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Health Care Insecurity: Roadblock to Prosperity


Catamount Health. State-subsidized private health insurance for certain ... Currently, subsidized premiums for Catamount Health range from $60 per month ... – PowerPoint PPT presentation

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Title: Health Care Insecurity: Roadblock to Prosperity

Health Care Insecurity Roadblock to Prosperity
  • Choices for Vermont
  • Rebuilding the Foundation of Prosperity
  • October 2, 2008

Health Care Insecurity Roadblock to Prosperity
  • Current health care financing in Vermont
  • Health care financing and the broader economy
  • Opportunities for reform

How Health Care is Financed
  • Three ways to look at this
  • Where the money comes from
  • Intermediaries (where it visits along the way)
  • Where it ultimately winds up

Where the Money Comes From
  • All money for health care originates in
  • It flows into the system through 3 main channels
  • Taxes
  • Premiums
  • Out-of-Pocket (direct payments to providers)
  • And one smaller one - philanthropy

Where the Money Comes From Out-of-Pocket
  • Out-of-Pocket (OOP) includes
  • Cost sharing, like deductibles, coinsurance, and
  • Payments for services not covered by insurance
  • ALL payments by the uninsured
  • In Vermont, about 490 million of the 3.9
    billion in health care spending (12.5) is OOP

Where the Money Comes From Premiums and Taxes
  • Straghtforward
  • Taxes pay for public programs like Medicare and
  • Premiums pay for private insurance like MVP and
    Blue Cross
  • Not so straightforward
  • What about public employees?
  • What about Medicare and Medicaid premiums?

Premiums and Taxes
  • So whats the difference?
  • Taxes are
  • Mandatory
  • Linked (usually) to ability to pay
  • Premiums are
  • Voluntary
  • Sometimes (not always) linked to expected
    consumption of health care services

Premiums and Taxes
  • In 2006, Medicare, Medicaid, and other state and
    federal programs (mostly tax-financed) paid about
    1.8 billion (46) of Vermonts health care bill
  • Private insurance and self-insured employers paid
    about 1.6 billion (41).
  • Payments on behalf of public employees (included
    in private above) were about 360 million (9 of
    total spending).

  • Private
  • Employers
  • Health Insurers
  • Public
  • Medicare
  • Medicaid

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Where the Money Goes
  • Providers
  • Payers
  • Administration
  • Reserves
  • Profits

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Funds Flows
Health Care Financing and Vermonts Economy
  • Issue Areas
  • Health care costs are consuming a larger and
    larger share of resources
  • Costs of health insurance for private sector
    entities are embedded in the costs of their goods
    and services, not explicitly financed
  • These costs are extremely difficult for employers
    to control
  • Employers and employees must trade off wage
    increases and benefits
  • Retiree health costs are an increasing burden

Health Care Financing and Vermonts Economy
  • Health care costs are consuming a growing share
    of individuals, employers, and governments
  • This leaves less and less for other expenses
  • For example, adjusted for inflation, the per
    capita income in Vermont rose by about 5,000
    between 1997 and 2006. About 2,000 of that was
    consumed by increasing health care costs.

Health Care Financing and Vermonts Economy
  • Between 1997 and 2006, total personal income in
    Vermont grew about 5.3 per year.
  • During that period, health care spending grew at
    an average annual rate of 9.2.
  • The share of personal income spent on health care
    grew from 13 to 18.
  • At that rate, in another 10 years, well spend
    one-quarter of all personal income on health.

Health Care Financing and Vermonts Economy
  • The problem of averages
  • Unlike many costs, such as food or heat (!),
    health care costs vary enormously in a
  • The healthier half of a typical population
    accounts for less than 5 of all costs
  • About 70 of all health care spending is
    accounted for by 10 of the population.

Health Care Financing and Vermonts Economy
  • Health care costs affect different families quite
  • For those with employer-sponsored insurance,
    their contributions are rising between 10 and
    20 per year, benefits are being reduced, and
    wage increases are traded off for coverage.
  • For those who purchase insurance directly, costs
    are rising and the only products remaining in the
    market are high-deductible (3,500 or more)

Health Care Financing and Vermonts Economy
  • Health care costs affect different families quite
  • For those with no insurance, a single episode of
    illness can lead to financial ruin.
  • The uninsured often go without preventive care,
    increasing their risks.

State Government an Illustration
  • In the first year, assume a state budget of 1
    billion, 10 of which is spent on health care
  • Assume state revenues grow at 4 per year and
    health care costs grow at 10 per year (both are
    historical averages). No new revenue sources.
  • In 25 years, health care costs will consume ALL
    new revenue.

State Government Spending Illustration
Private Sector Costs
  • Under the current system, health care costs are a
    cost of doing business for employers.
  • This is true whether you believe that employers
    pay for health care or that employees pay the
    full cost
  • These costs are included in the price that the
    employer charges for goods or services
  • As health care costs rise rapidly in the US, this
    makes international competition more difficult

Can Employers Control Health Care Costs?
  • Perhaps in some ways, but their influence is
    small compared to cost trends
  • If costs can not be controlled, either the
    employers product becomes more expensive or part
    of the increase is passed on to employees
  • Increased contribution to premium
  • Increased cost sharing / reduced benefits

The Wage / Benefit Tradeoff
  • Most economists look at health benefits as one
    part of total compensation.
  • The cost to the employer is the same whether the
    employer pays the employee 5,000 in cash or
    5,000 in benefits, but the benefit is tax-free
    to the employee (and thus worth more)
  • But cash is much easier to control
  • Increases in health care costs will often create
    a trade-off, under which wage increases are
    smaller, or wages remain flat

Retiree Benefits Direct Spending
  • Demographics are changing the number of
    retirees relative to the number of active
    employees is increasing sharply
  • Combined with increasing health care costs,
    retiree health spending is growing dramatically
  • Recent automaker / UAW deals

Retiree Benefits Other Effects
  • Until recently, both private and public employers
    included only the current costs of retiree
    health benefits on their balance sheets
  • The amount they pay in the current year
  • Now, they have to show the liability for future
    costs on their balance sheets
  • FAS 106 and GASB 45
  • This has a major impact on their financial status

Reform Options
  • What is it that we want to reform?
  • Financial
  • Control rate of growth
  • Equity of contribution
  • Access
  • Universal
  • Coverage
  • Care
  • Quality of Care

Reform Options
  • The cost of insurance and the cost of care
  • Historically, insurance costs have gone up faster
    than underlying health care costs
  • Several factors contribute to this, including
  • Cost shifting
  • Adverse selection
  • Benefit structures
  • In addition to the basic affordability issue,
    this leads more people (usually healthier) to
    drop their coverage, increasing insurance costs
    even faster.

How Far Can a State Go?
  • Limits to a states ability to reform its health
    care system
  • Federal law
  • Medicare
  • Medicaid
  • Border crossing
  • Status quo

Political Complexities
  • Are you willing to change how your care is
    financed and delivered in order to support health
    care reform?
  • Polarization and over-simplification
  • Markets vs. Socialized medicine

Reform in Vermont
  • Long history of reform
  • Several efforts to achieve or move toward
    universal access and cost containment
  • Governor Aiken inaugural address, January, 1939
  • Daniels Commission, 1975
  • VHIP
  • Governors Blue Ribbon Commission, 1991
  • Act 160

The Current Reform Environment
  • Several Major Parts
  • Catamount Health
  • State-subsidized private health insurance for
    certain eligibles
  • Blueprint
  • Reform of the delivery system
  • Reduction in the incidence of chronic illness

Is Catamount Health Working?
  • Over 5,000 people have signed up for Catamount
    Health. This is about one-third of the people
    eligible for it.
  • Enrollment has also increased in other Medicaid
    programs, especially VHAP

Catamount Health - Issues
  • Currently, subsidized premiums for Catamount
    Health range from 60 per month (below 175 of
    poverty, about 18,000 per year for an
    individual) to 185 per month (up to 300 of
    poverty, 31,200 per year)
  • The unsubsidized product costs 393 per month
  • Is this affordable?

Other States
  • So far, Maine, Massachusetts, and Vermont are the
  • Many other states are attempting various reforms
  • For details, check out
  • http//

  • The most far-reaching state-based reform to date
  • Key element an individual mandate, combined with
    income-based subsidies.
  • With an out if insurance is not affordable
  • Based on surveys, it seems to be working. Almost
    95 of people in Massachusetts are covered, the
    highest percentage in the country

  • Massachusetts has had minimal impact so far on
  • Unless costs are brought under control, the
    program will quickly become unaffordable

National Health Care Reform?
  • While the legal barriers are far less daunting at
    the national level, the political barriers are
    much higher
  • Consider what it took in 1965 to enact Medicare
    and Medicaid
  • Consider what happened to Clinton health care

Current Presidential Proposals
  • Obama much like Massachusetts, but the mandate
    applies only to children
  • McCain while a more conservative proposal (no
    mandates, reliance on existing market), it is
    much more radical in one way sharp reduction in
    the importance of employer-sponsored health
    insurance most people will shift to subsidized
    coverage in individual market

  • Health care reform is essential, and seems to be
  • Concerns about health care have a 100 year
    history. How long can we muddle through?
  • There is a lack of agreement on what reform
    means, but we seem to be more able to come to
    agreement on areas other than financing

  • Steve Kappel
  • Policy Integrity