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Paying for the Boomer’s Healthcare:
SHOW ME THE MONEY!
4th Annual Health Policy Forum
St. Louis, Missouri
October 19, 2006
Signature
Healthcare Foundation
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John Rother
Boomer
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Policy & Strategy
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John Rother
Boomer
Director
Policy & Strategy
Changing Demographics
over 65
under 65
Age 65+ population
4% of nation
1906
Changing Demographics
over 65
under 65
Age 65+ population
has tripled
(12%)
TODAY
Changing Demographics
over 65
under 65
Age 65+ population
will double again
2030
Percentage of Total Population Age 50+
40%
% Age 50+
35%
30%
Boomer % Age 65+
We are here
2006
% Age 85+
50+
25%
20%
% Age 50+
15%
65+
10%
5%
85+% Age 85+
Ye
ar
19
00
19
10
19
20
19
30
19
40
19
50
19
60
19
70
19
90
20
00
20
10
20
20
20
30
20
40
0%
% Age 65+
Source: U.S. Census Bureau, middle series projections and historical data, U.S.
As a result of size and
longevity, MORE boomers
will draw entitlements
LONGER
Will these changes have a
profound, “unsustainable”
impact on the federal budget
by pushing a rapid growth in
federal spending for health
and retirement benefits for
older Americans?
How do we measure
entitlement spending?
Standard measure to gauge size
and growth of entitlement spending
is its ratio in any year to the
Gross Domestic Product (GDP)
How do we define
“unsustainable”?
For any path of spending and
revenues to be sustainable, the
resulting debt must eventually
grow no faster than the economy.
Congressional Budget Office, The Long-Term Budgetary pressures and Policy Options, March 1997
What are the categories
of entitlements?
The top 10 . . .
The Categories of Entitlements
Figure 4. The 10 Largest Federal Entitlement Spending Programs as Percent of GDP,
1962-2016
14%
12%
10%
8%
Medicare
Food stamps
SSI
Unemployment compensation
Federal retirement
Medicaid
Social Security
Projected
Veterans
Family Support
Earned Income Tax Credit
6%
4%
2%
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
0%
Source: Congressional Budget Office, The Budget and Economic
Outlook, Fiscal Years 2007 to 2016 , Appendix F, Historical Budget Data
2005 Entitlement Spending
Figure 3. Ten Largest Spending Entitlements in Billions of 2005 Dollars and as Percent of All
Spending Entitlements, 2005
Family Support
Family support
$25
Food stamps
$32
Unemployment compensation
$33
Veterans/ benefits
$35
2.6%
Veterans Benefits
SSI
$39
2.9%
SSI
Earned Income Tax Credit
$48
Federal retirement (civ. and mil.)
1.9%
2.4%
2.5%
3.6%
Food Stamps
Unemployment Compensation
Earned Income Tax Credit
$103
7.7%
Medicaid
Medicaid$186
Medicare
Medicare
Social Security
Federal Retirement – civilian and military
13.8%
$325
24.2%
Social Security
$0
$100
38.5%
$517
$200
$300
Source: Congressional Budget Office, The Budget and Economic
Outlook, Fiscal Years 2007 to 2016, Appendix F, Historical Budget Data
$400
$500
$600
2005 Tax Expenditures
Figure 6. Ten Largest Tax Entitlements in Billions of 2005 Dollars
and as Percent of All Tax Entitlements, 2005
Exclusion of investment income on life
insurance
$25.0
Deduction of charitable contributions
$26.0
4.7%
4.9%
Exclusion of capital gains at death
$38.0
Earned income tax credit
$39.0
7.1%
7.3%
Deduction of state and local taxes
$46.2
8.7%
Child tax credit
$46.6
8.7%
Reduced rates of tax on dividends and
capital gains
10.9%
$57.8
Mortgage interest deduction
$72.6
13.6%
Employer-provided $78.6 Health Insurance
Exclusion of employer provided health
insurance
Exclusion of contributions to employer
provided pensions
14.8%
15%
19.3%
$102.8
$0.0
$20.0
$40.0
$60.0
Source: U. S. Congress, Joint Committee on Taxation, Estimates of
Federal Tax Expenditures for Fiscal Years 2006-2010 .
$80.0
$100.0
$120.0
What are the drivers
of entitlement spending?
Demography misses
much of the story.
No entitlement growth in 25 yrs
Figure 8. Types of Entitlements as Percent of GDP, 1962-2016
7%
Projected
6%
5%
4%
Retirement
Health
Safety Net
Other
3%
2%
1%
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
0%
Source: Congressional Budget Office, The Budget and Economic
Outlook, Fiscal Years 2007 to 2016, Appendix F , Historical Budget Data
. . . With one exception, Medicare
Figure 8. Types of Entitlements as Percent of GDP, 1962-2016
7%
Projected
6%
5%
4%
Retirement
Health
Safety Net
Other
3%
2%
1%
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
0%
Source: Congressional Budget Office, The Budget and Economic
Outlook, Fiscal Years 2007 to 2016, Appendix F , Historical Budget Data
Does aging explain the rapid
growth in federal health spending?
Interestingly, it does not . . .
Per person Medicare expenditures
do not rise with age
Figure 10. Mean Expenditures Per Person for Acute and Long-Term Care From Age 65 Until
Death, by Age at Death
450,000
Mean Expenditures Per Person for Acute and Long-Term Care From Age 65 Until Death by Age at Death
400,000
All services
Expenditures per person ($)
350,000
Medicare-covered services plus costsharing
Nursing home care
300,000
Home care
250,000
Prescription drugs
200,000
Other services
Medicare
150,000
100,000
50,000
0
65
70
75
80
85
Age at Death
Spillman and Lubitz, "The Effect of Longevity on Spending for Acute and LongTerm Care," New England Journal of Medicine , Vol. 342 (19) 1409-15, 2000.
90
95
100
>101
Costs for total Medicare program
$800
Projections
Billions
$600
$400
$200
$0
1993
1998
2002
2004
Source: CMS, National Health Accounts
Overall Medicare Costs
2006
2014
Costs
forfor
National
Health Expenditures
Costs
total Medicare
program
$3,600
Projections
$3,000
Billions
$2,400
$1,800
$1,200
$600
$0
1993
1998
2002
2004
2006
Source: CMS, National Health Accounts
Overall Medicare Costs compared to Overall Health Costs
2014
Is the rise in national health
spending due to health
entitlements?
No . . .
Medicare spending increased less
than private sector
Figure 11. Average Annual Change in Per Enrollee Medicare Spending and Private Health
Insurance Premiums (for Common Benefits), 1969-2004
18.0%
Average Annual Change in Per Enrollee Spending
16.0%
14.0%
✔
✔
15.7%
15.2%
14.4%
12.7%
12.0%
12.0%
Medicare
Private Health Insurance
✔
10.6%
10.1%
10.0%
✔
✔
8.8%
7.9%
8.0%
7.2%
6.2%
5.8%
6.0%
4.1%
3.5%
4.0%
2.0%
0.0%
1970-1974
1975-1979
1980-1984
1985-1989
1990-1994
1995-1999
2000-2004
Year
Note: Annual change is calculated from previous year. Common benefits refers to benefits commonly covered by Medicare and Private Health Insurance. These benefits are hospital services,
physician and clinical services, other professional services and durable medical products.
Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, Table 13 at
http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf.
What’s driving up health costs??
Healthcare
by service sectors . . .
If costs rose equally in every sector, the
distribution of increases by sector of total
National Health Expenditures 1995 to 2004
Hospital Care
would look like this:
Physician and Clinical Services
Dental Services
Other Prof. Services
Home Health Care
Other Non-Durable Medical Products
Rx Drugs
Durable Medical Equipment
Nursing Home Care
Other Personal Health Care
Admin. & Net Cost of Priv. Health
Insurance
Public Health Activity
Research
Structures & Equipment
2.4%
Hospital Care
4.3%
2.9%
Physician and Clinical Services
26.8%
27%
9.1%
Administration &
Net Cost of Private Ins
3.5%
9%
Hospital Care
Dental Services
Other Prof. Services
Home Health Care
Other Non-Durable Medical Products
Rx Drugs
4.8%
Durable Medical Equipment
Physician &
Clinical
Services
0.9%
Rx Drugs
15%
21%
14.9%
20.9%
0.8%
1.5%
2.8%
Nursing Home Care
Other Personal Health Care
Admin. & Net Cost of Priv. Health
Insurance
Public Health Activity
Research
Structures & Equipment
4.3%
Source: Calculations by PPI AARP using Centers for Medicare & Medicaid Services,
Office of the Actuary, CY 1960-2004 National Health Expenditure Data
Health cost increases in 10 years
(1995-04) due to 4 major sectors:
What’s driving up health costs??
Economic, demographic, and
technological factors . . .
100%
80%
60%
40%
20%
Intensity, Volume,
Technological Change
& other residual factors
Population Growth
Medical Inflation
above general inflation
General
Inflation
0%
Growth in Health Care Expenditures
Source: National Health Expenditures Accounts:
Definitions, Sources, and Methods used in the NHEA 2004, CMS
Analysis of Cost Growth 2000-04
What’s driving up health costs??
Intensity and volume . . .
End-of-Life Variation in Care
..
..
7
Ratio to Minneapolis
6
5
4
Minneapolis, MN
Orange Co., CA
Miami, FL
Portland, OR
3
2
1
0
Medicare Specialist
Spending
Visits
Hospital
Days
% Admits
to ICU
Geography & the Debate Over Medicare Reform, Health Affairs 13 Feb 2003 Wennberg, Fisher, Skinner
.
What’s driving up health costs??
Crucial to get control of the
management of chronic care . . .
Chronic Care Management Key to a
Large Segment of Cost
A back-of-the-envelope representation . . .
80
60
40
20
0%
% Health Care Dollars Spent
100%
30% of costs for
1% of people
10% of costs for
70% of people
20%
40%
60%
Percent of Population
80%
100%
Highest healthcare costs come
with multiple conditions, not age
Average
healthcare
expenditures for
noninstitutionalized
population, by
age and severity
of chronic
conditions,
disability, and
functional
limitations
$20,000
$18,000
$16,000
50-64
65-74
75-84
85+
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
None
1 chronic
3+ chronic
3+ chronic,
& disabled
with functional limits
What about more beneficiary
cost-sharing??
•First, that does nothing to
contain costs.
•Second, in terms of Medicare,
the patients are already bearing
about as large a burden as
possible.
Average Medicare out-of-pocket
costs take 23% of income
Average Out-of-Pocket Health Care Spending 2004
People in “Fair” or “Poor” health
Women
29%
24%
30%
85+ only
23%
ALL 65+
0%
10%
20%
30%
40%
Percent of Income
Figures for non-institutionalized Medicare beneficiaries only. “Out-of-Pocket” includes payments for
Medicare cost-sharing, Part B & private insurance premiums, physician balance billing, and goods &
services not covered by Medicare. It excludes cost of home care and long-term nursing home care.
Source: AARP Public Policy Institute projections
using Medicare Benefits Model, v5.306.
34%
Under 135% Poverty
Are we sure expenditures
are used wisely?
Looking at one of the four big
cost growth areas –
prescription drugs . . .
Pharmaceutical prices are rising
at more than double the rate of
inflation
40%
30%
40%
40%
20%
10%
Inflation 17%
0%
Cumulative Rise 2000 thru 2005
Years refer to change from previous year. Source: AARP Public Policy Institute
Average Percent Change
Average Manufacturers’ Price
Increases far outpacing Inflation
Distribution of Gross Revenues for
U.S. Drug Companies by Expense Type
$100
$80
$60
$40
$20
$31
$6
Marketing, Advertising,
& Administrative Costs
Taxes & Other Costs
$20
Net Profit
$13
Research & Development
$30
Cost of Production
$0
Out of Every $100
Source: Compiled by the PRIME Institute, University of Minnesota from data found in DHHS, CMS, Jan 2003, and
from Bloomberg, analysts models, & corporate annual reports. Presented by AARP Rx Watchdog Forum February 2005
What about physician
services?
Looking at the Medicare
spending for physician payments
2000-2005 . . .
2000-2005
Medicare Spending (dollars in billions)
60
50
40
30
20
10
0
2000
2001
2002
NOTE: Dollars do not include beneficiary co-pays
2003
2004
2005
Source 2006 Annual Report of the Board of Trustees of the Medicare Trust Funds
Costs for physician FFS up an
average of almost 10% per year
And what happens if we
continue, business as usual?
With healthcare growth
unchecked (and small Social
Security fixes ignored), here is
the picture:
Predicting Entitlement Spending
Figure 1. Spending for Total and Largest Three Entitlements as Percent of GDP, 1962-2050
20%
18%
Total entitlement spending
Largest 3 entitlements
16%
14%
Actual
Projections
12%
Today
10%
8%
6%
Tomorrow?
4%
2%
46
49
20
43
40
37
34
31
28
25
22
Source: Congressional Budget Office, The Budget and Economic Outlook, Fiscal Years 2007 to 2016, January, 2006, Appendix
F, Historical Budget Data; The Long-Term Budget Outlook , December, 2005, Supplemental Data (Intermediate projections)
20
20
20
20
20
20
20
20
20
19
20
13
10
07
04
01
98
95
92
89
16
20
20
20
20
20
20
19
19
19
19
86
19
80
77
74
71
68
65
83
19
19
19
19
19
19
19
19
62
0%
Looking at the Hospital Trust
Fund alone, here is the
projected cash flow . . .
Cash Flow of the HI Trust Fund
$400
Actual
$300
Income
Expenditures
Projected
Will exceed income in 2012
$200
$100
$0
1970 1980 1990 1995 2000 2006 2008 2010 2012 2014
Source: Office of the Chief Actuary -SUMMARY OF THE 2005 ANNUAL REPORTS
From the Social Security and Medicare Boards of Trustees
And here is the projected
Hospital Trust Fund balance . . .
HI Trust Fund ASSETS
As a percentage of annual expenditures
250%
Actual
Projected
200%
150%
100%
50%
0%
1970
1975
1980
1985
1990
1995
2000
2005
SOURCE: 2005 Annual Report of the Board of Trustees
of the Federal Hospital Insurance Trust Fund
2010
2015
2020
2025
What are needed steps to
reform both public and
private health care?
Leadership Solutions
Reduce costs, improve quality:
Foster widespread, inter-operable H.I.T.
Fund prevention
Manage, coordinate (and pay for)
quality chronic care
Pursue comparative-effectiveness
research for pharmaceuticals and for
technology, other evidence-based
medicine
Target escalating Rx drug pricing
Leadership Solutions
Reduce costs, improve quality:
Reform payment to reward excellence
–e.g. Pay for Performance
Target waste and unnecessary care
(misuse, overuse)
Reduce toll of errors
Work toward universal coverage
Provide patients with decision tools
Promote lifelong healthy behavior
Pay
later!
Payme
menow,
now,or
orpay
pay me
me later!
Either we take steps now to aggressively
reform healthcare, even if there are
short-term investment costs
 Either we take steps now to aggressively
 Or,
we will
pay moreeven
in the
long-run,
reform
healthcare,
if there
are
as
taxpayers,
as patients,
and as providers
short-term
investment
costs


Or, we will pay more in the long-run, as
taxpayers, as patients, or as providers
suffering reduced resources and income
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