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Health Care Cost Drivers
How the Affordable Care Act
Re-Aligns Incentives
Hot Issues in Health Care Legislative Conference
November 11-12, 2010
Garden of the Gods Club
Colorado Springs, CO
A Presentation of the
Colorado Health Institute
303 E. 17th Avenue, Suite 930
Denver, Colorado 80203
www.coloradohealthinstitute.org
@CoHealthInst (Twitter)
Outline of presentation
• Current health care expenditures and trends
• Drivers of health care expenditures
• Revenues and expenditures of the Affordable
Care Act
• Delivery and payment reforms to re-align
provider incentives
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Current spending on health care in the
United States - 2009
• $2.5 trillion
– Private funds: $1.3 trillion
– Federal funds: $918 billion
– State and local funds: $285 billion
• 17.3% of gross domestic product (GDP)
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Health care expenditures relative to GDP
SOURCE: Centers for Medicare and Medicaid Services
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Trends in Colorado’s employer-based
market: Employee coverage premium
increases over time
SOURCE: Medical Expenditure Panel Survey, 2010
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Why have health care costs in the U.S.
increased over the past 40 years?
• Wealthy countries can afford expensive health
technologies
• The population is aging and disease prevalence
has increased
• Increases in level of insurance (1960 – 1990)
• Inefficiencies in medical care delivery
• Financial incentives to provide more services
SOURCE: Health Care Costs: Key Information on Health Care Costs and their Impact, Kaiser
Family Foundation, 2009
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Health behaviors are drivers of annual
health care costs
• Tobacco - $168 billion
• Obesity - $144 billion
• Alcohol - $96 billion
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Concentration of expenditures within
the population
SOURCE Kaiser Family Foundation, 2010
NOTE: Based on 2007 data. Estimates include civilian, non-institutionalized population
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Average per-capita spending by age
group
SOURCE: Kaiser Family Foundation, 2010
NOTE: Estimates include civilian, non-institutionalized population Based on 2007 data
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The Affordable Care Act: How do the
numbers stack up?
According to the Congressional Budget Office’s analysis
of federal health reform, between 2010 and 2019:
– Federal gross costs will increase by $938 billion
– Federal revenues and savings will be $1.06 trillion
– The federal deficit will be reduced by $122 billion
SOURCE: Congressional Budget Office and Commonwealth Fund
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How will the federal government reduce
expenditures over the next 10 years?
• Reductions to Medicare Advantage plans
• Reductions to Medicare providers
– Productivity improvement/provider payment updates
(such as skilled nursing facilities and hospitals)
– Home health payment adjustments
– Reducing hospital re-admissions
• Reduction to Disproportionate Share Hospitals
• Payment innovations in Medicare and Medicaid
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The Independent Payment Advisory
Board
• 15-member Board, appointed by President and
confirmed by Senate
• Will recommend ways to reduce Medicare
spending if growth of per capita expenditures
exceed targets
• Executive branch must enact
recommendations unless Congress enacts
alternatives to achieve same level of savings
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How will the federal government
increase revenue?
• Establishing 40% tax on “Cadillac” plans (plans
that cost $10,200 or more for individuals and
$27,500 for families)
• Increasing Medicare payroll taxes on higherincome taxpayers
• Additional tax on investment income for highincome earners
• Individual and large employer penalties for not
providing coverage
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Why the controversy about the CBO’s
analysis?
• CBO estimates expenditures and revenues
based on “the letter of the law”
– Will Congress have political will to implement
cuts to Medicare?
– No fix to Medicare payments to physicians (SGR)
• Does not include estimates for “discretionary”
spending
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Delivery and payment reforms
Programs and pilots within the Medicare and
Medicaid programs to incent providers to
reduce cost while maintaining or improving
quality:
• Medical homes
• Accountable care organizations
• Bundled payments
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Initiative #1: Medical homes
• Team that provides and coordinates health
care services for individuals
• Primary care clinician serves as team manager
• Services are coordinated among all providers
• Team utilizes health IT and analytical tools
• After hours telephone access to team staff
• Financial incentives reward providers that
support medical home
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Initiative #2: Accountable care
organizations
• A network of providers responsible for
managing and providing health care to individuals
enrolled
• ACO will receive a fixed payment providing care
to enrollees
• Performance monitoring will take place to
ensure quality of care does not decline
• ACO that achieves savings while maintaining
quality is eligible to share in the savings with the
federal government
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Initiative #3: Bundled payments
• A single payment for all health care services
related to a specific course of treatment or
condition over a period of time (i.e. heart
bypass surgery)
• Providers are not reimbursed for each discrete
service
• Mitigates financial incentive to duplicate or
provide unnecessary services
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Changes in health expenditures: can we
bend the cost curve?
Prior law
without
Affordable Care Affordable Care
Act (Office of
Act (Office of
the Actuary)
the Actuary)
Annual growth rate
in national health
care expenditures
(2009 – 2019)
6.1%
6.3%
Affordable Care
Act
(Commonwealth
Fund)
5.7%
SOURCES: Centers for Medicare and Medicaid Services, Office of the Actuary, Commonwealth Fund
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Growth of annual health care expenditures:
before and after the Affordable Care Act
Annual growth in health expenditures
10%
9%
9%
8%
7%
7%
6%
7%
6%
5%
4%
3%
2%
1%
0%
2009
2010
2011
2012
2013
Prior Law
2014
2015
2016
2017
2018
2019
Affordable Care Act
SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary
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Questions?
Amy Downs
Director for Policy and Research
[email protected]
303.831.47200 x221
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