
than inflation.
Reform
• Two primary (and opposing issues): access and
cost.
• Broad-based reform has never been politically
appealing…until now.
• The state of the economy (coupled with high
and rising costs) may make reform more
palatable for the middle-class.
Obamacare will:
• Require employers to offer
coverage or contribute to the
cost covering workers.
• Establish a National Health
Insurance Exchange to make
coverage affordable:
– private health insurance
options and new public plan
• Very similar to plan in
Massachusetts
Commonwealth Health
• Employers with more than 50 employees
– Must offer a Section 125 Plan
– Could be required to pay the Free Rider Surcharge
if they do not (“high and unplanned”)
– Must make “fair and reasonable” contribution to
health insurance or pay a “fair share contribution”
of up to $295 per employee
• Inidviduals must be enrolled in a plan or pay
tax penalties of up to $912
Not a panacea
• Largely successful in reducing the number of
uninsured.
• Threatened by rapidly rising costs.
• What else can be done?
– EMR (estimated savings of $100 billion)
– Malpractice reform (eliminate “waste” of defensive
medicine of $210 billion).
– Encourage evidence-based medicine.
• Much of what could be done would lower the
level of costs but not the rate of growth.
• To really reduce costs, we have to give up
technology and insta-access to care.