Healthcare Costs and What Can You Do About Them? A Presentation to the Mount Washington Valley Economic Development Council

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Healthcare Costsand What Can You DoAbout
Them?A Presentation to the Mount Washington
Valley Economic Development Council
Our health system research undertaken with
generous support from
Steve Norton Executive DirectorSeptember 9, 2007
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All of our reportsare available on the
webwww.nhpolicy.org
New Hampshire Center for Public Policy Studies
Board of Directors Martin L. Gross, ChairJohn B.
AndrewsJohn D. CrosierGary Matteson Todd
I. Selig Donna SytekGeorgie A.
ThomasJames E. Tibbetts Brian WalshKimon S.
Zachos Executive DirectorStephen
Norton Executive Director, Emeritus Doug Hall
to raise new ideas and improve policy debates
through quality information and analysis on
issues shaping New Hampshires future.
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The Healthcare Finance System
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The Case for Business Engagement .

• Businesses are the primary purchasers of health
  care insurance in New Hampshire.
• 880,000 individuals (or 76 of the population)
  have health insurance purchased in concert with
  their employers
• Employers pay 77 of the premium.
• The public sector now pays for over ½ of health
  care expenditures. Everything the public sector
  does affects health care and businesses bottom
  line.

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Topics for Presentation

• Healthcare Financing and Cost Trends
• Drivers
• Aging Demographics is our destiny
• Cost Shifting
• Technology
• Service Use
• The Value Proposition Are we getting value for
  the increasing costs?
• Healthcare and the Economy
• What can you do about health care costs?

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Average Annual Health Insurance Premium Average Annual Health Insurance Premium Average Annual Health Insurance Premium Average Annual Health Insurance Premium Average Annual Health Insurance Premium Average Annual Health Insurance Premium Average Annual Health Insurance Premium
New Hampshire New Hampshire New Hampshire US US US
2000 2004 Annual increase 2000 2004 Annual increase
1-Person coverage 2,790 4,084 10.0 2,655 3,705 8.7
Family coverage 7,525 11,156 10.3 6,772 10,006 10.3
2-person coverage1 n/a 8,495 - n/a 7,056 -

1 MEPS did not begin to collect premium
information for 2-person coverage nationally
until 2001 and for New Hampshire until 2002.
Sources Agency for Healthcare Research and
Quality, Center for Financing, Access and Cost
Trends. 2004 Medical Expenditure Panel Survey
(MEPS) -Insurance Component.
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Average Annual Employee Contribution to Health Insurance Average Annual Employee Contribution to Health Insurance Average Annual Employee Contribution to Health Insurance Average Annual Employee Contribution to Health Insurance Average Annual Employee Contribution to Health Insurance Average Annual Employee Contribution to Health Insurance Average Annual Employee Contribution to Health Insurance
New Hampshire New Hampshire New Hampshire US US US
2000 2004 Annual increase 2000 2004 Annual increase
Single coverage 470 944 19.1 450 671 10.5
Family coverage 1,752 3,102 15.4 1,614 2,438 10.8
2-person coverage n/a 2,010 - n/a 1,667 -
Sources Agency for Healthcare Research and
Quality, Center for Financing, Access and Cost
Trends. 2004 Medical Expenditure Panel Survey
(MEPS) -Insurance Component.
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Per Capita Income and Premium Costs
Annual Health Insurance Premium for 1-Person Coverage as Percent of Per Capita Income Annual Health Insurance Premium for 1-Person Coverage as Percent of Per Capita Income Annual Health Insurance Premium for 1-Person Coverage as Percent of Per Capita Income Annual Health Insurance Premium for 1-Person Coverage as Percent of Per Capita Income Annual Health Insurance Premium for 1-Person Coverage as Percent of Per Capita Income Annual Health Insurance Premium for 1-Person Coverage as Percent of Per Capita Income Annual Health Insurance Premium for 1-Person Coverage as Percent of Per Capita Income Annual Health Insurance Premium for 1-Person Coverage as Percent of Per Capita Income
1998 1999 2000 2001 2002 2003 2004
1-Person Coverage Premium 2,356 2,790 3,263 3,563 4,084
Per Capita Income 24,583 25,632 27,129 26,467 27,407
of Per Capita Income 11.4 12.0 13.5 14.9
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Most costs are for those over 40.
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Age Distribution 1970
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Age Distribution 1995
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Age Distribution 2020?
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Why are people receiving services?
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What Are They Receiving?
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Cost-Shifting
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Insurance Premium to Pay for Hospital Service (2004 and 2005) Insurance Premium to Pay for Hospital Service (2004 and 2005) Insurance Premium to Pay for Hospital Service (2004 and 2005) Insurance Premium to Pay for Hospital Service (2004 and 2005) Insurance Premium to Pay for Hospital Service (2004 and 2005) Insurance Premium to Pay for Hospital Service (2004 and 2005)
  2004 2004   2005 2005
  Hospital Total   Hospital Total
Hospital Charge 10,000     10,000  
   
Actual Cost of Service 4,854     4,640  
Cost-shift surcharge 1,284     1,576  
For operating margin 561     866  
Claim to be paid 6,699     7,082  
           
Claim to pay   6,699     7,082
Insurer admin/profit (17.6)   1,179     1,246
Premium required   7,878     8,328
Premium as of cost of service   162     179
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Cost Shifting Contributesto Cost Growth

• Hospitals financial stability, as measured by
  operating margins, has increased.
• Small rural hospitals have largely recovered
  (critical access designation)
• Cost shift is increasing significantly, driven by
  both underpayment of public payers and increases
  in operating margins.
• Cost shift contributes to growth in health care
  costs borne by businesses and individuals through
  premium payments.

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Cost Summary

• Costs increases are about average however,
  businesses and individuals face an increasing
  burden.
• Sectors contributing to growth hospital (1),
  physician (2) and prescription drug (3).
• Technology clearly plays an important role.
• Question for New Hampshire?
• Average per-capita health costs remain lower than
  the national average.
• Premiums remain higher than the national average
  . Why?

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Are we getting value?

• The short answer? Not certain.
• Some studies suggest that investment in health
  care have yielded significant benefits (in terms
  of life years).
• Others are less certain
• Regions experiencing the largest spending gains
  were not those realizing the greatest
  improvements in survival. Factors yielding the
  greatest benefits to health were not the factors
  that drove up costs. Health Affairs 25 (2006)
• Hospitals and physicians are competing for
  profitable services, making costly investments in
  the latest medical technologies. These market
  forces are largely going unchallenged by insurers
  and regulators (Center for Health Systems Change,
  Issue Brief No. 97)
• Elliot Fishers Work suggest some services are
  unnecessary.

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Outpatient Knee Arthroscopy Procedures Average
Paid per Procedure By HSA NH CHIS 2005 Incurred
Claims - private payer claims
ME average rate 4,614
NH average rate 4,064
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The Healthcare Macro-System
Supplier Induced Demand
Outputs
Service Provision
Value
Inputs
Demand
Low Cost High Quality Appropriate Care
Hospitals Physicians Ambulatory Imaging Testing Ne
w Services
Employees Construction Other
Demographics Population Health Insurance
The Economy?
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700 Million
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1.3 Per Year
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3.0 Per Year
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If jobs grew at the same rate as population,
the lines would overlap at 1.0
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Healthcare and the Economy

• Healthcare is clearly an important contributor to
  the economic system in New Hampshire.
• This does not eliminate the need to bring
  focused attention to growth in health care
• Opportunity Cost (are these really the jobs we
  want?)
• Question of value still remains primary

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What Can You Do ?More of the Same?

• Seek cheaper insurance plans including Health
  Savings Accounts
• Increase co-premiums and co-pays
• On turnover, add part-time employees ineligible
  for benefits
• Drop retiree health benefits

Recognize that these actions do NOT reduce the
actual cost of health care they simply shift it
onto someone else. Health care costs will be
controlled only when health care providers costs
are controlled.
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What Can You Do?

• Responsible purchasing of health insurance. We
  are not a consumer directed environment and
  wont be until business are no longer the
  purchasing agent for employees.
• Companies that dont analyze cost and utilization
  data (or have it analyzed for them) are not
  informed purchasers.
• Encourage BIA, Chambers of Commerce and
  associations to continue to develop toolsets for
  large and small employers.
• Comprehensive Health Information System
• Citizens Health Initiative
• Other examples Maine Health Management
  Coalition

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What Can You Do?

• Support efforts to develop insurance models which
  encourage the cost-effective use of services.
• Evidence based practice
• Encourage innovation in the health care market
• Support the development of specialization ?
  focus factories
• Promote wellness programs within those insurance
  products and within your business.

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What Can You Do?

• Support efforts to make sure increasing
  technology is cost-effective
• Support efforts to end direct-to-consumer drug
  advertising. Those TV ads work or the drug
  companies wouldnt be adding more all the time.
• Avoid championing new and improved health
  services in a community and later express
  concerns about the costs.
• Dont let local providers compete on the basis
  of adding some technology already available a
  short distance away.

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What Can You Do?

• Encourage the community to offer insurance
  coverage.
• Facilitate conversations about cost shifting
• Have your local Chamber of Commerce or trade
  association create a public list of its members
  with the number of employees who are and are not
  offered health insurance benefits by each member.
  
• Recognize those employers that do not shift their
  health care costs onto you.

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What Can You Do?

• Talk with your state legislators and the NH
  Congressional delegation about
• Most every change in public programs (50 of
  expenditures) impacts businesses one way or
  another.
• Below cost payments by Medicare and Medicaid
  result in a hidden tax on insurance premiums
  through cost-shifting, increasing your cost of
  doing business.
• Legislation promoting transparency in the health
  care market

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What Can You Do?

• Insist that health insurers and local health care
  providers provide you the list of prices they
  have agreed to for services so you can make
  comparisons among providers and among insurers.

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What Can You Do?

• Support regulations that will require physician
  practices, laboratories, ambulatory care centers,
  and other non-hospital providers to submit annual
  financial reports. Currently we cannot see inside
  this major part of the health care system.

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A Healthcare Investment Strategy

• Your Business
• Improve your health
• Understand your healthcare costs
• Innovate on benefit design but be cautious of
  reforms which only shift costs
• Your Community
• Engage with healthcare industry (insurers,
  providers)
• Encourage conversations about cost shifting
• Work with Chambers, Business and Industry
  Association, and other Associations
• Aggressively Engage with the Legislature

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This presentation is available for downloading on
our website www.nhpolicy.org