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Interesting Times for an Actuary: Healthcare Trend and Healthcare Reform Medicare Industry Leadership Institute Actuarial Scholarship Seminar University of Minnesota November 22, 2010 Kent Clemens, FSA Office of the Actuary Centers for Medicare & Medicaid Services Role of the Office of the Actuary Provide objective actuarial, economic, and other technical assistance, on a nonpartisan basis Administration Congress OACT National advisory groups Health plans & providers Public Nonpartisan Technical Assistance Theory: Practice: Nonpartisan Technical Assistance Theory: OACT Practice: Nonpartisan Technical Assistance Theory: OACT Practice: Nature of the Problem • Cost Growth • Uninsured • Affordability • Federal, State budget challenges 6 25% Past and Projected National Health Expenditures, as a Percentage of GDP Historical Projected 20% 15% 10% 5% 0% 1970 1975 1980 1985 1990 1995 2000 Calendar year 2005 2010 2015 12% Why Do Health Costs Grow Faster? Average annual growth during 1965-2006 Average Annual Growth 10% 8% 6% Health care use & intensity 2.6% 0.4% Excess medical inflation 1.7% 4% 2% 0% Economy-wide inflation 4.2% Population 1.0% Age-gender effect Real GDP per worker 1.3% Economy-wide inflation 4.2% Employment 1.9% Personal Health Care Source: Office of the Actuary, National Health Statistics Group. GDP Why Do Health Costs Grow Faster? • Normal “market” doesn’t exist for health care – Insurance insulates people from true cost – Extreme value placed on health – Complexity of “product” • “Guaranteed market” for new medical innovations – Demand for best possible treatments – Medical research, development, implementation companies have little incentive to focus on costreducing technology – Most innovation to date has been cost-increasing Why Do Health Costs Grow Faster? • Inefficiency – Medical care is fragmented – Payment mechanisms reward more services, not quality of care Efforts to restrain cost growth: PAST • End cost-based reimbursement • Introduce prospective payment & fee schedules • Manage care – Health maintenance organizations – Preferred provider organizations • Address fraud & abuse NHE Share of Gross Domestic Product (GDP), 1980-2018 25.0 Share of GDP (%) 20.0 15.0 10.0 5.0 0.0 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Source: A. Sisko et al., “Health Spending Projections Through 2018,” Health Affairs 28 (2009): w346 – w357 (published online 24 February 2009). Efforts to restrain cost growth: CURRENT • • • • Preventive care Chronic care / disease management Consumer-driven health plans Medicare physician volume control systems Patient Protection and Affordable Care Act • Mandates coverage for health insurance – Establishes Health Insurance Exchanges – Provides Federal subsidies for Exchange premiums, cost sharing – Provides temporary tax credits for small businesses that offer coverage – Imposes penalties on many individuals who forgo coverage – Imposes penalties on large employers w/o plans • Expands Medicaid eligibility, extends CHIP funding – Income threshold increases from < 100% FPL to 138% – Extends coverage to those w/o other qualifying factors PPACA, continued • Immediate insurance reforms – Minimum coverage requirements – High-risk pool for uninsured – Federal reinsurance for employer-sponsored early retiree plans – Expansion of dependent coverage to age 26 • • • • CLASS program (Federal LTC insurance) Comparative effectiveness research Taxes, fees Various Medicare provisions, net reduction in Medicare spending NHE Share of Gross Domestic Product (GDP), 19802019 Sept. ’10: 19.6% 20.0 Feb. ’10: 19.3% Share of GDP (%) 15.0 10.0 5.0 0.0 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Source: Sisko A et al., “Health Spending Projections Through 2019: the Estimated Impact of Reform” Health Affairs 29, no. 10 (2010) (to be published online 9 September 2010). Impacts of PPACA: Total Health Spending $250 (Estimated change in annual spending, in billions) $200 Private health insurance $150 $100 Medicaid & CHIP $50 Net total $0 -$50 Medicare -$100 Out-of-pocket -$150 -$200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Efforts to restrain cost growth: FUTURE • Health information technology • “Pay for performance” Affordable Care Act provisions: • Medicare productivity adjustments • Medicare IPAB • Accountable Care Organizations • Bundled payments • Center for Medicare and Medicaid Innovation Impacts of PPACA: Insurance Coverage (In millions, 2019) 180 165.9 164.5 160 140 Prior Law 120 PPACA 100 83.9 80 60 60.5 60.5 63.5 56.9 41.6 40 25.7 23.1 20 0 Medicare Medicaid & CHIP Employer-sponsored Individual coverage insurance (Exchange & other) Source: OACT April 22, 2010 memorandum. Uninsured New Report on National Health Expenditures Posted by Nancy-Ann DeParle on September 09, 2010 at 03:00 AM EDT “Today’s report by the Office of the Actuary confirms a central point of the Affordable Care Act passed by Congress and signed by President Obama: The Act will make health care more affordable for Americans. In fact, the Actuary’s report indicates that total health care spending per insured American will be more than $1000 lower thanks to the provisions of the new law than it would have been if Congress and the President had not acted. Specifically, by 2019, overall health spending per insured person will average $14,720 instead of the $16,120 projected by the Actuary before the Act was enacted into law. ” Nancy-Ann DeParle is the Director of the White House Office of Health Reform Impacts of PPACA: Medicare Outlays (as percent of GDP) 12% 2009 TR 10% 8% 2010 TR 6% 4% 2% 0% 2000 2010 2020 2030 2040 2050 2060 2070 2080 Impacts of PPACA: Medicare Outlays (as percent of GDP) 12% 2009 TR 10% 8% 2010 TR 6% Realistic? 4% 2% 0% 2000 2010 2020 2030 2040 2050 2060 2070 2080 Cumulative increase in provider input prices vs. Medicare payment rate (for providers subject to productivity adjustments under current law) 14 Relative price index (≡ 1.0 in 2010) 12 Provider input price • Under prior law, Part A and most Part B payment rates updated by growth in provider input prices (e.g., wages, rent, energy, supplies) 10 • Under PPACA, Medicare payment rates will grow ~ 1.1% per year more slowly than provider input prices 8 • Unless providers can improve their productivity to match adjustment, growing gap between provider costs and Medicare payments per service Medicare payment rate 6 4 2 0 2010 2020 2030 2040 2050 2060 2070 2080 Price as a percentage of PHI rates Illustrative comparison of relative Medicare, Medicaid, and PHI prices under current law 125% s PHI 100% 75% Medicaid 50% Medicare 25% 0% 2010 2020 2030 2040 2050 2060 2070 2080 Medicare Outlays: Illustrative Alt. Projection (as percent of GDP) 12% 2009 TR 10% 2010 TR alt. 8% 2010 TR 6% Illustrative alternative to current law assumes: • Physician payment updates based on Medicare Economic Index • Productivity adjustments to other provider updates are phased out over 2020-2034 Note: This is an illustration, not a recommendation 4% 2% 0% 2000 2010 2020 2030 2040 2050 2060 2070 2080 OACT Headlines “Medicare actuary goes rogue?” (Politico) OACT Headlines “Foster works for the Center for Medicare and Medicaid Services, an agency within HHS that would lose funding under health care reform.” (Slate) OACT Headlines “That assessment was of previous versions of the legislation, so it's completely wrong.” (Senator Dodd) OACT Headlines “This report once again discredits Democrats’ assertions that their $1.3 trillion government takeover of health care will lower costs, and it confirms that this bill violates President Obama’s promise to ‘bend the cost curve.’ It’s now beyond dispute that their bill will raise costs, which is exactly what the American people don’t want.” (Representative Boehner) OACT Headlines “Medicare Report Confirms Health Care Takeover Plan is a Fiscal Disaster” (AOL News headline) OACT Headlines “It’s a long, somewhat dry document…but it is an interesting read (assuming the reader is adequately caffeinated).” (Mike the Actuary’s Musings) OACT Headlines “This is not something they normally do. It is an interesting analysis but it is pretty speculative though of what the impact will be on providers and beneficiaries. Our recent experience would indicate something quite different.” (Nancy-Ann DeParle) OACT Headlines “The CMS report is a blow to the White House and House Democrats who have vowed that healthcare reform would curb the growth of healthcare spending.” (Capitol Hill) OACT Headlines “Actuaries sure know how to ruin a good time” (Capitol Watch Blog headline) Parting Observations • Political debate is a good thing • Political misuse of actuarial analyses is a bad thing • The debate over health care reform was dominated by wild claims and accusations • The nation deserves better, but heightening partisanship suggests it will be a long time coming Questions?