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Donna Lynne, DrPH, PresidentKaiser Permanente Colorado

Health Care CostA Perspective

December 9, 2010

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Health Care: Why is it so expensive?

What we will cover:

• How much we spend in the U.S.

• What is unique in Colorado

• Where the money goes

• Where the money is misspent

• Opportunities for improvement

Introduction

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How much we spend

Health Care Costs Rise Internationally (1970 – 2007)

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Source: OECD Health Data 2009. Health care cost rise based on total expenditure on health as % of GDP. Countries are USA, Germany, Austria, Switzerland, United Kingdom and Canada.

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Physician Fees

C-Section (US$)

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Hospital Charges

Average Cost Per Hospital Day (US$)

Total Hospital and Physician Costs

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Hip Replacement (US$)

US ranks poorly in results . . .

Relative Ranking

Australia Canada Germany New Zealand

United Kingdom

United States

Life Expectancy

1 2 4 3 4 6

Infant Mortality

2 2 1 4 4 6

Tobacco Use

3 2 6 4 5 1

Obesity 3 2 1 4 5 6

Avoidable Death

1 2 3 4 5 6

Health Exp Per Capita

$3,128 $3,326 $3,287 $2,330 $2,724 $6,401

Source: Organization for Economic Cooperation and Development, 2005

And what we get

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U.S. health care spending (in billions of dollars)

2875 253 714

1,353

2,113 2,2412,379 2,509

4.4 Trillion

How much we spend in U.S.

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Source: Centers for Medicare and Medicaid Services

Colorado

Sources of coverage

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Source: Kaiser Family Foundation

Employer: 55%

Individual: 6%

Medicaid: 10%

Medicare: 10%

Other Public: 3%

Uninsured: 16%

Individual: 5%

Medicaid: 16%

Medicare: 12%

Other Public: 1%

Uninsured: 17%

Employer: 49%

United States

Employer-sponsored insurance

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Source: Kaiser Family Foundation

Colorado U.S.

Firms offering health insurance 55% 55%

Firms offering insurance < 50 employees 43% 41%

Firms offering insurance > 50 employees 97% 96%

Employer contribution for single coverage 79% 80%

Employer contribution for family coverage 75% 73%

But Colorado is a bit healthier than U.S.

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Source: Kaiser Family Foundation

Colorado U.S.

Infant mortality per 1,000 live births 6.1 6.8

Life expectancy at birth 79.1 78

Overweight/obese children 27.2% 31.6%

Overweight/obese adults 53.3% 60.8%

Adults with diabetes 5.7% 8.3%

Heart disease death rates per 100,000 pop. 145.3 190.9

Participate in moderate or vigorous exercise

57.0% 50.9%

Health Care Cost Continuum

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Source: Milliman USA Healthcare Cost Guidelines, 2001 Claims Probability Distribution, non-KP.

0%

20%

40%

60%

80%

100%

0% 20% 40% 60% 80% 100%

% of Membership

% of Costs

0% total cost10% total cost

30% total cost

% of People

1% of people

70% of people20% of people

% of Healthcare

Expenditures

Buckets of wasteful spending:

• Behavioral = $303 billion to $403 billion wasted

• Clinical = $312 billion wasted

• Operational = $126 billion to 315 billion wasted

Where we misspend

$1.2 trillion in waste

=

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Source: PriceWaterhouseCoopers’ Health Research Institute

Where we misspend

Behavioral

($303 billion to $403 billion wasted)

• Obesity ($200 billion)

• Smoking ($567 million to $191 billion)

• Non-adherence ($100 billion)

• Alcohol abuse ($2 billion)

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Source: PriceWaterhouseCoopers’ Health Research Institute

Where we misspend

Behavioral

• Obesity

• Smoking

• Non-adherence

• Alcohol abuse

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The opportunities• Make change easier or

financially advantageous− Incentives− Easy access to coaching/advice

• Provide options− Healthy catering/cafeteria− Healthy communities

Source: PriceWaterhouseCoopers’ Health Research Institute

Where we misspend

Clinical

($312 billion wasted)

• Defensive medicine ($210 billion)

• Preventable hospital readmissions ($25 billion)

• Poorly managed diabetes ($22 billion)

• Medical errors ($17 billion)

• Unnecessary ER visits ($14 billion)

• Treatment variations ($10 billion)

• Hospital acquired infections ($3 billion)

• Over-prescribing antibiotics ($1 billion)

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Source: PriceWaterhouseCoopers’ Health Research Institute

Where we misspend

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Clinical

• Defensive medicine

• Preventable hospital readmissions

• Poorly managed diabetes

• Medical errors

• Unnecessary ER visits

• Treatment variations

• Hospital acquired infections

• Over-prescribing of antibiotics

The opportunities

• Electronic Medical Records

• Disease registries

• Medical home

• Patient empowerment

− Online access to own medical record

− Access to clear information

Source: PriceWaterhouseCoopers’ Health Research Institute

Where we misspend

Operational

($126 billion to $315 billion wasted)

• Claims processing ($21 billion to 210 billion)

• Ineffective use of IT ($81 billion to $88 billion)

• Staffing turnover ($21 billion)

• Paper prescriptions ($4 billion)

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Source: PriceWaterhouseCoopers’ Health Research Institute

Where we misspend

Operational

• Claims processing

• Ineffective use of IT

• Staffing turnover

• Paper prescriptions

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The opportunities

• Greater investment in IT

• Streamline regulation

• Investment in training and development of health care professionals

Source: PriceWaterhouseCoopers’ Health Research Institute

America’s Big Cost Drivers in Health Care:

ABCD’s of chronic disease . . .

• Asthma

• Blood pressure control (hypertension)

• Coronary artery (heart) disease / Congestive heart failure

• Diabetes

• Depression Modifiable risk factors: All heavily impacted by weight, diet, smoking, adherence to treatment plans, and physical activity.

The opportunities

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Prevention is part of the cure

Condition Preventive strategy

Cost per individual for prevention

Cost per individual for treatment

Colon Cancer Early detection (colonoscopy)

$1,300/procedure $14,451/year

Lung Cancer Smoking cessation (nicotine patch)

$300/program $20,833/year

Heart Disease Exercise (gym membership)

$402/year $4,215/year

Diabetes Nutritional counseling $50 to $200/session $2,414/year

Skin Cancer Wearing sunscreen

$11/bottle $665/visit

The opportunities

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The US (and Colorado) is predominately an employer-based system

– Employers cover approximately 60% of all people in the health care system

– Employers have engaged is extensive cost shifting of health care costs to employees

– Employers have largely been unsuccessful in slowing the cost of health care; current focus wellness

Employer-Based System

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Health Insurance Premiums

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Source: Centers for Medicare and Medicaid Services

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Cumulative Changes in Health Insurance Premiums, Inflation, and Workers’ Earnings, 1999-2008

1999

2000

$1,543

$3,515

$4,247

$9,860

$5,790

$13,375

Total per family per year

Total per family per year

Worker contribution

Employer contribution

Employers and employees pay more:Average health insurance premiums for family plans

The workplace perspective

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• State Paid $178 million in FY 2008-2009 for Health Insurance – 71%

• Employees paid $71 million in FY 2008-2009 for Health Insurance – 29%

• Offers a choice of two health plans to its employees– Kaiser Permanente– United Healthcare

• Retiree medical provided through PERA– Unfunded liability

Colorado

State of Colorado

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Among All Large Firms (200 or More Workers) Offering Health Benefits to Active Workers, Percentage of Firms Offering Retiree Health Benefits, 1988-2009*

**Tests found no statistical difference from estimate for the previous year shown (p<.05).No statistical tests are conducted for years prior to 1999.Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2009; KPMG Survey of Employer-Sponsored Health Benefits, 1991, 1993, 1995, 1998; The Health Insurance Association of America (HIAA), 1988.

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Retiree Health Benefits

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Donna Lynne, DrPH, PresidentKaiser Permanente Colorado

Health Care CostA Perspective

December 9, 2010

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