Paying for the Boomer

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Paying for the Boomers Healthcare SHOW ME THE
MONEY!

• 4th Annual Health Policy Forum
• St. Louis, Missouri
• October 19, 2006
• Signature

• Healthcare Foundation

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PAY ME NOW OR PAY ME LATER


ISSUES IN HEALTH CARE
SPENDING


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Boomer
John Rother Director Policy Strategy
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Boomer
John Rother Director Policy Strategy
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Changing Demographics
Age 65 population 4 of nation
1906
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Changing Demographics
Age 65 population has tripled (12)
TODAY
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Changing Demographics
Age 65 population will double again
2030
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Boomer
People over 65 1900- 1 in 25 2006- 1 in
8 2030- 1 in 5
We are here
2006
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65
85
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As a result of size and longevity, MORE boomers
will draw entitlements LONGER
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Will these changes have a profound,
unsustainable impact on the federal budget by
pushing a rapid growth in federal spending for
health and retirement benefits for older
Americans?
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How do we measure entitlement spending?
Standard measure to gauge size and growth of
entitlement spending is its ratio in any year to
the Gross Domestic Product (GDP)
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How do we define unsustainable?
For any path of spending and revenues to be
sustainable, the resulting debt must eventually
grow no faster than the economy.
Congressional Budget Office, The Long-Term
Budgetary pressures and Policy Options, March 1997
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What are the categories of entitlements?
The top 10 . . .
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The Categories of Entitlements
Projected
Veterans Family Support Earned Income Tax Credit
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2005 Entitlement Spending
Family Support
Food Stamps
Unemployment Compensation
Veterans Benefits
SSI
Earned Income Tax Credit
Federal Retirement civilian and military
Medicaid
Medicare
Social Security
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2005 Tax Expenditures
The hidden health entitlement
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Employer-provided
Health Insurance
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What are the drivers of entitlement spending?
Demography misses much of the story.
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No entitlement growth in 25 yrs
Projected
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. . . With one exception, Medicare
Projected
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Does aging explain the rapid growth in federal
health spending?
Interestingly, it does not . . .
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Per person Medicare expenditures do not rise with
age
Mean Expenditures Per Person for Acute and
Long-Term Care From Age 65 Until Death by Age at
Death
Medicare
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Costs for total Medicare program
Projections
Billions
Source CMS, National Health Accounts
Overall Medicare Costs
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Costs for National Health Expenditures
Costs for total Medicare program
Projections
Billions
Source CMS, National Health Accounts
Overall Medicare Costs compared to Overall Health
Costs
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Is the rise in national health spending due to
health entitlements?
No . . .
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Medicare spending increased less than private
sector
?
?
?
?
?
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Whats driving up health costs??
Healthcare by service sectors . . .
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If costs rose equally in every sector, the
distribution of increases by sector of total
National Health Expenditures 1995 to 2004 would
look like this
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Health cost increases in 10 years (1995-04) due
to 4 major sectors
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Administration Net Cost of Private Ins
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Hospital Care
Source Calculations by PPI AARP using Centers
for Medicare Medicaid Services, Office of the
Actuary, CY 1960-2004 National Health Expenditure
Data
Physician Clinical Services
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Rx Drugs
21
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Whats driving up health costs??
Economic, demographic, and technological factors
. . .
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Analysis of Cost Growth 2000-04
Intensity, Volume, Technological Change other
residual factors
Population Growth
Source National Health Expenditures
Accounts Definitions, Sources, and Methods used
in the NHEA 2004, CMS
Medical Inflation above general inflation
General Inflation
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Whats driving up health costs??
Intensity and volume . . .
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End-of-Life Variation in Care
.
.
.
.
Ratio to Minneapolis
.
Geography the Debate Over Medicare Reform,
Health Affairs 13 Feb 2003 Wennberg, Fisher,
Skinner
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Whats driving up health costs??
Crucial to get control of the management of
chronic care . . .
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Chronic Care Management Key to a Large Segment of
Cost
A back-of-the-envelope representation . . .
100
30 of costs for 1 of people
80
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Health Care Dollars Spent
10 of costs for 70 of people
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20
0
20
40
60
80
100
Percent of Population
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Highest healthcare costs comewith multiple
conditions, not age
Average healthcare expenditures for
non-institutionalized population, by age and
severity of chronic conditions, disability, and
functional limitations
Source Partnership for Solutions, Johns Hopkins
University analysis of Medical Expenditure Panel
Survey 1996, unpublished data, August 2001.
with functional limits
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What about more beneficiary cost-sharing??

• First, that does nothing to contain costs.
• Second, in terms of Medicare, the patients are
  already bearing about as large a burden as
  possible.

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Average Medicare out-of-pocketcosts take 23 of
income
Average Out-of-Pocket Health Care Spending 2004
Under 135 Poverty
People in Fair or Poor health
Women
85 only
ALL 65
Source AARP Public Policy Institute projections
using Medicare Benefits Model, v5.306.
Figures for non-institutionalized Medicare
beneficiaries only. Out-of-Pocket includes
payments for Medicare cost-sharing, Part B
private insurance premiums, physician balance
billing, and goods services not covered by
Medicare. It excludes cost of home care and
long-term nursing home care.
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Are we sure expenditures are used wisely?
Looking at one of the four big cost growth areas
prescription drugs . . . Pharmaceutical
prices are rising at more than double the rate of
inflation
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Average Manufacturers Price Increases far
outpacing Inflation
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Years refer to change from previous year. Source
AARP Public Policy Institute
Average Percent Change
Inflation 17
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Distribution of Gross Revenues for U.S. Drug
Companies by Expense Type
Marketing, Advertising, Administrative Costs
Taxes Other Costs
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Net Profit
Research Development
Cost of Production
Source Compiled by the PRIME Institute,
University of Minnesota from data found in DHHS,
CMS, Jan 2003, and from Bloomberg, analysts
models, corporate annual reports. Presented by
AARP Rx Watchdog Forum February 2005
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What about physician services?
Looking at the Medicare spending for physician
payments 2000-2005 . . .
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Costs for physician FFS up an average of almost
10 per year 2000-2005
Source 2006 Annual Report of the Board of
Trustees of the Medicare Trust Funds
Medicare Spending (dollars in billions)
NOTE Dollars do not include beneficiary co-pays
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And what happens if we continue, business as
usual?
With healthcare growth unchecked (and small
Social Security fixes ignored), here is the
picture
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Predicting Entitlement Spending
Today
Tomorrow?
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Looking at the Hospital Trust Fund alone, here is
the projected cash flow . . .
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Cash Flow of the HI Trust Fund
Projected
Actual
Will exceed income in 2012
Source Office of the Chief Actuary -SUMMARY OF
THE 2005 ANNUAL REPORTS From the Social Security
and Medicare Boards of Trustees
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And here is the projected Hospital Trust Fund
balance . . .
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HI Trust Fund ASSETSAs a percentage of annual
expenditures
Actual
Projected
SOURCE 2005 Annual Report of the Board of
Trustees of the Federal Hospital Insurance Trust
Fund
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What are needed steps to reform both public and
private health care?
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Leadership Solutions

• Foster widespread, inter-operable H.I.T.
• Fund prevention
• Manage, coordinate (and pay for)
  quality chronic care
• Pursue comparative-effectiveness research for
  pharmaceuticals and for technology, other
  evidence-based medicine
• Target escalating Rx drug pricing

Reduce costs, improve quality
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Leadership Solutions
Reduce costs, improve quality

• Reform payment to reward excellence
  e.g. Pay for Performance
• Target waste and unnecessary care (misuse,
  overuse)
• Reduce toll of errors
• Work toward universal coverage
• Provide patients with decision tools
• Promote lifelong healthy behavior

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Pay me now, or pay me later!

• Either we take steps now to aggressively reform
  healthcare, even if there are short-term
  investment costs
• Or, we will pay more in the long-run,
  as taxpayers, as patients, or suffering reduced
  resources and income as providers

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Pay me now, or pay me later!
Pay me now, or pay me later!

• Either we take steps now to aggressively reform
  healthcare, even if there are short-term
  investment costs
• Or, we will pay more in the long-run,
  as taxpayers, as patients, and as providers

• Either we take steps now to aggressively reform
  healthcare, even if there are short-term
  investment costs
• Or, we will pay more in the long-run, as
  taxpayers, as patients, or as providers suffering
  reduced resources and income

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PAY ME NOW OR PAY ME LATER


ISSUES IN HEALTH CARE
SPENDING


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