Download American Journal of Medical Care (2007)

The Obama Health Care Reform
Proposal
Bill Evans
Department of Economics and
Econometrics
1
Three topics in this topic
• What issues must comprehensive health
care reform confront?
• Outline the Obama proposal
• Suggest some likely consequences
2
Confusing at the moment
• Campaign proposal but no legislation yet
• Some parts adopted in stimulus plan
• HealthCare Dialogue Coalition (18 groups)
will release their recommendations
Monday
• But, everything is up in the air as a result
of the economy
3
Kaiser FF Tracking Survey
What two issues you would most like to hear the
presidential candidates talk about?
Issue
June 07
March 08
Oct 08
Iraq
43%
32%
13%
Health care 21%
28%
12%
Immigration 18%
7%
2%
12%
45%
62%
Gas Prices 12%
<1%
5%
Terrorism
6%
7%
Economy
7%
4
What issues must health care
reform address?
• Access
• Cost (both the level and rate of change)
• Medicare
• Tax equity
5
Access
• Uninsurance is a persistent issue
• Dimensions of the problem (2007)
– 45.7 million people
– 9 million children
• Fraction uninsured increasing
– 12.6% in 1987
– 15.3% in 2007
6
What issues must health care
reform address?
• Access
• Cost (both the level and rate of inflation)
• Medicare
• Tax equity
7
Expenditures on Medical Care
• Data for 2007
• Projected, 2018
• $2.2 trillion on HC
• $4.4 billion
• $7,400 per capita
• $13,100 per capita
• 16.2% of GDP
• 20.3% of GDP
8
US
Luxembourg
Switzerland
Norway
Iceland
France
Belgium
Canada
Austria
Netherlands
Australia
Sweden
Denmark
Ireland
UK
Italy
Japan
Finland
90% more than
Canada
145% more
than the UK
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Per capita spending on health care
9
Average Annual Premiums
Covered Workers, 2008 (KFF)
• Individual plan
– $4,704 total
• Family plan
– $12,690
10
Price Changes, 1999 to 2008
Price Changes
160%
119%
120%
80%
40%
29%
34%
Overall inflation
Earnings
0%
Health
insurance
premiums
11
Are high expenditures a bad thing?
• A key driver of health care costs is technology
• MRIs/CT scans, angioplasty, anti-psychotropic
drugs, hip/knee replacements, neo-natal
intensive care, treatments for AIDS, statin drugs
(Lipitor)
• All not available 20-30 years ago. Now,
commonplace
12
If you want to cut costs, where do
you look?
• Administrative/overhead
– 3% in Canada (single payer)
– 1.5% in Medicare
– 30% in US system in total
• Chronic conditions
• Unnecessary care
13
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
14
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
15
16
17
What issues must health care
reform address?
• Access
• Cost (both the level and rate of inflation)
• Medicare
• Tax equity
18
Medicare
• 2007
• 2040
• 44.1 million recipients
• 86 million recipients
• $432 bill. exp.
• 3.2% of GDP
• 7.6% of GDP
• 30% of fed. budget
• 16% of fed. budget
19
Future problems
• Funding
– Medicare trust fund
– General revenues (75%)
• Medicare Trustees predict
– Costs > revenues by 2011
– Trust fund exhausted by 2019
• Declining ratio of workers/enrollees means
taxes must be raised
20
21
What issues must health care
reform address?
• Access
• Cost (both the level and rate of inflation)
• Medicare
• Tax equity
22
Tax System Equity
• EPHI health insurance is a tax-free fringe
benefit
• Greatly reduces the cost to consumers of
purchasing insurance
• Has encouraged the growth of EPHI
• Most people w/ private insurance get is
through their employers
– 170 million have EPHI
23
Inequalities
• Tax break only available to people who
receive insurance from their firm
• Higher income families have higher tax
rates so the tax benefit to them is greater
• Costs Fed. Govt. over $243 billion/year
• Regressive tax
24
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
25
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
26
Obama/Biden
Plan for a Healthy America
27
Overview
• Plan builds out from existing EPHI
• Tries to fill in the gaps in coverage
• Heavy emphasis on trying to reduce costs
to make health care more affordable
• Plan has not been formally proposed so
some details sketchy
28
Access
• Expansion of SCHIP/Medicaid
• Must provide HI for children
– No enforcement specified
• Tax credits for small businesses that
provide EPHI
• “Pay or play” for businesses
– Must spend minimum fraction of labor costs
on HC or pay that amount as a tax (5 or 6%)
29
Access (continued)
• National Health Insurance Exchange
– Similar to MA connector
– Policies similar to those offered to congress
and federal employees
– Available to individuals, small businesses,
self-employed
• National Plan
– Offered by the Federal government
– Designed to provide competition to pvt. ins.
30
Controlling Cost
• $50 billion in IT for health care sector
• Expand use of preventive services and
disease management
• Increase competition in insurance industry
• Allow Medicare to bargain Part D prices
• Catastrophic reinsurance through the
Federal government
31
Medicare
• Reduce expenditures for Medicare
Advantage
• Prevention/Disease Management
• Greater bargaining over health care costs
32
Tax equity
• Subsidies for small business who offer
EPHI
• Some talk on Capital Hill of eliminating
tax-preferred status of EPHI
– Obama railed against McCain for proposing
– White House has signaled they will support
but cannot propose
33
• "And this is your plan, John," he said at
one debate. "For the first time in history,
you will be taxing people's health-care
benefits." Mr. Obama added that the
McCain proposal was "radical," "the
biggest middle-class tax increase in
history," "out of line with our basic values"
and that "the choice you'll have is having
your employer no longer provide you
health care."
34
What has been adopted?
• $19B to encourage health IT investment
• Additional $10B over next 2 years for NIH
• $1.1B for effectiveness research (AHRQ)
• $85B for states to help finance Medicaid
35
• $25B -- 65% of COBRA for unemployed
– 9 months
– Laid-off between 9/1/2008 and 12/31/2009
– Had insurance
– Worked for company >20 employees
– Income < $145,000/adult
36
Incentives/Fines for EMR Investment
37
Proposed: 2010 Budget
Downpayment on Reform
• $630 billion over time years
• Cost savings
– Reduce payments for Medicare Advantage
– Increase rebate from pharma. to Medicaid
• Higher taxes
– Reduce tax rate on itemized deductions for
families w/ taxable income >$250,000
38
Is it enough?
• Cost estimates
– Vary from $1.2 - $1.7 trillion over 10 years
• Big unknowns
– Take up rates on new programs
– Subsidy for government insurance
– Health care costs
39
Estimated impacts – Access
(Lewin Group, 2008)
• Cut number uninsured by 26.6 million
– Primarily from expansion of Medicaid/SCHIP
• Shift 28.7 million onto federal insurance
– Companies drop coverage
• Those on federal rolls will increase by 48.3
million – roughly 50% increase
40
Does Preventive Medicine save $?
• Intuitively appealing – detect disease before it
becomes expensive
• Problem: with low incidence rates, screening is
costly and low # of cases detected
• Cohen et al., NEJM, February 14, 2008
– Reviewed 599 published articles on costeffectiveness of preventive care
41
• Our findings suggest that the broad
generalizations made by many presidential
candidates can be misleading. These
statements convey the message that
substantial resources can be saved
through prevention. Although some
preventive measures do save money, the
vast majority reviewed in the health
economics literature do not.
42
Disease Management?
• Again – intuitively appealing
• Reduce discretion in use, standardize care,
eliminate unnecessary treatment
• Lots of experience with DM in managed care
• Has DM reduced costs?
43
• American Journal of Medical Care (2007)
reviewed 317 studies about DM
“there was no conclusive evidence that
disease management leads to a net
reduction of direct medical costs.”
44
Health IT/EMR?
• Great promise
– Reduce paper work/time/medical errors/unnecessary
diagnostic tests
• Savings alluded to in plan based on RAND
estimates
• RAND estimates that IT has the potential to
reduce costs by $80 billion/year
– Only considered studies that showed cost savings
– Best case scenario – if it does what is promised
45
CBO (2008)
• In general, investment in EMR is
“generally not sufficient to produce
significant cost savings”
• Significant cost savings have “tended to
be connected to relatively integrated
health care systems” which the US health
care system is not
46
Summary
• Will reduce uninsurance but
– Will do so by shifting a lot more onto public programs
• Cost savings are greatly exaggerated
– Investing heavily in proposals that to date have not
demonstrated much savings
• Tax equity has been suggested – nothing
concrete
• So far, the administration is punting on Medicare
47
My opinion
• Must control costs first
• Benefits never decline, they only increase
• Enacting universal coverage or a massive
expansion will generate cost that will never be
controlled or cut
• To control cost – must deal with Medicare first
48
49
MA Reform: Romney (2006)
• Most ambitious state reform to date
• Many features but…..
• Most striking component: Individual
mandate
– Required by law to carry insurance
50
MA Reform
• If you require insurance, you need to make
it affordable
• State subsidizes purchases for poor
• Firms must establish Section 125 plans
• Established the “Connector”
51
Connector
• Merge of individual and small group
market
• Market maker in insurance
• Community rating
• Requirements on what plans must have
52
Connector
• Cheapest individual plans cost about
$200/month
• 40-60% lower than average plan
• Was achieved primarily by higher cost
sharing
53
Results from MA -- Access
• # with insurance increased by 430K
– 60% went to public plan
– Uninsurance rate now only 2.6%
– MA far and away had the lowest uninsurance rate
going 2006
• State underestimated
– Number uninsured
– Uninsured eligible for subsidized care
• No one opted for the cheap low cost/high cost
sharing option
54
Problem
• State’s contribution is rising much faster
than anticipated
• Minor cost control options
• Costs are rising very fast
– MA now spend 33% more per capita than
national average
– State has $4b deficit
– State costs on health care have increased
42% since 2006
55
NYT
• To make it happen, Democratic lawmakers and
Gov. Mitt Romney, a Republican, made an
expedient choice, deferring until another day any
serious effort to control the state’s runaway
health costs. The day of reckoning has arrived.
….government and industry officials agree that
the plan will not be sustainable over the next 5 to
10 years if they do not take significant steps to
arrest the growth of health spending.
56
Options
• "exclude coverage of services of low
priority/low value."
• "limit coverage to services that produce
the highest value when considering both
clinical effectiveness and cost."
• "a limitation on the total amount of money
available for health care services," i.e., an
overall spending cap.
57
Exporting MA Plan?
• Plan is being studied extensively by
– Other states
– Presidential candidates
• MA is very unique so it might not travel
– Lower uninsurance rate (9%)
– Unique fiscal situation that was used to
finance the law
58