Are Rising Health Care Costs Inevitable

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Are Rising Health Care Costs Inevitable?

• Vivian Ho
• James A. Baker III Institute for Public Policy
• Department of Economics, Rice University
• Department of Medicine, Baylor College of
  Medicine
• Wednesday, March 26, 2008

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2.1 Trillion
2006
1980
1985
1990
1995
2000
Source CMS, National Health Accounts
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16.0
1980
1985
1990
1995
2000
2006
Source CMS, National Health Accounts
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7,018
1980
1985
1990
1995
2000
2006
Source CMS, National Health Accounts
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Expenditures are Highly Concentrated
Source Lieberman, et. Al. Health Affairs 2003,
Medicare Expenditures 1995-1999.
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Source KFF/HRET Employer Health Benefits 2006
Annual Survey
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Source U.S Census Bureau. Income, Poverty, and
Health Insurance Coverage in the United States
2006
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Source Rosen, et. Al. Health Affairs 2007, The
Value of Coronary Heart Disease Care for the
Elderly1987-2002.
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Source Rosen, et. Al. Health Affairs 2007, The
Value of Coronary Heart Disease Care for the
Elderly1987-2002.
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We must restrain costs in order to increase
access to care.

• Inefficiencies in the health care delivery.
• Paying providers for quality, not quantity.
• Take a global approach to public health.

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Dartmouth Atlas

• Differences in partly due to differences in
  health status.
• Large diffs persist after controlling for
  health and socioeconomic status.
• e.g. heart disease, cancer, income, education,
  poor health habits.
• What drives these diffs, and does it improve
  survival or quality of life?

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Physician Visits per Decedent During Last 6
Months of Life (1995-1996)
By definition, MD visits in last 6 months of life
dont improve survival but regional variation
is large.
Source www.dartmouth.atlas.org Wennberg and
Cooper, 1999.
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Dartmouth Atlas

• Many Americans are receiving costly health care
  services which provide no value in terms of
  improved health status.
• 26 billion in Medicare expenditures has no
  measurable effect on survival or quality of life.

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Solution

• Develop new methods to identify and promote best
  practice guidelines.
• Health informatics
• Regulation?
• Market Reform?
• Reimbursement reform

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Reform Medicare Reimbursement

• Align the incentives of health care providers
  with those of the elderly needing care.
• CMS reimburses hospitals and physicians fixed
  prices for each unit of care.
• e.g. Hospitals are reimbursed 9000 for a
  patient with DRG 209, total hip replacement.

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Reform Medicare Reimbursement

• Reimbursement rates well above costs lead to high
  profits.
• High profits encourage distortionary care.
• e.g. cardiac care
• Reimbursement below costs leads to
  under-provision of care.

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Reform Medicare Reimbursement

• Align reimbursements with the marginal cost of
  providing care.
• Reimburse providers based on qualitynot
  quantity.
• Congestive heart failure
• Blood pressure control

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Global Approach to Population Health

• Obesity, diabetes, and cancer.
• Invest in preventing the root causes of our
  illnesses.
• Does it make sense to spend public funds to treat
  Medicare patients for treatment of obesity?

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Source KE Thorpe, DH Howard Health Affairs 2006
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Source KE Thorpe, DH Howard Health Affairs 2006
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Source KE Thorpe et. al. Health Affairs 2007
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Source KE Thorpe et. al. Health Affairs 2007
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Global Approach to Population Health

• Increased education can improve health status.
• An additional year of schooling lowers the
  probability of dying in the next 10 years by 3.6
  percentage points.
• In the long run, increased education may be more
  cost-effective than tertiary care in improving
  population health.

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Global Approach to Population Health

• Federal agricultural subsidies lower the cost of
  ingredients used in high-calorie processed foods.
• Fats and oils receive 20 times more agricultural
  subsidies than fruits and vegetables.
• Realign subsidies to encourage production and
  consumption of healthy foods.

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Global Approach to Population Health

• Cities and transportation system designs
  discourage walking, cycling, and other forms of
  exercise.
• Investing extra resources in urban planning and
  public transportation may improve public health
  status, reducing health care costs.

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• Which candidate would promote competition among
  providers by paying them only for quality and
  promote use of alternative providers (e.g. nurse
  practitioners) and treatment settings (e.g.
  walk-in clinics in retail outlets)?
• Clinton
• McCain
• Obama

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• Which candidate would require health insurance
  plans to disclose the percentage of their
  premiums that actually goes to paying for patient
  care as opposed to administrative costs?
• Clinton
• McCain
• Obama

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• Which candidate would establish an independent
  Best Practices Institute to help consumers and
  other purchasers and plans make the right care
  choices?
• Clinton
• McCain
• Obama

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How Do We Pay for All of This?

• Which candidate would no longer allow a deduction
  for employer-provided health insurance?
• Clinton
• McCain
• Obama

Clinton would limit the tax exclusion for
households earning gt 250,000. The average cost
of employer-provided family health insurance is
now 12,000 a year
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• Which candidate has the highest projected costs
  for health care reform?
• Clinton
• McCain
• Obama

Price tag for health care reform is 110b a year.
Half will be financed by savings from quality
and modernization initiatives, Medicare
Medicaid changes, and constraining prescription
drug costs.
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• Which candidate would pay for health care reform
  by discontinuing tax cuts for those with incomes
  over 250,000?
• Clinton
• McCain
• Obama

Every 1 increase in tax rates for the wealthiest
only raises 6 billion.
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Conclusion

• We live in a remarkable new age.
• New technologies
• Longer life expectancy, better quality of life.
• Our health care system delivers care in an
  inefficient, costly, inequitable manner.
• We must consider dramatic reforms in the way we
  deliver health care, insurance coverage, and
  population health.