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The Costs of Health Reform

(and of Doing Nothing)

Len Nichols, Ph.D. Director, Health Policy Program

New America Foundation

American College of CardiologyFebruary 1, 2009Washington, DC

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Overview

• Status Quo– Cost to Households– Cost to Employers – Cost to Government– Cost to Society as a whole

• Costs of Reform– Economic– Political

• What’s Necessary for Reform to Happen (and work)

Percent of median family income required to purchase family health insurance

7%

17%

34%

45%

0%5%

10%15%20%25%30%35%40%45%50%

1987 2006 2016* 2016**Source: Author’s calculations, using KFF and AHRQ premium data, CPS income data, plus projections from Carpenter and Axeen, The Cost of Doing Nothing, 2008.

Cunningham, Peter J., and Laurie E. Felland, Falling Behind: Americans’ Access to Medical Care Deteriorates, 2003-2007, Tracking Report No. 19, Center for Studying Health System Change, Washington, D.C. (June 2008).

OOP Expenditures

Average Expenditure by Self and Family

Likelihood of Being in top 10% of Expenditures

Average Expenditure of Top 10% of Spenders

Insured Population

$680.29 10.5% $3,695.15

Uninsured Population

$416.58 6.77% $3,763.08

Source: New America Foundation analysis of MEPS Household Component Data, 2004.

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Premium Payments v. GDP Growth Rate

0%

2%

4%

6%

8%

10%

12%

14%

1999 2000 2001 2002 2003 2004 2005 2006 2007

esi

gdp

Source: NIPA, BEA/Commerce Dept.

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Employer Contribution Rates and Hourly Cost of Health Benefits, Selected Top Trading Partners

Country

(rank in total trade with the

US, 2005)

Employer Contribution

Rate

Hourly Pay, Manufacturing

U.S. dollars

Hourly Cost of Health Benefits, Manufacturing

US dollars

United States 11.3%

13.0% for Manufacturing

$18.32 $2.38

Canada (1) 4.5%* $19.21 $0.86

Japan (4) 3.74% $18.06 $0.68

Germany (5) 6.65%** $25.53 $1.70

United Kingdom (6)

1.92%*** $20.91 $0.40

France (9) 12.8%**** $16.93 $2.17

Weighted avg. 4.9% $19.79 $0.96

Put figure 2 from recent MEDPAC testimony here,Shows medicare not sustainable over time

Source: Social Security and Medicare Trustees Report Summary, 2008.

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Cost to Society

• Opportunity cost of inefficiency

• Lost Productivity

• Lost “Community”

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Quality and Efficiency

• Beth McGlynn and Rand – Appropriate care 55% of the time

• National Academy of Engineering and Institute of Medicine – 30% of what we spend adds no clinical value– Roughly 5% of GDP

• Dartmouth (Wennberg and Fisher)– Geographic disparities are stunning– quality and cost inversely related

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Uninsured Cancer Patients Are…

• …1.5-2.5 times as likely to be diagnosed later in disease progression as privately insured

• …1.6 times as likely to die within 5 years as privately insured

• Results stand up when controlling for age, race, sex, income, and type of cancer

• Within races, insurance matters as well

Source: American Cancer Society, CA: A Cancer Journal for Clinicians,v. 58 #1 (Jan-Feb 2008).

Some Underlying Realities

• Our incentive structure is deeply flawed• Some profit from the flaws• Behavioral choices affect health and health

costs, big time• We can’t afford “business as usual” trajectories• Change is impossible, but necessary

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The Good News

• Policy makers understand that delivery system reform must accompany coverage expansion/insurance market reform

• Many stakeholders are willing to say the status quo is unsustainable

• The economic meltdown has created a “tabula rasa” opportunity, to focus on true priorities

More Good News: Some Rs and Ds see health reform

in complementary ways

• Budget hawks want “entitlement” reform

• Medicare + Medicaid > Social Security

• Medicare/Medicaid problem is cost growth problem

• Solution is Delivery System Reform

• Political pathway to DSR is coverage expansion / comprehensive reform

New America Foundation ♦ Health Policy Program15

Economic Cost of Reform• Coverage Expansion

– $150-175B per year (1% of GDP)

• Delivery System Reform Investments– HIT– Comparative Effectiveness Research– Payment Reform

• Baseline spending– $2.4T in 2007

Political Cost of Reform

• Dems must cooperate and compromise

• Repubs must cooperate and compromise

• President must infuriate some allies

• Repubs who cooperate risk intra-party backlash

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Political Context• Underlying pressure = middle class anxiety

– 1991: “it’s the economy, stupid”– 2005-6: cost/income– 2008-09: DEEP recession PLUS costs/income

• Baucus v. Moynihan• Kennedy Legacy• Bi-Partisan conversations pre-election

– Wyden-Bennett et al

• Daschle– HHS + WH, veteran of 1993-94, veteran of 94 LOSS

• Obama• Republican Disarray (for a while)

Early Moves• Stimulus package

– Unemployment-related temporary coverage expansions/props• Temporary increase in federal share of Medicaid (FMAP)• Expansion of (optional) Medicaid eligibility for unemployed and dependents• COBRA extensions and subsidies

– Infrastructure• HIT• NIH and CDC• Prevention• Comparative Effectiveness Research

• SCHIP– Fight over legal immigrant children a proxy battle

• START push of comprehensive reform through committees (including separate SGR fix, if necessary)– House, based on Hacker– Senate, based on Baucus/Obama

Elements of Comprehensive Approach

• New market for employer market refugees• Public plan to compete

– Can a “moderate” plan be devised?

• Pay or Play for “large” employers• Subsidies and an individual mandate• Delivery System Reform

– HIT– Comparative effectiveness– PAYMENT REFORM

• Medical home• Bundling, move away from FFS

• Health Board?

Impediments to Speed (or Action at all)

• Economy• CBO scoring• R cohesion

– Just say no– Share some goals– Share all goals

• Public plan• Employer requirements• Individual mandate• Status quo stakeholder defenders vs. “change”

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Common Themes To Expect• We Cannot Afford It (whatever “IT” is)

• Trust, but Verify– Transparency of price and comparative quality info– Market outcomes will need to be monitored– Government programs will need to be evaluated

• Shared Responsibility is the American Way– Individual responsibility is central– Community responsibility is to make it possible for each individual

to take responsibility for himself or herself

• Economic cost of doing nothing is high

• Moral cost of doing nothing is possibly higher

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How To “Break The Chain”• Pursue Bi-Partisan Reform

– Not milquetoast, but real reform

– Both parties’ values must be reflected

– 60 ≈ 70

– Credit must be shared

• PROTECT the Debate from Saboteurs “by any means necessary”– Inside-outside strategies

– Collaborations and new voices + pressure

– Develop credible policies that can earn (divided) stakeholder support

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Reform’s Virtuous Cycle of Feasibility

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Remember…• Failure IS an option, BUT:

– The cost of doing nothing is high– System fragmentation will accelerate– We will likely not accept Dickensian America– Draconian Populist solutions (e.g., price controls) are the

fruit of failure

• SO, re-doubling our efforts to succeed this time is far preferable to “doing nothing” scenario

•

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