Analyzing the Cost of Care

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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 Cardiology February 1, 2009 Washington, 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
• Whats Necessary for Reform to Happen (and work)
  

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Percent of median family income required to
purchase family health insurance
Source Authors calculations, using KFF and AHRQ
premium data, CPS income data, plus projections
from Carpenter and Axeen, The Cost of Doing
Nothing, 2008.
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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).
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OOP Expenditures
Source New America Foundation analysis of MEPS
Household Component Data, 2004.
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Premium Payments v. GDP Growth Rate
Source NIPA, BEA/Commerce Dept.
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Employer Contribution Rates and Hourly Cost of
Health Benefits, Selected Top Trading Partners
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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).
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Some Underlying Realities

• Our incentive structure is deeply flawed
• Some profit from the flaws
• Behavioral choices affect health and health
  costs, big time
• We cant 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

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More Good News Some Rs and Ds see health reform
in complementary ways

• Budget hawks want entitlement reform
• Medicare Medicaid gt Social Security
• Medicare/Medicaid problem is cost growth problem
• Solution is Delivery System Reform
• Political pathway to DSR is coverage expansion /
  comprehensive reform

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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

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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 its 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)

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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

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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?

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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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Reforms 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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