Download Michael Chernew Presentation

Health Care Spending
Growth
Michael Chernew
April 18, 2012
Definitional issues matter
Focus on spending at the population (national)
level (i.e., Price x Quantity), not
– Spending per unit of service [i.e. Price]
– Cost of producing a unit of service
– Spending for a disease cohort
Distinguish between total spending or government
spending
– Total spending is the most comprehensive
– Government spending causes most alarm
Taxes
Data
Health Care Spending is not Sustainable
National Health Expenditure as % of GDP
20
18
16
% of GDP
14
12
10
8
6
4
2
0
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Excess Spending Growth
19401950
19501960
19601970
19701980
19801990
19902000
20002009
Average annual
growth in per
capita health
expenditures
Average annual
growth in per
capita GDP
Excess growth in
health
expenditures
4.0%
3.6%
5.6%
4.2%
4.9%
3.0%
3.2%
3.1%
1.5%
2.7%
2.0%
2.0%
2.1%
0.5%
0.9
2.1
2.9
2.2
1.4
0.9
2.7
Share of per capita
Income Growth
Devoted to Health
Care
5.3%
5.5%
12.9% 16.5% 25.5% 18.7% 91.5%
2005 Dollars (adjusted using GDP deflator)
Source: Spending and population data obtained from Centers for Medicare & Medicaid Services
National Health Expenditures Data, 2011 and Newhouse (1992).
Consequences of Higher Taxes
If finance higher health care spending by
taxes:
– Marginal tax rates of high income earners
could rise to 70% by 2060
– GDP declines(relative to trend) by 11%.
Magnitudes depend on the exact
assumptions about tax policy
Source: Baicker and Skinner: 2011: Assumes health care spending growth
consistent with 2010 CBO long run forecast
Private Health Care Spending is not
Sustainable
Concepts and Evidence
Slowing spending growth
Spending
High spending,
rapid growth
Low spending, rapid
growth
Low spending, slow
growth
Time
Level vs. Growth
Change in Medicare Spending
vs. Percentage PCPs
Drivers of Spending Growth
Could obesity be driving spending
Probably contributes to spending growth
The effects interact with technology
Costs were growing faster than real GDP
for EVERY 10 year period since WWII
– Even before obesity epidemic
If the only change between 1987 and 2001
were BMI, then real, per capita spending
would have risen ~ 1%/ year
Long run drivers of spending growth
Medical technology
– New knowledge (and associated stuff)
Less important factors
– Prices
– Aging
– Rising incomes
– More generous coverage (static effects)
– Inefficiency
– Inappropriate use
– Liability
Types of technology changes
1951 - 1971 : little ticket items
– lab tests
– X-Rays
1971 - 1981 : big ticket items
– CABG
– C-section
– radiation & chemotherapy for breast cancer
Early and Mid 1990s
– Pharmaceuticals
2000’s
– Imaging,
– Biologics
Myth: In Other Industries
Technology Lowers Spending
Do not confuse price (cost per unit) with
overall spending
– Computers
Prices fall: Spending rises
Demand is crucial to determine effects of
technology on spending
Benefits May Justify Cost
Slowing spending growth requires us to slow
growth in price or quantity
Determining when to apply medical technologies
is crucial
Average value of technology (widely viewed as
great) may differ from marginal value (may be
small)
– Knowing when to apply technology is crucial
Our goal must be to promote ‘value’
Technology Reflects the System
Insurance
Cost Containment
Can we change the system to preserve
innovation but manage new knowledge
more efficiently?
Implications
Reductions in the level of spending are
important, maybe VERY important, but…
Determinants of spending growth often differ
from determinants of level of spending
Strategies to control spending growth must be
either:
– Continual one time savings
– Fundamental environmental change
Public spending growth can be controlled
by shifting spending to patients