The Economics of Health Care Reform Allen C. Goodman Wayne State University Presented to Adult Learning Institute October 25, 2011 http://www.econ.wayne.edu/agoodman Facts • In 2009, the United States spent almost $2.5 trillion dollars on health care. • This accounted for 17.3% of GDP. • Over 50 million U.S. residents were uninsured. Compare us to Other Countries Canada Expenditures as % of GDP France 18.0 16.0 Germany Italy Japan Netherlands 14.0 Percentage 12.0 Spain Sweden Switzerland 10.0 8.0 United Kingdom United States 6.0 4.0 2.0 0.0 1960 1965 1970 1975 1980 1985 Year 1990 1995 2000 2005 2010 Compare Us to Other Countries Australia Life Exp at Birth, Females Life Exp at Birth, Males Deaths/1000 live births 2007 2007 2006 83.7 79.0 4.7 Mexico Life Exp at Birth, Females Life Exp at Birth, Males Deaths/1000 live births 2007 2007 2006 77.4 72.6 16.2 Canada 83.0 78.3 5.0 Sweden 83.0 78.9 2.8 Germany 82.7 77.4 3.8 Switzerla nd 84.4 79.5 4.4 Israel 82.4 78.7 4.0 Turkey 75.6 71.1 22.3 Japan 86.0 79.2 2.6 United Kingdom 81.8 77.6 5.0 Korea 82.7 76.1 4.1 United States 80.4 75.3 6.7 Inference • We spend a lot • By many measures, we’re not spending very effectively. • Can we reform our health care system? • What do we want, and what would it cost? Goals of Reform Four elements: – A health “safety net” for all residents, irrespective of age, health status, or employment status – Mechanisms that promote cost containment – Choice for patients and providers – Ease in administration Questions • • • • Who do you cover? How do you provide access? How much does it cost? How do you pay for it? Who do you cover? • Everyone? • Do you “not cover” illegal immigrants? • Remember, at any moment of time in the United States, there are millions of foreign students, visitors, and temporary workers. How do you provide access? • Employer mandate? – Does employer pay it? – Most feel that the workers pay for it in the form of lower wages. • Individual mandate? – Require individuals to buy insurance. – They may buy it from employers. – This is no more coercion than paying taxes. What does it cost? • Uninsured does not mean “no care.” – Uninsured currently get – Hadley and colleagues (2008), estimated that uninsured Americans consumed $86 billion worth of health care in 2008. • Full year coverage to all uninsured? – Incremental cost of providing full-year coverage for all uninsured would amount to $123 billion, so spending of those currently uninsured would rise from $86 to $209 billion. What does it cost? • Full year coverage to all uninsured? – We’re three years past the Hadley estimates, so let’s guess incremental cost at $164 billion, taking total cost to about $250 billion. – If we divide $164 billion by 310 million people, you get about $529 per person. – Can we pay it? Yes! There’s a difference between “can’t pay” and “won’t pay.” Patient Protection and Affordable Care Act of 2010 (PPACA) • Require most U.S. citizens and legal residents to have health insurance, the individual mandate. Families without coverage will face penalties up to $2,085 per year or 2.5% of household income. • Penalize employers with 50 or more full-time employees that do not offer coverage a fee of $2,000 per full-time employee. Small businesses that provide health insurance for their employees will be eligible for tax credits. (Effective January 1, 2014). Patient Protection and Affordable Care Act of 2010 (PPACA) • Expand Medicaid to all non-Medicare eligible individuals under age 65 (children, pregnant women, parents, and adults without dependent children) with incomes up to 133% of the federal poverty level FPL. • Establish state-based health insurance exchanges, where individuals and small businesses can compare policies and buy coverage, administered by a governmental agency, or a non-profit entity. Patient Protection and Affordable Care Act of 2010 (PPACA) • Eliminate underwriting policies that enable insurers to deny individuals insurance or charge them higher premiums based on pre-existing conditions. • Establish a uniform set of benefits, called Essential Health Benefits, with 10 major areas of coverage including prescription drugs and preventive services. All qualified health plans, except employer-sponsored plans and certain individual policies, will be required to offer at least the Essential Health Benefits. (Effective January 1, 2014) Patient Protection and Affordable Care Act of 2010 (PPACA) • Eliminate cost-sharing for Medicare covered preventive services recommended by the U.S. Preventive Services Task Force, and waive the Medicare deductible for colorectal cancer screening tests. (Effective January 1, 2011) Attaining goals. Coverage? • Creating a safety net – CBO estimates that approximately 32 million people would gain coverage by 2019, leaving about 23 million uncovered. • Net changes would be increases of 16 million through Medicaid and CHIP, and 24 million through the exchanges, with small decreases of those in employer and nongroup insurance. • This would leave about 23 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants). Attaining goals. Cost containment? More diffuse – Reducing consumer demand through the socalled “Cadillac” insurance tax; – Running pilot programs to test various approaches to revamping provider-payment incentives and organizational structure; – Investing hundreds of millions of dollars in new comparative-effectiveness research; and – Launching pilot programs to assess reorganizations of the medical malpractice process. Attaining goals. Choice for patients and providers? • In bypassing either single-payer programs or explicit mandated providers, PPACA will preserve both patient and provider choice. • The insured would appear to have no less choice in insurance coverage, and payment provisions would seem to remain the same as previously. Attaining goals. Ease in Administration? • The largest increases in the numbers insured would come through Medicaid/CHIP (an additional 16 million) and the new insurance exchanges (24 million more). • Medicaid/CHIP is a well-established program, with state-level relationships already in place. • States have not yet established the exchanges, however, and some considerable administrative costs will most likely accompany their creation and operation. In Conclusion – Can We Do It? • Other countries do. • Resources are available. • Costs are within reason … if we choose to pay them.