can we afford our healthcare? · 2008. 7. 21. · can we afford our healthcare? maybe but only if...
TRANSCRIPT
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Robert B. HelmsResident ScholarAmerican Enterprise Institute
NCSL Legislative SummitNew Orleans, LAJuly 24, 2008
Can We Afford Our Healthcare?
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Can We Afford Our Healthcare?
MaybeBut it will require substantial reform in
3 areas:Tax policy affecting private health insuranceMedicare payment policiesMedicaid financing
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The Politics of Health Policy
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Are the Stars Alignedfor Health Reform?
Senator Kennedy’sTask Force
Public Opinionfavors reform
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Past Attempts to ReformHealth Policy
President Truman and National Health InsurancePresident Nixon’s offerThe Reagan eraPresident Clinton’s
Health Security Act
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Health Econ 101Prices matter
To buyersTo sellers
Insurance (Public or Private)Lowers the perceived price to the consumerIncreases the volume demanded (moral hazard)
Supply of health careMostly services -- Is very labor intensive (income to people)Medical products – innovation constantly changingFacilities – long-term capital investments make adjustments difficult
Open-ended payment policies create strong incentives to increase spending
With weak incentives to seek valueResult is inefficient, flat-of-the-curve health care delivery
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National Health Expenditures Projected to be $2.3T in 2007
OOP
Private Insc
Other Private
Medicare
Medicaid
Other Public
Source: CMS, NHE
12%
34%
7%
20%
15%
12%
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The Private Sector Projected to be $1042 B in 2007
OOP
Private Insc
Other Private
Medicare
Medicaid
Other Public
Source: CMS, NHE
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WWII Wage and Price ControlsTwo programs to control
wartime inflationOffice of Price Administration (OPA)– Price controls and rationing of
consumer commodities (e.g., sugar, coffee, butter, tires)
National War Labor Board (WLB)– Control of wartime wages– Settlement of labor disputes
to assure wartime production
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National War Labor Board
1943: War Labor Board and IRS ruling that employer fringe benefits did not count as taxable wagesBut could not exceed
5% of wages
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The Post-War Period1954: Exclusion of health
insurance from taxable income confirmed by the CongressPost-war period
Medical advances increased cost of medical care and the demand for health insuranceRapid growth in health insurance coverage
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Private Hospital Insurance CoverageGroup versus Individual, 1940-1975
0
50
100
150
200
Millions
of
Pers
on s
1940 1945 1950 1955 1960 1965 1970 1975
Employer Group
Individual
Note: Employer group is the total of persons covered by Blue Cross/Blue Shield plus insurance company group policies.
Source: Historical Statistics of the United States – Millennial Edition, Series Bd294-305.
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Growth in Third-party Payments, 1960-2000
0102030405060708090
1960 1970 1980 1990 2000
Out-of-Pocket
Third Party
Per
cent
of
NH
E
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Effects of Tax Policy
Q
P
D
D’
S
IncreaseIn Demand
HigherPrices
HigherOutput
IncomeGrowth
MedicalTechnology
TaxPolicy
•Higher prices•Lack of access•Winners & Losers
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MedicareProjected to be $448 B in 2007
OOP
Private Insc
Other Private
Medicare
Medicaid
Other Public
Source: CMS, NHE
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Medicare Expenditures 2007
Hospital 46%
PhysicianServices23%
Home Health 5%Rx Drugs 11%
Other Prof Care 3%
Other12%
Enrollment:FFS 82.4%MA 17.6%
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Medicare Income and Expenditures
0%
3%
6%
9%
12%
1966 1976 1986 1996 2006 2016 2026 2036 2046 2056 2066 2076
Calendar Year
Note: Projections are based on the intermediate assumptions from the 2008 Trustees Report.
Total expenditures
HI deficit
General revenue transfers
State transfers
Premiums
Tax on benefits Payroll taxes
Historical Estimated
Source: 2008MedicareTrustees Report,Figure II.D2
Percentof
GDP
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Medicaid - Projected to be $191 B Federal + $146 B State in 2007
OOP
Private Insc
Other Private
Medicare
Medicaid
Other Public
Source: CMS, NHE
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Four Types of Medicaid BenefitsCBO Projections in Billions
$0
$50
$100
$150
$200
$250
$300
$350
$400
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Adults
Children
Blind & Disabled
Aged
Source: CBO, Medicaid Spending Growth, July 13, 2006, Table 4.
2020
Medicaid State Matching Rates, FY 2008
13 States with 50% FMAPs
CaliforniaColoradoConnecticutDelawareIllinoisMarylandMassachusettsMinnesotaNew HampshireNew JerseyNew YorkVirginiaWyoming
10 States with highest FMAPs
Mississippi 76.3%West Virginia 74.3%Arkansas 72.9%Louisiana 72.5%Utah 71.6%New Mexico 71%District of Columbia 70.0%(set by law, not by formula)Idaho 69.9%South Carolina 69.8%Kentucky 69.8%Montana 68.5%Source: KFF State Health Facts
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Two Types of Ratchet EffectsTotal Budget Effect
Expand Medicaid relativeto other state programs
Interstate EffectWealthier states expand Medicaid relative to poorer states
Subject to Two ConstraintsEach state’s budget capacity – taxing authorityThe federal bureaucracy’s rules and regulations –NASHP’s “Tug of War”
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The Medicaid Commission’sRecommendations
Did not address FMAP reform or financial gamingRecommended greater state flexibility and simplified
waiver processEmphasis on LTC
Especially care coordination for dual eligibles
Recommended a new Medicaid Advantage proposalConsolidate present funding sources – states receive a risk-adjusted capitated paymentAllow states to set up state or private coordinated care plansOptional state participationBeneficiaries could opt out of state system
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Payment for Dual Eligibles:Current FFS Policy
Go toHospitalor NursingHome
Go toPhysician
Payment from:
MedicarePart A Medicaid
MedicarePart B
State $ Federal Match
No Coordination of Care
Stay at home
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Payment for Dual Eligibles:Seeking a Better Way
Go to Hospitalor Nursing Home Go to Physician
MedicarePart A Medicaid
MedicarePart B
State $ Federal Match
State or Private Health Plan
Provides Coordinated CareAnd Payment
$
$ $
$
Stay at Home
$$
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Cost of Entitlement Programs
Social Security
Medicare
Medicaid
0
2
4
6
8
10
12
14
16
18
20
2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049
% G
DP
By 2050
19% of GDP
66% of federal
spending
Source: CBO Long Term Budget Outlook, 2007
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Entitlement Growth Will Force Political Change
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2007 2018
Source: CBO Budget Projections, 2008
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Can We Afford OurHealthcare?
MaybeBut only if we reform the distorted incentives we now
have in public and private marketsWe have to create pervasive incentives:
For consumers to seek value in medical consumptionFor providers to compete on the basis of quality and cost-effectivenessFor everyone to invest more in prevention and IT
Mandating coverage will not assure access to effective coverage:
look at the UK, Canada, and Medicaid
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Are the Stars Alignedfor Health Reform?“All the players in health carereform . . . came to the politicalprocess with strong convictions insupport of their first-choiceproposal. For each of these groups,their second-favorite choice wasthe status quo.”Stuart Altman, as quoted in HealthAffairs, 2001.