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What is driving the growth in health care costs and what can be done about it? California Assembly Select Committee on Health Care Delivery Systems and Universal Coverage December 11, 2017 Larry Levitt Senior Vice President Kaiser Family

SLIDE 1

What is driving the growth in health care costs and what can be done about it?

California Assembly Select Committee on Health Care Delivery Systems and Universal Coverage December 11, 2017 Larry Levitt Senior Vice President Kaiser Family Foundation @larry_levitt

SLIDE 2

Peterson-Kaiser Health System Tracker

Source: OECD (2017), "OECD Health Data: Health expenditure and financing: Health expenditure indicators", OECD Health Statistics (database). DOI: 10.1787/health-data-en (Accessed on March 19, 2017

$4,908 $9,451

United Kingdom Japan Australia France Canada Belgium Comparable Country… Austria Sweden Germany Netherlands Switzerland United States

On average, other wealthy countries spend about half as much per person on health than the U.S. spends

Total health expenditures per capita, U.S. dollars, PPP adjusted, 2015

SLIDE 3

Peterson-Kaiser Health System Tracker

17% 11%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

United States Comparable country average

Total health expenditures as percent of GDP, 1970 – 2015

Source: Kaiser Family Foundation analysis of OECD data.

The gap between the U.S. and comparable countries on health spending has widened

SLIDE 4

Peterson-Kaiser Health System Tracker

Source: OECD (2017), "OECD Health Data: Health status: Health status indicators", OECD Health Statistics (database). DOI: 10.1787/health-data-en (Accessed on March 17, 2017). Notes: Break in series in 1987 and 1997 for Switzerland; in 1995 for Switzerland; in 1996 for Netherlands; in 1998 for Australia, Belgium, and Germany; in 1999 for United States; in 2000 for Canada and France; and in 2001 in the United Kingdom. All breaks in series coincide with changes in ICD coding.

1184 826 1223 723

200 400 600 800 1000 1200 1400 1980 1985 1990 1995 2000 2005 2010

Overall age-adjusted mortality rate per 100,000 population, 1980-2013

Comparable Country Average United States

Mortality rates have fallen steadily in the U.S. and in comparable OECD countries

SLIDE 5

Peterson-Kaiser Health System Tracker

Source: Kaiser Family Foundation analysis of data from OECD (2017), “OECD Health Data: Social Protection,” OECD Health Statistics (database). (Accessed on November 12, 2017). Note: Data for Japan were unavailable for 2015, so data from the previous year are shown.

90.9% 99.0% 99.9% 99.9% 99.9% 99.9% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 86% 88% 90% 92% 94% 96% 98% 100% United States Belgium Netherlands Austria Comparable Country Average France Germany Australia Canada Japan Sweden Switzerland United Kingdom

The U.S. has the lowest insured rate of comparable countries

Percent of total population covered by private and/or public health insurance in 2015

SLIDE 6

Peterson-Kaiser Health System Tracker

5.7% 5.2% 4.2% 7.2% 4.2% 3.6%

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

2000-2005 2005-2010 20010-2015 Comparable country average United States

Source: OECD (2017), "OECD Health Data: Health expenditure and financing: Health expenditure indicators", OECD Health Statistics (database). DOI: 10.1787/health-data-en (Accessed on March 20, 2017). Notes: Available data are for Australia, Austria, Belgium, Canada, Japan, Netherlands, Sweden, Switzerland, and United Kingdom. These are the countries included in comparable country averages

In recent years, health spending growth has slowed in the U.S. and in comparable countries

Average annual growth rate in total health expenditures per capita, U.S. dollars, PPP adjusted

SLIDE 7

Peterson-Kaiser Health System Tracker

Source: OECD (2013), "OECD Health Data: Health care utilisation", OECD Health Statistics (database). doi: 10.1787/health-data-en (Accessed on October 29, 2014). Notes: In cases where 2011 data were unavailable, data from the countries' last available year are shown.

The U.S. has fewer physician visits per capita than most comparable countries

4.0 4.0 5.0 6.6 6.6 6.7 6.9 7.4 7.7 8.1 9.9 13.1 2 4 6 8 10 12 14

Switzerland United States United Kingdom Australia Netherlands France Austria Belgium Canada Comparable Country Average Germany Japan Doctors Consultations, per capita, in all settings, 2010

SLIDE 8

Peterson-Kaiser Health System Tracker

Source: OECD (2017), "Health care resources", OECD Health Statistics (database). doi: 10.1787/health-data-en (Accessed on 13 April 2017). Notes: Data for Japan is for 2012.

There are fewer doctors per capita in the U.S. than there are in most comparably wealthy countries

2.3 2.5 2.6 2.8 3.0 3.1 3.4 3.4 4.0 4.0 4.1 5.0 1 2 3 4 5 6 Japan Canada United States United Kingdom Belgium France Australia Comparable Country Average Germany Switzerland Sweden Austria

Practicing physicians, density per 1,000 population, 2013

SLIDE 9

Peterson-Kaiser Health System Tracker

4.8 5 5.6 5.7 6 6.9 7.4 7.7 7.9 8.1 9 9.5 18.2 2 4 6 8 10 12 14 16 18 20 United States Australia Netherlands France Sweden Belgium United Kingdom Canada Austria Comparable Country Average Switzerland Germany Japan

Source: Kaiser Family Foundation analysis of 2013 OECD data: "OECD Health Data: Health care utilisation", OECD Health Statistics (database). doi: 10.1787/health-data-en (Accessed on September 10, 2014). Notes: In cases where 2010 data were unavailable, data from the countries' last available year are shown.

Patients in the U.S. have much shorter average hospital stays than patients in comparable countries

Average number of days in the hospital per visit (all causes) (2010)

SLIDE 10

Peterson-Kaiser Health System Tracker

28 50 54 64 77 82 95 107 Australia Netherlands Canada Comparable Country Average Belgium France Germany United States

Number of MRI exams performed per 1,000 population (2013)

U.S. leads comparable OECD countries in MRI use

Sources: OECD (2013), "OECD Health Data: Health care resources", OECD Health Statistics (database). doi: 10.1787/health-data-en (Accessed on September 10, 2014). Notes: In cases where 2011 data were unavailable, data from the countries' last available year are shown. Some countries, such as Japan, are omitted because data are not available for both indicators.

SLIDE 11

Peterson-Kaiser Health System Tracker

Source: International Federation of Health Plans (2013), “2013 Comparative Price Report, Variation in Medical and Hospital Prices by Country”

The average price of an MRI in the U.S. is significantly higher than in other comparable countries

$138 $350 $461 $1,145

Switzerland Australia Netherlands United States

Average price of an MRI (2013)

SLIDE 12

Peterson-Kaiser Health System Tracker

Source: International Federation of Health Plans (2013), “2013 Comparative Price Report, Variation in Medical and Hospital Prices by Country”

The average price of an angioplasty or bypass in the U.S. is higher than in other comparable countries

$5,295 $8,477 $10,897 $27,907 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000

Netherlands Australia Switzerland United States

Average price of an Angioplasty (2013)

$15,742 $36,509 $42,130 $75,345 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000

Netherlands Switzerland Australia United States

Average price of Coronary bypass surgery (2013)

SLIDE 13

Peterson-Kaiser Health System Tracker

The average price of drugs in the U.S. is much higher than in other countries (example: Enbrel)

Average Price, 2013

$1,017 $1,117 $1,509 $1,646 $2,225

$0 $500 $1,000 $1,500 $2,000 $2,500

Switzerland England Netherlands Canada United States

Source: International Federation of Health Plans Notes: U.S. average prices are calculated using commercial claims data from Truven MarketScan Research databases. Methods and sources for comparable countries can be found here: http://www.ifhp.com/1404121

SLIDE 14

Peterson-Kaiser Health System Tracker

The U.S. has the highest percentage of specialists among comparable OECD countries

Source: OECD (2013), "OECD Health Data: Health care resources", OECD Health Statistics (database). doi: 10.1787/health-data-en (Accessed on September 10, 2014). Notes: In cases where 2012 data were unavailable, data from the countries' last available year are shown.

Australia Canada France Germany Belgium Comparable Country Average Austria United Kingdom Switzerland Norway Sweden United States

General Practice Specialist Not Defined

SLIDE 15

Peterson-Kaiser Health System Tracker

Compared to other wealthy countries, the U.S. has a similar number of nurses per capita

12.8 12.3 10.5 11.5 9.1 12.4 11.1 11.9 11.6 11.1 2 4 6 8 10 12 14 Australia Belgium Canada Comparable Country Average France Germany Japan Netherlands Sweden United States

Nurses, density per 1,000 population (2012)

SLIDE 16

The growth in premiums paid by employers and workers have far outpaced wages over time

SLIDE 17

Peterson-Kaiser Health System Tracker

Source: Kaiser Family Foundation analysis of Consumer Expenditure Survey

On average, larger shares of household budgets are devoted to health expenses than 10 years ago

Average portion of household budget devoted to health (nonelderly families), 2002-2012

2.1% 3.1% 4.4% 5.2% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Out-of-pocket costs: Insurance premiums: Total health expenses:

SLIDE 18

Peterson-Kaiser Health System Tracker

The percentage of insured people with high out-of- pocket spending has increased over time

17% 24%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 % above $1000 OOP spending

Note: All dollar amounts are inflation-adjusted to 2015 dollars Source: Kaiser Family Foundation analysis of Truven Health Analytics MarketScan Commercial Claims and Encounters Database, 2015

Percent of enrollees OOP spending above $1000 inflation-adjusted to 2015 dollars) , 2005-2015

SLIDE 19

Peterson-Kaiser Health System Tracker

229%

89% 31%

0% 50% 100% 150% 200% 250% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Consumer spending on deductibles and coinsurance have far outpaced wages, while copayments have fallen

Source: Truven Health Analytics MarketScan Commercial Claims and Encounters Database, 2005-2015; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 2005-2015 (April to April).

Cumulative increases in health costs, amounts paid by insurance, amounts paid for cost sharing and workers’ wages, 2005-2015

SLIDE 20

Peterson-Kaiser Health System Tracker

Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group

Drug spending has grown rapidly recently, but most of the health dollar is spent on hospitals and physicians

SLIDE 21

Peterson-Kaiser Health System Tracker

Source: Kaiser Family Foundation analysis of the Bureau of Economic Analysis Health Care Satellite Account (Blended Account) Note: Expenditures on nursing home and dental care are not included in health services spending by disease. 2001 to 2012

Increases in prices and service intensity have driven most of recent spending growth

Cost per case, 65% Number of treated cases, 35%

SLIDE 22

Peterson-Kaiser Health System Tracker

[VALUE] of total health spending 51% 67% 76% 83% 97% 3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Top 1% of health spenders Top 5% Top 10% Top 15% Top 20% Top 50% Lower 50%

Contribution to total health expenditures by individuals, 2015

Source: Kaiser Family Foundation analysis of Medical Expenditure Panel Survey, Agency for Healthcare Research and Quality, U.S. Department of Health and Human Services

Discussion of health spending often focus on averages, but spending varies considerably across the population

SLIDE 23

Peterson-Kaiser Health System Tracker

3.5% 7.9%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Net cost of health insurance and administration, as a share of total health expenditures, 1970-2015

Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group

The share of health spending devoted to administrative expenses has risen over time

SLIDE 24

Shining a light on health care costs and providing greater

transparency for prices.

Simplifying administration of health insurance payment.
Encouraging public and private payers to continue shifting towards

paying for value.

Taking antitrust actions to address consolidation and pricing power.
Regulating prices and spending through all-payer ratesetting or

global budgeting.

Creating a public option insurance plan or a buy-in to Medi-Cal.
Creating a single payer system.

Potential opportunities for the state to provide relief from health care costs

SLIDE 25

Maryland

– Established an all-payer system for paying hospitals in 1977, including Medicare. – Revamped the system in 2014 to focus on global budgets for hospitals, capping increases in payments at growth in the economy.

Massachusetts

– Passed legislation in 2012 setting a target to limit health spending increases overall to growth in the economy, with a commission to monitor health spending at the provider level. – Encourages (but does not require) alternative approaches to paying for health care. – Provides limited tools to enforce spending targets.

Examples of state efforts to limit health spending: Massachusetts and Maryland

SLIDE 26

There are tremendous opportunities that can come from limiting

health care costs: Savings to expand access, financial relief for families and businesses, wage growth for workers.

But, there are challenges and tradeoffs as well:

– Health care cost containment is hard, and inevitably means taking something away from someone. If it sounds too good to be true, it probably is. – Medicare is too big a player to ignore, so meaningful progress likely can’t be made without federal involvement. – Employer engagement is key, as well.

What is driving the growth in health care costs and what can be done about it?

California Assembly Select Committee on Health Care Delivery Systems and Universal Coverage December 11, 2017 Larry Levitt Senior Vice President Kaiser Family Foundation @larry_levitt

On average, other wealthy countries spend about half as much per person on health than the U.S. spends

17% 11%

United States Comparable country average

The gap between the U.S. and comparable countries on health spending has widened

Mortality rates have fallen steadily in the U.S. and in comparable OECD countries

The U.S. has the lowest insured rate of comparable countries

5.7% 5.2% 4.2% 7.2% 4.2% 3.6%

2000-2005 2005-2010 20010-2015 Comparable country average United States

In recent years, health spending growth has slowed in the U.S. and in comparable countries

The U.S. has fewer physician visits per capita than most comparable countries

There are fewer doctors per capita in the U.S. than there are in most comparably wealthy countries

Patients in the U.S. have much shorter average hospital stays than patients in comparable countries

U.S. leads comparable OECD countries in MRI use

The average price of an MRI in the U.S. is significantly higher than in other comparable countries

$138 $350 $461 $1,145

Switzerland Australia Netherlands United States

The average price of an angioplasty or bypass in the U.S. is higher than in other comparable countries

The average price of drugs in the U.S. is much higher than in other countries (example: Enbrel)

$1,017 $1,117 $1,509 $1,646 $2,225

The U.S. has the highest percentage of specialists among comparable OECD countries

General Practice Specialist Not Defined

Compared to other wealthy countries, the U.S. has a similar number of nurses per capita

The growth in premiums paid by employers and workers have far outpaced wages over time

On average, larger shares of household budgets are devoted to health expenses than 10 years ago

The percentage of insured people with high out-of- pocket spending has increased over time

17% 24%

229%

89% 31%

Consumer spending on deductibles and coinsurance have far outpaced wages, while copayments have fallen

Drug spending has grown rapidly recently, but most of the health dollar is spent on hospitals and physicians

Increases in prices and service intensity have driven most of recent spending growth

Cost per case, 65% Number of treated cases, 35%

Discussion of health spending often focus on averages, but spending varies considerably across the population

3.5% 7.9%

The share of health spending devoted to administrative expenses has risen over time

transparency for prices.

paying for value.

global budgeting.

Potential opportunities for the state to provide relief from health care costs

– Established an all-payer system for paying hospitals in 1977, including Medicare. – Revamped the system in 2014 to focus on global budgets for hospitals, capping increases in payments at growth in the economy.

Examples of state efforts to limit health spending: Massachusetts and Maryland

health care costs: Savings to expand access, financial relief for families and businesses, wage growth for workers.

Opportunities, challenges, and tradeoffs in containing health care costs