Altarum Center for Sustainable Health Spending Symposium: - - PowerPoint PPT Presentation

Altarum Center for Sustainable Health Spending Symposium:

Sustainable U.S. Health Spending: Public

Sector Imperative, Private Sector Urgency

Tuesday, July 30 2013 • 8:30 AM - 1:30 PM

The Pew Charitable Trusts Conference Center Support for this Symposium provided by a grant from the Robert Wood Johnson Foundation

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Continental Breakfast and Welcome

▲Lincoln Smith, President and Chief

Executive Officer, Altarum Institute

▲Ceci Connolly, Managing Director,

PwC Health Research Institute – Moderator

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• I. Federal Budgets, Deficits, and Health Care

▲ Maya MacGuineas, President, Committee for Responsible Federal Budget – Presenter

▲Hon. David M. Walker, Founder

and CEO, Comeback America Initiative; Former Comptroller General of the U.S. – Presenter

Symposium on Sustainable US Health Spending: The Need for More Healthcare Reform

Altarum Institute Pew Charitable Trusts

Alexandria, VA July 30, 2013

• Hon. David M. Walker

Founder and CEO The Comeback America Initiative and Former Comptroller General of the United States

23%

Federal Spending

2% 37%

1912 2012 2040

US GDP: $866 Billion (Constant 2012 Dollars) US GDP: $15.5 Trillion (Constant 2012 Dollars) Projected US GDP: $30.8 Trillion (Constant 2012 Dollars)

Source: Historical Statistics of the United States, Millennial Edition On Line, Cambridge 2006; CBO, The Budget and Economic Outlook: Fiscal Years 2013 to 2023, Feb. 2013; CBO, CBO’s Long-Term Budget Outlook, Supplemental Data, June 2012; OMB, Historical Tables, Table 10.1. Compiled by TCAII. Note: Federal Spending for 2040 is based on the Alternative Scenario Estimates.

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Growth of Government

6

We’ve Lost Control of the Budget

3% 97%

Controlled Yearly

1912

64% 36%

Auto Pilot

2012

Source: Historical Statistics of the United States, Millennial Edition On Line, Table Ea636–643 Federal government expenditure, by major function: 1789–1970. Congressional Budget Office, The Budget and Economic Outlook: fiscal Years 2013 to 2023, Feb. 2013. Compiled by TCAII.

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Federal Spending and Revenue Trends

$0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 1912 1922 1932 1942 1952 1962 1972 1982 1992 2002 2012

Federal Government Spending In Trillions of Constant 2012 Dollars

Republican President Democrat President Revenues

Sources: Office of Management & Budget, Historical Tables; Bureau of Labor Statistics; Congressional Budget Office, Long-Term Budget Outlook, June 2012. Compiled by TCAII

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From Projected Surplus to Actual Deficit

($2,000) ($1,500) ($1,000) ($500) $0 $500 $1,000 $1,500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Federal Surplus or (Deficit) in Billions of Dollars

Impact on Baseline of Total Economic and Technical Changes Impact on Baseline of Total Legislative Changes 2001 Projected Surplus

Source: Congressional Budget Office, Changes in CBO’s Baseline Projections Since January 2001, June 2012. Compiled by TCAII.

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Spending and Taxes as a Percentage of GDP 1970 - 2023

14.0 16.0 18.0 20.0 22.0 24.0 26.0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Spending Taxes

Source: CBO, May 2013, Updated Budget Projections: 2013 to 2023 (Data underlying Fig.1)

In Trillions of Dollars 2000 2012 Explicit Liabilities $ 6.9 $18.8

• Publicly Held Debt

3.4 11.3

• Military & Civilian Pensions & Retiree Health

2.8 6.3

• Other Major Fiscal Exposures

0.7 1.2 Commitments & Contingencies 0.5 2.4

E.g. Pension Benefit Guaranty Corporation, Undelivered Orders

Trustees’ Estimates Actuary's Alternative Scenario Social Insurance Promises 13.0 38.5 48.5

• Future Social Security Benefits

3.8 11.3 11.3

• Future Medicare Benefits

9.2 27.2 37.2

• Future Medicare Part A Benefits

2.7 5.6 9.9

• Future Medicare Part B Benefits

6.5 14.8 20.5

• Future Medicare Part D Benefits
• 6.8

6.8 Total $20.4 $59.7 $69.7

SOURCE: Data from the Department of Treasury, 2012 Financial Report of the United States Government. Compiled by TCAII. NOTE: Estimates for the Actuary’s Alternative Scenario are found in note 26 of the 2012 Financial Report of the United States. Future liabilities are discounted to present value based on a real interest rate of 2.9% and CPI growth of 2.8%. The totals do not include liabilities on the balance sheets of Fannie Mae, Freddie Mac, and the Federal Reserve. Assets of the U.S. government not included.

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Federal Financial Hole

(For Fiscal 2000 and 2012)

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Comparative Government Debt Burdens

82.0% 84.1% 90.3% 90.3% 106.5% 123.0% 127.0% 158.5% 30.6% 0% 20% 40% 60% 80% 100% 120% 140% 160% Germany Spain France United Kingdom United States Portugal Italy Greece General Government Gross Debt as a Percentage of GDP

Source: IMF, World Economic Outlook, April 2013; U.S. Treasury, Debt to the Penny. Compiled by TCAII. Note: Additional data with dotted line represents intra-governmental holdings for the United States. All figures for 2012.

Total U.S. Debt 137.1%

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Federal Programs and Revenues

1.4% 3.3% 6.7% 10.8% 4.8% 5.9% 7.8% 9.3% 5.0% 5.3% 6.0% 6.1% 11.7% 8.5% 10.2% 9.9%

0% 5% 10% 15% 20% 25% 30% 35% 40%

2012 2020 2030 2040

Percentage of GDP

Net Interest Medicare & Medicaid Social Security All Other Revenue

Source: Congressional Budget Office, Long-Term Budget Outlook, June 2012. Compiled by TCAII. Note: Alternative Fiscal Scenario used for all figures. Medicaid number are estimated and illustrative. They are derived from CBO LTBO June 2012 Data.

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Federal Health Care Spending

(As a Percentage of Primary Spending)

5.0% 24.5%

Health Spending

41.1%

1970 2012 2040

Source: Congressional Budget Office, CBO’s Long-Term Budget Outlook (June 2011), Supplemental Data, Figure B1. Compiled by TCAII. Note: Figures are based on CBO’s Alternative Fiscal Scenario Projections. Primary spending is all federal spending excluding interest.

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Medicare Projected Costs and Revenues

$261 $278 $288 $297 $318 $327 $341 $367 $387 $411 $446 $462 $232 $247 $246 $247 $268 $279 $291 $319 $342 $368 $408 $431 $55 $63 $70 $77 $93 $96 $98 $116 $129 $142 $167 $169 $0 $200 $400 $600 $800 $1,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Medicare Spending and Designated Revenues Billions of Dollars Part A Part B Part D Dedicated Medicare Tax Revenue and Premiums

Source: CBO, The Budget and Economic Outlook: 2013-2023, Supplemental Information, Feb. 2013. Compiled by TCAII. Note: Medicare spending is only the mandatory portion and is net of offsetting receipts. The reduction from the Sequester are accounted for by dividing the yearly projected reductions across the three components.

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Social Security and Medicare Deficit in Current Dollars (Billions)

• 14,000
• 12,000
• 10,000
• 8,000
• 6,000
• 4,000
• 2,000

2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 2062 2067 2072 2077 2082 2087 OASDI HI

2026: Medicare (HI) Trust Fund Exhausted 2016: Disability Insurance (DI) Trust Fund Exhausted 2035: Old Age and Survivors Insurance (OASI) Trust Fund Exhausted 2033: Social Security (OASDI) Trust Fund Exhausted

Source: Social Security Trustees Report, 2013 Table VI.F9

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Comparative Health Costs

$3,265 $4,445 $3,974 $4,338 $3,056 $3,433 $8,233

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 OECD Average Canada France Germany Sweden United Kingdom United States

Per Capita Health Care Costs U.S. Dollars

Source: Organization for Economic Cooperation and Development, OECD Health Data 2012. Compiled by TCAII. Note: Per capita health expenditures for 2010 uses purchasing power parity for all dollar amounts.

• 1. Pro Growth
• 2. Socially Equitable
• 3. Culturally Acceptable
• 4. Mathematically Accurate
• 5. Politically Feasible
• 6. Bipartisan Support

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6 Key Principles for Reform

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Health Care

Basic Level of Health Coverage for all Citizens Revise Payment Practices to be Evidence Based Phase Out the Tax Exclusion for Employer Provided Health Insurance

Impose an Annual Budget for Medicare & Medicaid Spending Make Medicare Premiums Subsidies More Needs Based Rationalize Medicaid Minimum Standard

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Medicare & Medicaid

20

• II. What Health Spending Trends Can Be

Discerned in the Public & Private Sectors?

▲ Stephen Zuckerman, Co-Director and Senior Fellow, Health Policy Center

• f the Urban Institute – Presenter

▲Chapin White, Senior Researcher,

Center for Studying Health System Change – Discussant

spending trends for policy choices

Stephen Zuckerman The Urban Institute July 30, 2013 Altarum Center for Sustainable Health Spending

URBAN INSTITUTE

URBAN INSTITUTE

Overview

• Multi-payer Context for Coverage and Spending

Trends (recent and projected)

• Current efforts aimed at cost containment

– Public and Private – Implications for Access

• Considerations for future policy choices

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62.6% 7.5% 15.1% 14.8% Coverage Distribution for All Ages in 2012

Private Medicare Medicaid/CHIP or

• ther public

Uninsured

SOURCE: 2012 National Health Interview Survey NOTE: These coverage categories are mutually exclusive. The hierarchy is private>Medicare>Medicaid/CHIP and other public>uninsured. 23

8.1% 4.6% 7.1% 3.7%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

2000-2005 2006-2011 Average Annual Growth Rate of Health Consumption Expenditures, 2000-2011

Total Per Capita

SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary. Last updated June 2012. 24

8.9% 3.9%

• 0.2%
• 1.0%

9.1% 4.9%

• 2%

0% 2% 4% 6% 8% 10%

2000-2005 2006-2011 Average Annual Growth Rate of Health Spending and Enrollment for the Privately Insured, 2000-2011

Health Spending Enrollment Per Capita Health Spending

SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary. Last updated June 2012. 25

8.6% 6.5% 1.4% 2.4% 7.2% 4.1%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

2000-2005 2006-2011 Average Annual Growth Rate in Medicare Health Spending and Enrollment, 2000-2011

Health Spending Enrollment Per Capita Health Spending

SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary. Last updated June 2012. 26

9.3% 5.9% 6.6% 3.8% 2.5% 2.0%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

2000-2005 2006-2011 Average Annual Growth Rate for Medicaid Health Spending and Enrollment, 2000-2011

Health Spending Enrollment Per Capita Health Spending

SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary. Last updated June 2012. 27

8.1% 4.6% 7.1% 3.7%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

2000-2005 2006-2011 Average Annual Growth Rate of Health Consumption Expenditures, Historical and Projected

Total Per Capita

SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary. Last updated June 2012.

6.1% 5.2%

2012-2021

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6.0% 0.9% 5.0% 6.1% 2.9% 3.1% 8.5% 4.7% 3.6%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

2012-2021 Average Projected Annual Growth Rate for Health Spending by Payer, 2012-2021

Health Spending Enrollment Per Capita Health Spending Private Medicare Medicaid

SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary. Last updated June 2012. 29

URBAN INSTITUTE

ACA Didn’t Forget Costs

• Health plan competition in the marketplaces
• Medicare payment controls
• Excise tax on high-cost employer plans
• Accountable Care Organizations
• Medical home demonstrations
• Bundled payment demonstrations
• Dual eligible demonstrations
• State Innovation Models
• Readmission incentives for hospitals

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URBAN INSTITUTE

Private sector is also experimenting

• So far, private insurers have not done as well

controlling spending as the public sector

• Private insurers do not seem to have the leverage

to drive provider prices down

– Recent IOM geographic report show private prices are more variable than public prices across areas – MedPAC “cost shifting” analysis makes the point also

• But, new ideas are being explored

– ACOs, PCMHs, bundled payments, capitation – (AHIP MAP) Results, of course, are uncertain

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URBAN INSTITUTE

2009 MedPAC analysis shows financial pressure contains costs

2007 Financial Characteristics High Pressure (non- Medicare margin <1%) Low Pressure (non- Medicare margin >5%) Non-Medicare margin

• 2.4%

13.5% Standardized Cost per discharge $5,800 $6, 400 Medicare margin 4.2%

• 11.7%

Hospitals under less pressure from non-Medicare payers (including the uninsured) have higher costs. This makes Medicare payments look low, but not really

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URBAN INSTITUTE

Evens after ACA, Medicare can and should contribute more to deficit reduction

• Many Medicare ideas have been put forward

– CBO options, Bipartisan Policy Center, House budget

• Berenson, Holahan & Zuckerman (BHZ, 2013)

– Complex problems require a range of options – Preserves current benefits and protections – Share costs among current and future beneficiaries, plans, providers and taxpayers

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URBAN INSTITUTE

Overview of BHZ Medicare Ideas

• Beneficiary: Restructure cost sharing, create a

buy-in option in age of eligibility raised to 67

• Plans and Providers: reform MA payments;

restore drug rebates for duals; reduce teaching hospital, SNF, home health and lab payments

• Taxpayers: Raise payroll tax by 0.5% (in 2017)
• Net of SGR repeal: $596B (2013-22)

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URBAN INSTITUTE

Access for publically insured could be at risk with aggressive spending controls

• MedPAC uses access as one of the factors when

considering payment adequacy

• So far, Medicare access looks good relative to

Medicaid and even private patients; could change

• Medicaid is a different story

– rates are much below Medicare, especially for physician services; reduces access to physicians and increases dependence on EDs – ACA temporarily increases Medicaid primary care rates but the effects are far from certain

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URBAN INSTITUTE

Cannot just focus on federal costs

• Unless health spending slows, costs could get

shifted to program beneficiaries and providers

• Ignores systemic problems related to prices,

independent of the unit of payment

– Multi-payer nature of system and weak position of private and public and payers limit negotiating power

• Could alter fundamental incentives of private

market by changing the tax treatment of employer premiums, but uncertain outcomes

– Limit tax exclusion before considering elimination

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URBAN INSTITUTE

Conclusions

• Private growth per person faster that public

sector growth; continues in projections

• A great deal of public and private sector

activity to control costs but the jury is still out

– Early indications look positive. Projections would change.

• Health care system is complex and simple fixes

are likely to have unintended consequences

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The Structural Spending Slowdown

Chapin White Center for Studying Health System Change Symposium on Sustainable U.S. Health Spending Altarum Institute Washington, D.C. July 30, 2013 cwhite@hschange.org

Center for Studying Health System Change – www.hschange.org

The Big Questions

• Recent slow growth in Medicare spending

– recession-driven blip, or – structural change

• Effects of ACA

– spending rebound, or – further tightening of the screws

• Long-term projections

– dire, or – unclear, maybe not so bad

Center for Studying Health System Change – www.hschange.org

Medicare is Structurally Different Today

• Structural changes

– provider payment policy

• was: blank check
• is:

penny-pinching price-setter

– cost reimbursement  tight prospective rates – usual, customary, reasonable  SGR

Center for Studying Health System Change – www.hschange.org

Medicare Excess Growth has Slowed

Source: Author’s calculations using CBO (Feb 2013 Medicare baseline). Notes: Excludes Part D, excess relative to potential GDP, assumes MEI fix to SGR.

• 3.0%
• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 1975 1980 1985 1990 1995 2000 2005 2010

5-year moving average

Center for Studying Health System Change – www.hschange.org

ACA Further Tightens the Screws

• Productivity adjustments

– slows Medicare price growth

• affects all providers except physicians
• 1 pctg point below inflation
• permanent
• Payment reforms

– post-acute bundling – value-based payment modifiers – readmission penalties – ACOs

Center for Studying Health System Change – www.hschange.org

Medicare Slowdown Projected to Continue

Source: Author’s calculations using CBO (Feb 2013 Medicare baseline). Notes: Excludes Part D, excess relative to potential GDP, assumes MEI fix to SGR.

• 3.0%
• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

5-year moving average

Projections

Center for Studying Health System Change – www.hschange.org

Broader Effects of ACA

• More people will be covered

– increases ―demand ‖ BUT …

• Medicaid enrollment
• Exchange enrollment
• Cadillac tax
• Spillover effects of Medicare cuts

Constrain Provider Revenues

Center for Studying Health System Change – www.hschange.org

What About the Long Term (2024-on)?

• Will Medicare spending growth rebound?

– CBO: yes – OACT: yes

• volume growth will spike up
• providers will exit the program in droves

Hunh?

Center for Studying Health System Change – www.hschange.org

The Assumed Long-Term Rebound

Source: Author’s calculations using CBO (Feb 2013 Medicare baseline, and 2012 LTBO). Notes: Excludes Part D, excess relative to potential GDP, assumes MEI fix to SGR.

Center for Studying Health System Change – www.hschange.org

The Assumed Long-Term Rebound

Source: Author’s calculations using CBO (Feb 2013 Medicare baseline, and 2012 LTBO). Notes: Excludes Part D, excess relative to potential GDP, assumes MEI fix to SGR.

• 3.0%
• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 1975 1985 1995 2005 2015 2025 2035

5-year moving average

Projections

Center for Studying Health System Change – www.hschange.org

Wrapup

• Medicare is structurally different today
• ACA further tightens the screws
• Health care growth has been unsustainable

– that means the trend will change – the question is ―when? ‖

• Maybe ―wh

en?‖ is now

• Long-term projections very uncertain

Center for Studying Health System Change – www.hschange.org

References

• White, C. 2013. "Contrary To Cost-Shift Theory, Lower Medicare Hospital Payment Rates For

Inpatient Care Lead To Lower Private Payment Rates." Health Affairs 32(5), 935-43.

• White, C. 2013. "Medicare Spending Limits: Issues and Implications." Online:

http://www.kff.org/medicare/upload/8428.pdf.

• He, F., and C. White. 2013. "The Effect of the Children’s Health Insurance Program on

Pediatricians’ Work Hours." Medicare & Medicaid Research Review 3(1), E1-E33.

• White, C., and J. D. Reschovsky. 2012. "Great Recession Accelerated Long-Term Decline of

Employer Health Coverage." National Institute for Health Care Reform, Number 8, Online: http://www.nihcr.org/Employer_Coverage.pdf.

• White, C., and P. B. Ginsburg. 2012. "Slower Growth in Medicare Spending — Is This the New

Normal?" New England Journal of Medicine 366(12), 1073-75.

• White, C. 2008. "Why Did Medicare Spending Growth Slow Down?" Health Affairs 27(3), 793-802.

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Networking Break

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• III. A New Basis for Forecasting Long-Term

Health Spending: Federal Budget Implications

▲ Gene Steuerle, Richard B. Fisher Chair &

Fellow, Urban Institute – Presenter

▲Charles Roehrig, Director, Altarum Center

for Sustainable Health Spending – Presenter

▲Thomas Getzen, Emeritus Professor of

Risk, Insurance & Health Management, Temple University - Presenter

▲Joanne Kenen, Health Editor, POLITICO –

Moderator

Better Ways of Estimating and Projecting Health Spending Growth

• C. Eugene Steuerle

Richard B. Fisher Chair & Institute Fellow The Urban Institute Altarum Institute

Symposium on Sustainable U.S. Health Spending: Public Sector Imperative, Private Sector Urgency Pew Charitable Trusts Washington, DC July 30, 2013

• 600
• 400
• 200

200 400 600 800 1,000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Median Household Income per Member National Health Expenditures per Capita

Annual Changes in National Health Expenditures per Capita versus Median Household Money Income per Household Member, 1980-2011

Source: CMS National Health Expenditure data and U.S. Census Current Population Survey, Annual Social and Economic Supplements

Constant 2010 Dollars Cumulative Change, 1980-2011: Median Income/Household Member: +$4,000 National Health Expenditures/Capita: +$5,800

1 2 3 4 5 6 7 8 9 10 12 14 16 18 20 22 24 26 28 30

Excess Cost Growth (%) Health Spending's Initial Share of GDP (%) GDP Growth = 1% GDP Growth = 2.5% GDP Growth = 4% Health Spending's Share of Economic Growth = 30%

Relationship between Excess Cost Growth and Health Spending's Initial Share of the Economy

1 2 3 4 5 6 20 25 30 35 40 45 50

Excess Cost Growth (%)

Health Spending's Share of Per Capita Growth (%)

Excess Cost Growth vs. Health Spending’s Share of Per Capita Economic Growth

GDP Growth = 1% Health Spending's Initial Share of GDP = 18% Population Growth = 0.9%

10 20 30 40 50 60 70 80 90 1 2 3 4 5 6 7 8

Health Spending's Share of Per Capita Growth (%) Excess Cost Growth (%)

Excess Cost Growth vs. Health Spending’s Share of Per Capita Economic Growth

Health Spending's Initial Share of GDP = 18% Population growth = 0.9% GDP Growth = 1% GDP Growth = 4% GDP Growth = 2.5%

Health Spending Share of Income Growth: 30 Percent

Is this an Asymptote? Is it Sustainable?

Charles Roehrig

Director, Center for Sustainable Health Spending July 30, 2013

www.altarum.org

65

Overview

▲ There is evidence for a 30 percent(ish) asymptote in the health

spending share of real per capita GDP growth

– If so, health spending is roughly on a GDP+1 path and slowly moving toward GDP+0 – The cumulative share is slowly moving from18 percent toward 30 percent

▲ The 30 percent share of income growth is mathematically sustainable

but stresses the federal budget.

▲ Note: The 30 percent share is not Planck’s constant – it could be

driven up or down by factors such as the aging population and federal budget constraints. But it does provide a meaningful baseline for speculation about future health spending growth.

66

Raw historical shares are chaotic, primarily because of business cycles.

67

Eliminating business cycles from the denominator (GDP growth) reduces the noise considerably. But business cycle effects remain in the numerator (health spending growth).

Note: PGDPsm = smoothed potential GDP

68

Removing business cycle effects from both the numerator and denominator creates a much more stable picture. Did we hit a 30 percent asymptote between 1985 and 1990?

Note: business cycle effects on health spending were estimated using a regression model that employs the Getzen lag structure and is a variant of that used in the Kaiser Family Foundation study http://kff.org/health-costs/issue-brief/assessing-the-effects-of-the- economy-on-the-recent-slowdown-in-health-spending-2/

69

Combining managed care and its backlash into a single period suggests that the share has been close to 30 percent for over 20

• years. While not exactly the equivalent of Planck’s constant, it seems

to be a reasonable assumption for baseline projections.

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Excess Spending (GDP+?)

▲From the Steuerle real per capita growth formula:

– Health = GDP*(1 + α) = GDP + α x GDP – The ―ex cess‖ growth rate is α x GDP – α is equal to the share of growth (30%?) over the cumulative share (18% currently) minus one ( = 0.7)

▲Assuming long run real per capita annual economic

growth of 1.5 percent going forward, and a 30 percent health share of growth:

– Underlying health spending trend is now GDP+1 – 2025 trend will be GDP+0.8 – 2050 trend will be GDP+0.5

71

The historical trend provides no clue as to a leveling-off point.

72

The 30 percent asymptote is a basis for identifying how the curve levels off.

See http://www.altarum.org/forum/post/us-health-spending-share-gdp-where-are-we-headed

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Is 30 Percent Sustainable?

▲ Previous studies have examined sustainability in terms of excess

growth rates.

– For any fixed positive excess growth rate, there is a point in time at which the health spending share of GDP growth rises to 100 percent and beyond!

• It has been suggested that the level of excess growth becomes unsustainable at

this point in time.

• There is also a point where a fixed rate is a mathematical impossibility.

▲ Focusing on the share of GDP growth rather than excess growth

avoids both of these sustainability limits.

▲ However, a given fixed share (e.g., 30 percent) may not be

sustainable in terms of federal government financing.

– Between now and 2035, the 30 percent asymptote implies average growth

• f about GDP+0.8

– Is this financially sustainable for the federal government?

74

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GDP+0.8 on the Triangle of Painful Choices

Tax revenues, and defense/non-health spending are expressed as a percentage

• f GDP. Spending on social

security and interest is 6.3 percent of GDP in all

• scenarios. Health spending

growth is expressed relative to GDP growth. The smaller triangle represents historically high tax revenues, historically low spending for defense/non- health, and health spending growth below GDP+1.

0.8

Cyclical and Structural Growth in U.S. Health Spending

L a g s and Long Run Growth Curves

Thomas E. Getzen

iHEA and Temple University

Altarum Symposium,

Washington DC, 30 July 2013

Real Spending (mostly)= Labor

80000 90000 100000 110000 120000 130000 140000 150000 1 9 9 0 1 9 9 5 2 0 0 0 2 0 0 5 2 0 1 0

U.S. Employment 1990 - 2011

Health Employment (x10) Total Employment (000's)

Recession

• fficially

begins

Health Care is a complex and inertial System.

Table 1. Growth in Real Health Expenditures (%) as function of lagged GDP growth: U.S 1960 - 2010

rgdp0 rgdp-1 rgdp-2 rgdp-3 rgdp43 rgdp-5 ∆Deflator0-1 ∆Deflator1-2 Time constant R2

US - Total NHE

.16 .13 .12 .24 .30 .23

• .36
• .22 -.00057

.034 .762

Finnish Recession

What this this means for projections: Adjustment for Lags Improves Accuracy

No Lag

With Lag

NHE v base annual

NHE annual growth components

Excess 1960 to 2010

A Tale of Two Necessities

• Housing

– Rapid Response, Anticipation – Amplifies boom/bust business cycle

• Health Care

– Slow to change, delayed response – Smoothes out cycles, dampens shocks

Going from Business Cycles to

The Long Run:

• Decades
• Generations
• Centuries

Dynamics

Adjustments are made slowly, with short-run adjustments made within 5 years, and long- run adjustments made over the next 25 years.

The 30 percent asymptote is a basis for identifying how the curve levels off. See

http://www.altarum.org/forum/post/us-health-spending-share-gdp-where-are-we-headed

What bends the curve?

• Use 1950+ to predict 2020-
• Medical Technology

what is the marginal benefit of new Rx?

• Income effects

will long run wage growth be 0%, 1% or 2%?

• OTHER? (population, aging, obesity—not so much )

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• IV. Roundtable: Are We On a Sustainable Path?

What Factors are Most Relevant?

▲Uwe Reinhardt, James Madison Professor

• f Political Economy, Princeton University

▲David Cutler, Otto Eckstein Professor of

Applied Economics, Harvard University

▲John Holahan, Institute Fellow, Health

Policy Center, Urban Institute

▲Joanne Kenen, Health Editor, POLITICO –

Moderator

ARE WE ALREADY ON A SUSTAINABLE PATH OF HEALTH SPENDING?

Uwe E. Reinhardt Princeton University ALTARUM CENTER FOR SUSTAINABLE HEALTH SPENDING Symposium on Sustainable Health Spending: Public Sector Imperative, Private Sector Urgency

July 30, 2013

• I. GROWTH OF HEALTH SPENDING IN THE O.E.C.D. COUNTRIES

As other speakers at this symposium have amply shown, there unquestionably has been a visible reduction in the annual growth

• f health spending (= health care incomes) in the U.S., starting

gradually in 2002 and accelerating after 2008. But the U.S. is not alone in this rapid deceleration of health spending (income) growth.

http://www.oecd.org/els/health-systems/health-spending-continues-to-stagnate-says-oecd.htm

So in the current victory over the growth of health incomes (health spending), the U.S. has good company elsewhere in the developed world. The bulk of the common decline in health spending growth probably can be traced to sluggish general economic growth. But more country-specific factors undoubtedly have played a role as well – different factors in each country. The question for us is: Why does the U.S. appear to be succeeding with these factors when hitherto it had failed?

HEALTH- CARE SECTOR

The Income--Employment Facet The Health Care & Health Facet

OBJECTIVE A: Enhancing the patients’ quality of life OBJECTIVE B: Enhancing the providers’ quality of life THE REST OF SOCIETY

Health-Care Spending Health-Care

Prices of Health-Care Goods and Services

OWNERS OF HEALTH-CARE RESOURCES

Real resources Health-Care Incomes

Wage Rates Rates of Return to Capital, etc.

LOOK AT THE ALLOCATION OF MARKET POWER

The rest of the OECD allocates rel. more market power to this facet The U.S. always has allocated rel. more market power to this facet

In the 1990s, the U.S. tried to shift more market power to the payment side through competition with managed-care , but in the end the supply side beat the payment side into a hasty retreat. How did that happen?

1. The economy was booming, unemployment was low and employees had the market moxy in the labor market to be fussy. Cottoning to their employees, employers stabbed managed care in the back. 2. There still was a broad middle class and with sense that health care should be distributed to all on roughly egalitarian terms. 3. Unlike today, IT technology was still primitive by today’s standards so that the supply side still could keep a veil of secrecy on what went on

• there. These days are gone.

4. Much expensive, patent-protected, new technology – some great, some less so – came on line in the late 1980s and 1990s.

• II. WHY IS MARKET POWER SHIFTING TO THE PAYMENT SIDE IN THE U.S.?

Conditions in the economy are drastically different now, shifting greater market power to the payment side of the market.

1. Most importantly, the labor market for all but high-skilled workers is

• sluggish. In employment-based health insurance, cost control is

feasible only when the labor markets is sluggish. 2. Because labor has lost market power, employers find it easier to control utilization simply by pushing more of the cost of health care into the household budgets of their employees. 3. There is all around greater acceptance of rationing at least more routine health care by income class – hence reductions in utilizations

• f health care.

4. Hand in hand with the diminished power of labor goes the ability of employers and their agents, health plans, to create narrower networks of providers, which in turn gives health plans added bargaining power in haggling over prices.

5. With Big Data, there now is much greater transparency on what goes

• n in the supply side of the health care market, and that will only

increase – especially on prices. 6. With greater price transparency comes the ability of employers (health plans) to impose “reference pricing” not only for drugs but for all types of health care on employees, something that may then be copied by the public sector. 7. Reference pricing has already begun in California. Providers see the Mene Tekel on the wall. 8. Given sluggish economic growth, the opportunity costs of added health spending are becoming clearer in government. In terms of a standard utility model, the marginal utility of health care in the minds of decision makers on the payment side fell as that of the displaced goods and services (e.g., education and R&D) rose.

9. At the moment, the pipeline of new, expensive technology is less filled than it was in the late 1980s and during the 1990s. But this is a wild card – it might rev up again.

• 10. A relatively smallish part of reduced spending growth during 2006-

2013 has come with ever greater shift towards generics in pharmaceutical therapy, but that shift has al but run its course.

Jointly, all of these factors, which are likely to persists for some time, may well push excess health spending – the X factor – below 1 percentage point for some time to come.

• III. ARE WE ALREADY ON A SUSTAINABLE PATH IN HEALTH CARE?

When people talk about “sustainability,” it is never clear to me what they mean. Do they mean

1. Macro-economic sustainability?

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000

2012 2050 MEDICARE- AND NON-MEDICARE GDP PER CAPITA, 2012 AND 2050 (Assumed GDP per capita growth 1.5% per year)

NON-MEDICARE MEDICARE

$43,295 $76,233

Medicare 8% of GDP Medicare 3.5% of GDP

When people talk about “sustainability,” it is never clear to me what they mean. Do they mean

1. Macro-economic sustainability?

• 2. Chernowian sustainability?

SOURCE: Joseph Newhouse, ―Assessi ng Health Reform’s Impact on Four Key Groups of Americans,‖ Health Affairs, vo. 29, No. 9 (2010):1714-24.

When people talk about “sustainability,” it is never clear to me what they mean. Do they mean

1. Macro-economic sustainability? 2. Chernowian sustainability?

• 3. Sustainability of health spending at the household level?

$8,414 $9,235 $10,168 $11,192 $12,214 $13,382 $14,500 $15,609 $16,771 $22,030 $20,728 $19,393 $18,200

$0 $5,000 $10,000 $15,000 $20,000 $25,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

MILLIMAN MEDICAL INDEX (MMI) Average Annual Medical Cost for a Typical Family of Four

http://insight.milliman.com/article.php?cntid=8359&utm_source=milliman&utm_medium=web&utm _content=MMI-mktg&utm_campaign=Healthcare&utm_terms=Milliman+Medical+Index

Median = $50,000 Top 25% > $85,000 Top 10% > $135,000 Top 4% > $200,000

Source: Sentier Research analysis of Labor Department data. Note that vertical axis does not start at zero to better show the change. Cited by Catherine Rampell, http://economix.blogs.nytimes.com/2013/03/28/median-household-income- down-7-3-since-start-of-recession/

FRACTION OF TOTAL INCOME GROWTH CAPTURED BY TOP 1% 58% 45% 65% 0% 10% 20% 30% 40% 50% 60% 70%

1976-2007 1992-2000 2002-2007 FRACTION OF TOTAL INCOME GROWTH CAPTURED BY TOP 1%

58% 45% 65% 0% 10% 20% 30% 40% 50% 60% 70%

1976-2007 1992-2000 2002-2007

SOURCE: http://elsa.berkeley.edu/~saez/atkinson-piketty-saezJEL10.pdf

Let’s face it, even if by a miracle the supply side of the health-care sector remained docile and health spending (supply side income) grew only as fast as GDP, for the roughly bottom third of families in the nation’s distribution of income that level of spending would not be sustainable for them unless they received substantial public assistance (as called for in the Affordable Care Act.)

When people talk about “sustainability,” it is never clear to me what they mean. Do they mean

1. Macro-economic sustainability? 2. Chernowian sustainability? 3. Sustainability of health spending at the household level?

4. Political sustainability – i.e., the willingness among the well to do to help finance for lower-income families the expensive health care the well to do want for their own families.

1. Tier I: Public hospitals and public clinics for publicly insured Americans, especially the poor, but perhaps also for a restructured

• Medicare. It allows politicians to ration care without ever having to

admit it. 2. Tier II: For the employed middle class, a mixed system, tiered by cost through tiered reference pricing (now used mainly for prescription drugs) or defined-contributions in the employment-based system. That approach also permits rationing of some health care by income class without anyone having to say so openly. 3. Tier III: For the upper-income groups, boutique medicine, which is already growing in the U.S. Here the sky will be the limit.

I see the U.S. drifting over time into the following health care model that is viewed “sustainable”:

Thank you for your attention

Is the Health Care Cost Slowdown Structural?

David M. Cutler Department of Economics Harvard University david_cutler@harvard.edu

Medical spending increases have been very low in recent years

0% 1% 2% 3% 4% 5% 6% 7% 8% 1970 1975 1980 1985 1990 1995 2000 2005 2010 Annual real, per capita medical spending growth Percent

Source: Authors’ calculations based on data from the Bureau of Economic Analysis and the Centers for Medicare and Medicaid Services

Cumulative slowdown

Real, per capita medical spending In 2005 dollars $6,000 $6,500 $7,000 $7,500 $8,000 $8,500 $9,000 $9,500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Actual Actuary Forecast

Source: Authors’ calculations based on data from the Bureau of Economic Analysis and the Centers for Medicare and Medicaid Services

The slowdown is in everything

The recession is only about one-third of the slowdown

Real, per capita medical spending In 2005 dollars $6,000 $6,500 $7,000 $7,500 $8,000 $8,500 $9,000 $9,500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Actual Actuary Forecast Actual + Recession

Source: Authors’ calculations based on data from the Bureau of Economic Analysis and the Centers for Medicare and Medicaid Services

Gap

Structural factors 1: Slowing of technology

Forecast for the US is only modest growth

Structural factors 2: Higher cost sharing

Covered Workers Enrolled in Plan with Deductible ≥$1,000 Percent 0% 10% 20% 30% 40% 50% 60% 2006 2007 2008 2009 2010 2011 2012

All Small Firms All Firms All Large Firms

Source: Kaiser Family Foundation 2012 Employer Health Benefits Survey

Cost Sharing Isn’t All of It

Structural factors 3: Greater provider efficiency

Acute Care Hospital Readmission Rates Percent

Source: Centers for Medicare and Medicaid Services, Office of Enterprise Management

Greater provider efficiency

1.8% 2012-2018 0.6% 2003-2012 1.3%1 1970-2003 2.5%

1 Growth rate for 2011–12 was estimated using BEA National Income and Product Accounts (NIPA) tables 2 Part D was removed by holding the 2005–06 growth rate constant at the 2004–05 growth rate 3 Growth rate for 2011–12 was estimated using monthly Treasury statements 4 The Sustainable Growth Rate cut for 2013 was removed from the forecast

2018-2021 0.7%

• 1.4%4

2.9%3 2.8% 2.0%2 National Health Expenditures Per Capita CAGR, Percent Medicare Per Beneficiary CAGR, Percent

Forecasts have incorporated these trends, but

• nly for the next few years

Source: Authors’ calculations based on data from the Bureau of Economic Analysis, Centers for Medicare and Medicaid Services, and Department of the Treasury

If these trends continue, savings will be large

Projected Real, Per Capita Medical Spending In 2011 Dollars $8,000 $8,500 $9,000 $9,500 $10,000 $10,500 $11,000 $11,500 $12,000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

CMS Actuary Forecast At Pre-Recession Growth At Recent Growth

Source: Authors’ calculations based on data from the Bureau of Economic Analysis and the Centers for Medicare and Medicaid Services

3% 14%

Conclusions I – What is going on?

“The evidence thus suggests at least as strong a case for structural changes as for cyclical factors.”

• Cutler & Sahni

“All of these factors taken together suggest that a return to a high historic growth rates in health care spending may not materialize. To sum up, we …are cautiously optimistic.”

• Holahan & McMorrow

Conclusions I – What is going on?

“Our analysis suggests that the vast majority (77%) of the recent decline in the health spending trend can be attributed to broader changes in the economy. At the same time, however, there are also indications that structural changes in the health system may be playing a modest role as well.”

• Altarum & KFF

“Our findings suggest cautious optimism that the slowdown in the growth of health spending may persist.”

• Ryu et al.

URBAN INSTITUTE

Why The Recent Slowdown in Health Spending Growth and Can It Continue?1

John Holahan The Urban Institute July 30, 2013

1 Holahan, John and Stacey McMorrow. “What Drove the Recent Slowdown in Health Spending Growth and Can It

Continue?” Washington, DC: The Urban Institute, May 2013.

URBAN INSTITUTE

• Recession has been important, but not the major cause
• f the slowdown
• Fundamental change does seem to be occurring
• Decade-long economic slowdown and substantial

changes in insurance coverage caused systematic changes

More Than the Recession

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Annual Percent Change in Health Spending and GDP, 2001-2011

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• Private spending slowed in 2002
• Drop in employer coverage
• Higher deductibles and tiered networks slowed per capita growth
• Medicare growth began to slow in 2004
• Enrollment growth among younger, less costly beneficiaries
• Payment policies
• Medicaid spending driven by enrollment increases, spending

per enrollee relatively slow

• Enrollment growth averaged about 5% per year
• Spending per enrollee averaged less than 2.5% per year

Slowdown Started Well Before the Recession

URBAN INSTITUTE

• Two recessions during decade, with modest recovery

in the middle

• Real median household income declined by 10% over

decade; real per capita income fell by 5%

A Decade of Slow Economic Growth

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Real Personal Income, 2000 – 2011

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Net Change in Population by Income, 2000 – 2011

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• Drop in employer sponsored insurance from

69% to 58%

• Medicaid rolls increased by 19 million; uninsured by

12 million

• Medicare enrollment grew by 2.4% per year, overall

population growth by 0.9% per year

A Decade of Significant Coverage Changes

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System Responded to Revenue Constraints

• Providers have sought efficiencies in many different ways
• Hospital and physician consolidation, more salaried

employment

• Reductions in hospital cost per admission, in physician

incomes over most of the decade

• Slower growth in drug spending by all payers – fewer

blockbuster drugs, tiered formularies, more use of generics

• More recently – medical homes, accountable care
• rganizations, bundled payments

URBAN INSTITUTE

The Future

• Higher growth in health spending could return with

economic recovery and health reform

• But slow economic growth forecast for rest of the decade
• New coverage from the ACA is largely in Medicaid and

competitive exchange plans; tax on high cost insurance plans

• Medicare payment policies and demonstrations
• We conclude with cautious optimism that growth rate has

slowed

149

Thank you for participating in Sustainable U.S. Health Spending: Public Sector Imperative, Private Sector Urgency

Support for this Symposium provided by a grant from the Robert Wood Johnson Foundation.