The Health Care Landscape Bill Evans University of Notre Dame 1 Two Goals • What are the issues? • How the reform proposal deals with these issues? 2 What issues must health care reform address? • Access • Cost (both the level and rate of change) • Medicare • Tax equity 3 The Uninsured • Percent uninsured – 1987: 12.9% – 2008: 15.4% • Number uninsured – 1987: 31 million – 2008 46 million 4 Uninsurance Rates: 2008 • By age: – 28.6% aged 18-24 – 26.5% aged 25-34 • By ethnicity – 30% for Hispanics – 19.1% for Blacks • Income – 24.5% for those < $25K family income 5 Percent of Firms Offering Health Insurance 100% 95% 98% 50-199 200+ % Offering Insurance 87% 80% 72% 60% 46% 40% 20% 0% 3-9 10-24 25-49 Firm Size 6 Uninsured Non-Elderly Population by Work Status of Family Head, 2007 Non-worker, Part-year, 11.0% part-time worker, 4.1% Part-year, full-time worker, 11.5% Fullyear,parttime worker, 6.6% Full-year,fulltime worker, 66.7% 7 What issues must health care reform address? • Access • Cost (both the level and rate of inflation) • Medicare • Tax equity 8 Expenditures on Medical Care • Data for 2007 • Projected, 2018 • $2.2 trillion on HC • $4.4 trillion • $7,290 per capita • $13,100 per capita • 16.2% of GDP • 20.3% of GDP 9 Per Spending on Health Care, 2007 $8,000 $7,290 $6,000 $4,000 $2,000 $0 US NOR SWZ CAN IRE Country UK SPN JPN 10 Per Spending on Health Care, 2007 $8,000 $7,290 87% more than Canada 143% more than UK $6,000 $4,763 $4,417 $3,895 $4,000 $3,424 $2,992 $2,581 $2,581 $2,000 $0 US NOR SWZ CAN IRE Country UK SPN JPN 11 Average Annual Premiums Covered Workers, 2008 (KFF) • Individual plan – $4,704 total • Family plan – $12,690 12 Price Changes, 1999 to 2008 Price Changes 160% 119% 120% 80% 40% 29% 34% Overall inflation Earnings 0% Health insurance premiums 13 Bang per buck?? • US ranks 25 of 29 countries in life expectancy – 4.3 years shorter than Japan (highest) – 2.4 years shorter than Canada • 24th worst of 28 countries in infant mortality – More than twice the rate of Japan (lowest) – 31% higher than Canada – 28% higher than UK 14 Are high expenditures a bad thing? • A key driver of health care costs is technology • Expensive items tend to be new technologies • Think of the technologies not available 30 years ago but are commonplace today • MRIs/CT scans, angioplasty, anti-psychotropic drugs, hip/knee replacements, neo-natal intensive care, treatments for AIDS, statin drugs 15 What is accurate picture of US? • Innovator to the world – tremendous gains to new advances • Wasteful spender of tremendous resources with little return • Maybe a little of both 16 Problem? • Life expectancy is a coarse outcome • Some important causes of death are NOT impacted by health care • US has very high rates of those deaths – Murders – Motor vehicle fatalities 17 Homicide Rate, 2000 (deaths per 100,000) 30 25 20 15 10 5 1.4 0.9 0.6 1.2 0.7 0 Country 18 Homicide Rate, 2000 (deaths per 100,000) 30 26.1 25 20 15 10 5 7.3 1.4 0.9 0.6 1.2 3.2 0.7 0 Country 19 Traffic Fatality Rate, 2000 (deaths per 100,000) 20 15 10 9.3 10.1 8.3 4.9 5 6 0 Can. Ger. JPN Sweden UK US Country 20 Traffic Fatality Rate, 2000 (deaths per 100,000) 20 15.3 15 10 9.3 10.1 8.3 4.9 5 6 0 Can. Ger. JPN Sweden UK US Country 21 Life Expectancy, 2000 80 79 78 77 76 75 74 SWZ NOR CAN GER JAP SWE UK US Country Real Standardized 22 Life Expectancy, 2000 80 79 78 77 76 75 74 SWZ NOR CAN GER JAP SWE UK US Country Real Standardized 23 Where would you rather be treated for a disease: US or elsewhere? 24 5-year Cancer Survival Rates Country US UK Dnmk. France Swed. Switz. Breast Cervical (Female) (Female) 82.8 66.7 70.6 80.3 80.6 79.6 69.0 62.6 64.2 64.1 68.0 67.2 Colon (Male) Lung (Male) 61.7 51.0 39.2 49.6 51.8 52.3 12.0 7.0 5.6 8.7 8.8 10.3 Prostate Thyroid (Male) (Female) 81.2 44.3 41.0 67.6 64.7 71.4 95.9 74.4 71.7 77.0 83.7 78.0 25 Heart Attack Treatment Canada vs. US (2004) • Category Canada US • Angioplasty 11.4% 30.5% 4.0% 11.4% 21.4% 19.6% • Bypass • 5-year mortality 26 27 If you want to cut costs, where do you look? • Administrative/overhead – 3% in Canada (single payer) – 1.5% in Medicare – 8-30% in US system • Chronic conditions – 5 conditions are responsible for 1/3 of costs – 15 conditions are responsible for 50% of growth in past 15 yrs • Unnecessary care 28 Percent of Total Health Care Expenses by Different Percentiles of Population, 2002 97% % of total expenditures 100% 80% 80% 64% 60% 49% 40% 22% 20% 0% 1% 5% 10% 20% 50% Percentiles of population 29 Per Capita Medicare Spending by Hospital Referral Region, 2006 $9,000 to 16,352 (57) 8,000 to < 9,000 (79) 7,500 to < 8,000 (53) 7,000 to < 7,500 (42) 5,310 to < 7,000 (75) Not Populated 30 What issues must health care reform address? • Access • Cost (both the level and rate of inflation) • Medicare • Tax equity 31 Medicare • 2007 • 2040 • 44.1 million recipients • 87 million recipients • $432 bill. exp. • 3.2% of GDP • 7.6% of GDP • 30% of fed. budget • 16% of fed. budget 32 Future problems • Rising number eligibles • People are living longer – Older people spend a lot more on health care • Rising costs • Falling fraction of people to tax 33 Medicare Enrollment 100 Millions of People 87.0 79.2 80 62.3 60 40 20 28.4 34.3 39.7 46.8 20.4 0 1970 1980 1990 2000 2010 2020 2030 2040 Year 34 Remaining Life Years at Ages 65 and 75 20 18.0 18 17.2 At age 65 Remaining Years 16.4 16 14 18.7 15.2 13.9 12 10.4 14.3 10.9 11.0 11.2 11.3 11.4 12.0 At age 75 10 8 6 1950 1960 1970 1980 1990 2000 2005 Year 35 Per Person Health Care Spending, 2004 $30,000 $25,691 $25,000 $20,000 $16,389 $15,000 $10,778 $10,000 $5,000 $7,887 $5,210 $2,650 $3,370 0-18 19-44 $0 45-54 55-65 64-75 75-84 85+ Age group 36 Ratio: 20-64 Population/Medicare 6 5.5 4.7 5 4.5 4.3 Ratio 4 4.0 3.2 3 2.6 2.5 2030 2040 2 1 0 1970 1980 1990 2000 2010 2020 Year 37 Medicare Sources as % of GDP 38 What issues must health care reform address? • Access • Cost (both the level and rate of inflation) • Medicare • Tax equity 39 Tax System Equity • EPHI a tax-free fringe benefit • WW II era program • Greatly reduces costs of HI to consumer – Encourages more generous insurance • Helps solve problem of adverse selection • Has encouraged the growth of EPHI – 170 million have insurance through employers 40 Tax Benefit of EPHI • A family w/ $70,000 in income • 36.4% marginal tax rate – 25% federal – 3.4% state (Indiana) – ~8% Social Security and Medicare • Want to purchase $12,000 policy in AFTER TAX DOLLARS 41 Without tax advantage: • Receive $18,897 in income • Pay 36.4% or $6,897 in taxes • $12,000 left over for health insurance • Net benefit of tax deduction is $6,897 42 Inequalities • Costs Fed. Govt. $250 billion/year • Tax break only available to people who receive insurance from their firm – More likely high wage workers • Regressive tax – Benefits are much higher in upper income groups 43 Patient Protection and Affordable Care Act An outline and some likely outcomes 44 Overview • Primary goal was coverage expansion • Of the four areas outlined above, major changes in one, modest changes in the other – Increased coverage – Some efforts to ↓ growth of Medicare fees – Modest effort to reduce tax benefits of EPHI – No efforts to constrain costs 45 Overview • Builds out from existing system – Tries to fill in the gaps in coverage • Large scale insurance industry reform – Community rating – Eliminate pre-existing conditions 46 Coverage expansions • Individual mandate (tax of 2.5% of AGI) • Pay or play: employer mandates • Expand Medicaid to include higher income groups 47 Coverage expansions • Provide tax credits for the low income in individual market • Tax credits for small firms to provide HI • Establish health insurance exchange where people can purchase insurance 48 Why is coverage mandatory? • Insurance industry reform – Community rating – eliminate pre-existing condition clauses • If adopted under current system – Costs for low risk would rise – exit system – Would not buy insurance until they needed it • Force low cost users into the system, drives down average cost 49 Impact on Uninsured • Reduce uninsured by 32 mil. in 2019 • 60% reduction in the uninsured • Leaves another 22 mil. uninsured • Uninsured will overwhelmingly be Hispanics 50 Pay or play • Firms w/ >50 employees must offer qualified health insurance and pay $2000 tax/employee • Tax incentives/credits for small firms to provide insurance • Language is that firms must pay “fair share” • Economists believe workers pay for insurance in the form of lower wages • Will firms pay or play? 51 Problem? • Small firms not subject to pay/play mandate • Face extremely high cost of providing HI • Workers face much lower wages if they receive HI from firm • Gov’t now provides high subsidy rate for uninsured 52 Problem? • Makes sense for small firms with low wage to drop coverage • Who benefits: – Workers: after-tax wages would increase and cost of HI declines – Firms: Don’t have to worry about HI anymore – Costs to the government will increase 53 Financing • New taxes: on insurance companies, drug makers, medical devices • Increase Medicare tax on high income, tax unearned income for this group • Revenues from firms paying and not playing 54 Financing • Tax on people without insurance • 40% tax on high-cost insurance • Reductions in Medicare reimbursements • CLASS Act –long term care insurance program – Automatic enrollment – Starts in 2011. No benefits paid for 5 years 55 Balance Sheet – CBO 2010-2019 (Billions of dollars) • Expenditures • • • • Expand private Expand public Small firm credit Total • Revenues $ 466 $ 434 $ 40 $ 940 • Higher taxes • Reduced • Spending • Total $ 551 $ 507 $1058 • $118 billion ↓ deficit • CBO adjustment of + $115 billion 56 Revenues, 2010-2019 (billions of $) • • • • • • • • Tax on high cost health care plans Firm/individual taxes, no ins. Expand taxes on Medicare Reduce Medicare reimbursements CLASS premiums Tax on Rx/Med device/Ins. Other taxes Total $ 32 $ 69 $ 210 $ 437 $ 70 $ 107 $ 133 $1,058 57 What is missing? Cost controls 58 • Add 32 million people to the market • No effort to change supply (hospitals, physicians, etc.) • Should increase price • But with Medicare cuts, may discourage some providers from participating in program 59 P S P2 P1 D* D Q 60 61 Insurance rates, 1990-2009, Children 19 and Under < 200% of Federal Poverty Limit 60% Public 50% Percent 40% 30% 20% 10% 0% 1990 1993 1996 1999 2002 2005 2008 Year 62 Insurance rates, 1990-2009, Children 19 and Under < 200% of Federal Poverty Limit 60% Public 50% Percent 40% 30% 20% Uninsured 10% 0% 1990 1993 1996 1999 2002 2005 2008 Year 63 Insurance rates, 1990-2009, Children 19 and Under < 200% of Federal Poverty Limit 60% Public 50% Percent 40% Private 30% 20% Uninsured 10% 0% 1990 1993 1996 1999 2002 2005 2008 Year 64 65