The Obama Health Care Reform Proposal

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The Obama Health Care ReformProposal

• Bill Evans
• Department of Economics and Econometrics

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Three topics in this topic

• What issues must comprehensive health care reform
  confront?
• Outline the Obama proposal
• Suggest some likely consequences

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Confusing at the moment

• Campaign proposal but no legislation yet
• Some parts adopted in stimulus plan
• HealthCare Dialogue Coalition (18 groups) will
  release their recommendations Monday
• But, everything is up in the air as a result of
  the economy

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Kaiser FF Tracking Survey
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What issues must health care reform address?

• Access
• Cost (both the level and rate of change)
• Medicare
• Tax equity

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Access

• Uninsurance is a persistent issue
• Dimensions of the problem (2007)
• 45.7 million people
• 9 million children
• Fraction uninsured increasing
• 12.6 in 1987
• 15.3 in 2007

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What issues must health care reform address?

• Access
• Cost (both the level and rate of inflation)
• Medicare
• Tax equity

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Expenditures on Medical Care

• Data for 2007
• 2.2 trillion on HC
• 7,400 per capita
• 16.2 of GDP

• Projected, 2018
• 4.4 billion
• 13,100 per capita
• 20.3 of GDP

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90 more than Canada
145 more than the UK
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Average Annual PremiumsCovered Workers, 2008
(KFF)

• Individual plan
• 4,704 total

• Family plan
• 12,690

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Are high expenditures a bad thing?

• A key driver of health care costs is technology
• MRIs/CT scans, angioplasty, anti-psychotropic
  drugs, hip/knee replacements, neo-natal intensive
  care, treatments for AIDS, statin drugs (Lipitor)
  
• All not available 20-30 years ago. Now,
  commonplace

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If you want to cut costs, where do you look?

• Administrative/overhead
• 3 in Canada (single payer)
• 1.5 in Medicare
• 30 in US system in total
• Chronic conditions
• Unnecessary care

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Per Capita Medicare Spending by Hospital Referral
Region, 2006
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What issues must health care reform address?

• Access
• Cost (both the level and rate of inflation)
• Medicare
• Tax equity

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Medicare

• 2007
• 44.1 million recipients
• 432 bill. exp.
• 3.2 of GDP
• 16 of fed. budget

• 2040
• 86 million recipients
• 7.6 of GDP
• 30 of fed. budget

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Future problems

• Funding
• Medicare trust fund
• General revenues (75)
• Medicare Trustees predict
• Costs gt revenues by 2011
• Trust fund exhausted by 2019
• Declining ratio of workers/enrollees means taxes
  must be raised

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What issues must health care reform address?

• Access
• Cost (both the level and rate of inflation)
• Medicare
• Tax equity

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Tax System Equity

• EPHI health insurance is a tax-free fringe
  benefit
• Greatly reduces the cost to consumers of
  purchasing insurance
• Has encouraged the growth of EPHI
• Most people w/ private insurance get is through
  their employers
• 170 million have EPHI

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Inequalities

• Tax break only available to people who receive
  insurance from their firm
• Higher income families have higher tax rates so
  the tax benefit to them is greater
• Costs Fed. Govt. over 243 billion/year
• Regressive tax

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Tax Benefit of EPHI

• A family w/ 70,000 in income
• 36.4 marginal tax rate
• 25 federal
• 3.4 state (Indiana)
• 8 Social Security and Medicare
• Want to purchase 12,000 policy in AFTER TAX
  DOLLARS

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Without tax advantage

• Receive 18,897 in income
• Pay 36.4 or 6,897 in taxes
• 12,000 left over for health insurance
• Net benefit of tax deduction is 6,897

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Obama/Biden Plan for a Healthy America
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Overview

• Plan builds out from existing EPHI
• Tries to fill in the gaps in coverage
• Heavy emphasis on trying to reduce costs to make
  health care more affordable
• Plan has not been formally proposed so some
  details sketchy

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Access

• Expansion of SCHIP/Medicaid
• Must provide HI for children
• No enforcement specified
• Tax credits for small businesses that provide
  EPHI
• Pay or play for businesses
• Must spend minimum fraction of labor costs on HC
  or pay that amount as a tax (5 or 6)

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Access (continued)

• National Health Insurance Exchange
• Similar to MA connector
• Policies similar to those offered to congress and
  federal employees
• Available to individuals, small businesses,
  self-employed
• National Plan
• Offered by the Federal government
• Designed to provide competition to pvt. ins.

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Controlling Cost

• 50 billion in IT for health care sector
• Expand use of preventive services and disease
  management
• Increase competition in insurance industry
• Allow Medicare to bargain Part D prices
• Catastrophic reinsurance through the Federal
  government

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Medicare

• Reduce expenditures for Medicare Advantage
• Prevention/Disease Management
• Greater bargaining over health care costs

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Tax equity

• Subsidies for small business who offer EPHI
• Some talk on Capital Hill of eliminating
  tax-preferred status of EPHI
• Obama railed against McCain for proposing
• White House has signaled they will support but
  cannot propose

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• "And this is your plan, John," he said at one
  debate. "For the first time in history, you will
  be taxing people's health-care benefits." Mr.
  Obama added that the McCain proposal was
  "radical," "the biggest middle-class tax increase
  in history," "out of line with our basic values"
  and that "the choice you'll have is having your
  employer no longer provide you health care."

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What has been adopted?

• 19B to encourage health IT investment
• Additional 10B over next 2 years for NIH
• 1.1B for effectiveness research (AHRQ)
• 85B for states to help finance Medicaid

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• 25B -- 65 of COBRA for unemployed
• 9 months
• Laid-off between 9/1/2008 and 12/31/2009
• Had insurance
• Worked for company gt20 employees
• Income lt 145,000/adult

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Incentives/Fines for EMR Investment
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Proposed 2010 Budget Downpayment on Reform

• 630 billion over time years
• Cost savings
• Reduce payments for Medicare Advantage
• Increase rebate from pharma. to Medicaid
• Higher taxes
• Reduce tax rate on itemized deductions for
  families w/ taxable income gt250,000

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Is it enough?

• Cost estimates
• Vary from 1.2 - 1.7 trillion over 10 years
• Big unknowns
• Take up rates on new programs
• Subsidy for government insurance
• Health care costs

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Estimated impacts Access(Lewin Group, 2008)

• Cut number uninsured by 26.6 million
• Primarily from expansion of Medicaid/SCHIP
• Shift 28.7 million onto federal insurance
• Companies drop coverage
• Those on federal rolls will increase by 48.3
  million roughly 50 increase

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Does Preventive Medicine save ?

• Intuitively appealing detect disease before it
  becomes expensive
• Problem with low incidence rates, screening is
  costly and low of cases detected
• Cohen et al., NEJM, February 14, 2008
• Reviewed 599 published articles on
  cost-effectiveness of preventive care

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• Our findings suggest that the broad
  generalizations made by many presidential
  candidates can be misleading. These statements
  convey the message that substantial resources can
  be saved through prevention. Although some
  preventive measures do save money, the vast
  majority reviewed in the health economics
  literature do not.

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Disease Management?

• Again intuitively appealing
• Reduce discretion in use, standardize care,
  eliminate unnecessary treatment
• Lots of experience with DM in managed care
• Has DM reduced costs?

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• American Journal of Medical Care (2007)
• reviewed 317 studies about DM
• there was no conclusive evidence that disease
  management leads to a net reduction of direct
  medical costs.

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Health IT/EMR?

• Great promise
• Reduce paper work/time/medical errors/unnecessary
  diagnostic tests
• Savings alluded to in plan based on RAND
  estimates
• RAND estimates that IT has the potential to
  reduce costs by 80 billion/year
• Only considered studies that showed cost savings
• Best case scenario if it does what is promised

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CBO (2008)

• In general, investment in EMR is generally not
  sufficient to produce significant cost savings
• Significant cost savings have tended to be
  connected to relatively integrated health care
  systems which the US health care system is not

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Summary

• Will reduce uninsurance but
• Will do so by shifting a lot more onto public
  programs
• Cost savings are greatly exaggerated
• Investing heavily in proposals that to date have
  not demonstrated much savings
• Tax equity has been suggested nothing concrete
• So far, the administration is punting on Medicare

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My opinion

• Must control costs first
• Benefits never decline, they only increase
• Enacting universal coverage or a massive
  expansion will generate cost that will never be
  controlled or cut
• To control cost must deal with Medicare first

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MA Reform Romney (2006)

• Most ambitious state reform to date
• Many features but..
• Most striking component Individual mandate
• Required by law to carry insurance

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MA Reform

• If you require insurance, you need to make it
  affordable
• State subsidizes purchases for poor
• Firms must establish Section 125 plans
• Established the Connector

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Connector

• Merge of individual and small group market
• Market maker in insurance
• Community rating
• Requirements on what plans must have

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Connector

• Cheapest individual plans cost about 200/month
• 40-60 lower than average plan
• Was achieved primarily by higher cost sharing

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Results from MA -- Access

• with insurance increased by 430K
• 60 went to public plan
• Uninsurance rate now only 2.6
• MA far and away had the lowest uninsurance rate
  going 2006
• State underestimated
• Number uninsured
• Uninsured eligible for subsidized care
• No one opted for the cheap low cost/high cost
  sharing option

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Problem

• States contribution is rising much faster than
  anticipated
• Minor cost control options
• Costs are rising very fast
• MA now spend 33 more per capita than national
  average
• State has 4b deficit
• State costs on health care have increased 42
  since 2006

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NYT

• To make it happen, Democratic lawmakers and Gov.
  Mitt Romney, a Republican, made an expedient
  choice, deferring until another day any serious
  effort to control the states runaway health
  costs. The day of reckoning has arrived.
  .government and industry officials agree that
  the plan will not be sustainable over the next 5
  to 10 years if they do not take significant steps
  to arrest the growth of health spending.

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Options

• "exclude coverage of services of low priority/low
  value."
• "limit coverage to services that produce the
  highest value when considering both clinical
  effectiveness and cost."
• "a limitation on the total amount of money
  available for health care services," i.e., an
  overall spending cap.

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Exporting MA Plan?

• Plan is being studied extensively by
• Other states
• Presidential candidates
• MA is very unique so it might not travel
• Lower uninsurance rate (9)
• Unique fiscal situation that was used to finance
  the law