Slide 1

Why national IQ drops 20 points when we debate Medicare & health insurance reform: an ‘Afternoon of the Faun’ moment is nigh

Paul Gross PhD

Director, Health Group Strategies Pty Ltd Australia and Greater China

Invited address, Annual Health Congress, Sydney, 22 March 2014

Slide 2

MY FOCUS

1.  Quick fixes & baby elephant hay: the May budget as an ‘Afternoon of the Faun’ moment

2.  Mural dyslexia: four short-term efficiency gains

3.  LTCI and longer-term funding of care of an ageing society with more disability

Slide 3

Lots more money, no real reform, uncertainty in big spending, overlaps, new gaps

1.Too many quick fixes , little reform: we must reassess outlays

Slide 4

1.  Is this a health policy debate? NO 2.  Is this a health financing debate? NO 3.  Is today’s Medicare relevant ? NO 4.  Is today’s PHI relevant? NO 5.  The quotes suggest consensus? NO

“Doctor visit co-payments are a

healthy price signal not a tax”2

“Medicare Select is not the solution to

improving Australian health care

system”5

“Abbott told line DSP up with mental health

episodes”8

“Standard pricing for insurers

inevitable”12

“Health insurance unfair to younger

clients”4

“Medicare architect calls for doubling of

levy”3 “TPD policies run risk of becoming too expensive

[because definition of disability is too vague]”10

“Hospitals could save $1 billion a

year”13

“Medibank and IPN trial to give members more access to GPs

at no cost”1e

“Abolish [PHI] rebate would save $3b”6

“Clawback: government largesse with pensions falls”14

“Ramsay looks to more acquisitions as profit

climbs”11

“Disability red tape threatens to cripple the

choices of those in need”9 “Disability scheme facing cap or cuts”7

Slide 5

Access gaps caused by cost in 2010 (1st box) and 2013(2nd box) Units

0

5

10

15

20

25

30

35

40

45

Mis

s do

c 10

Mis

s do

c 13

No

fillR

x 10

No

fillR

x 13

Eith

er p

rob

10

Eith

er p

rob

13

Pro

b pa

y bi

ll 10

Pro

b pa

y bi

ll 13

$100

0+ O

OP

10

$100

0+ O

OP

13

Percent reporting five cost problems

Australia Germany Netherlands Switzerland USA

AUSTRALIA: some improvement in first 3 measures

NETHERLANDS: Worsening

Slide 6

The copayment fiasco: more gaps, retarded access, lower super, PHI role? §  Safety nets for Medicare, PBS: not for allied health

services §  New kids dental benefit Jan 2014: 3.5m,$1000

every 2 years but 20% < average fee = copays §  OECD 2011 data: income differences in access to

GP and drugs §  Commonwealth Fund Nov 2013: access with

chronic conditions worse §  CHF report Feb 2014:17% copays, 75% delayed

Tx, 23% spent $1000-$2000, 23% no PHI, 14K sought access to super, 8K got it

§  MPL Jan 2014: IPN trial to give members more access to GPs at no cost: two-tier access to GPs?

Slide 7

Baby elephants with hay: MH & disability 1. MH direct costs = $14 billion è $50 billion in 2025 with

today’s payment models

2. Non-pension disability support NOW NDIS Feds: $3 billion è $22 billion è Feds: $8 billion è States: $5 billion ê States: $5 billion

3.  NDIS levy up to 65 years: what happens after 65?

4.  MH/NDIS interface: Feb 2014 Senate: unclear? Cut DSP if work >30 hrs? 5.  DSP and carer subsidies: fastest growing outlays 1996-2012, cuts May? 6. TPD insurance under Super July 2014: rising costs, definition of disability? 7. Fixing this mess: Audit Commission, Fels, McLure

BUT likely cost $29 billion

$9 billion shortfall

Slide 8

MBS subsidies and FFS Fixing the mental health-disability mess

PHI product regulation and risk equalisation Reduce visible waste in hospital care

2. Mural dyslexia: four priorities for short-term efficiency gains on the

tax expenditure side

Slide 9

Need 43% in HC efficiency gains by 2059/60 so start with 6% efficiency gains by 2023

Expenditure 2011/12 % GDP

2059/60 % GDP

Increase % GDP

Healthcare Feds States

4.1 2.4

7.0 3.8

2.9 1.4

Aged pension Feds States

2.7 -

3.7 -

1.0 -

Aged care Feds States

0.8 -

2.6 -

1.8 -

Disability Feds States

11.2 0.2

10.2 0.5

-1.0 0.3

Totals (non-education)

All Gov

21.4 27.8 6.4

If each 1% increase in Tax/GDP causes

a loss of 1% of real per capita GDP

If each 5% improvement in healthcare efficiency reduces pressure on ALL governments by 0.5 percentage points in 2059/60

Estimated loss of real per

capita GDP in 2059/60

= 6.4%

Efficiency gains needed by 2059/60 = 43%

Slide 10

Fix the MBS copay and FFS mess

Slide 11

MBS: FLAT COPAY FIVE BETTER IDEAS

TODAY

MBS bulk billing + safety net + copayments all untied to ability to pay

AND

with no regard to

value of any tests or

appropriate use of drugs

MBS copay $6 per

visit

Hospital ER charge $6 per visit

3. MBS with lower copays if

doctor uses PCEHR

1. MBS with a

means- tested safety

net

2. MBS with means-

tested copayment

ceilings

5. Restrict bulk-billing by means-testing

4. MBS with lower copayments for effective (i.e., validated) interventions

6. Gap insurance: NOT a good idea

Slide 12

Fix the mental health – disability mess

Slide 13

Health/social care : disability loading in PHI

Economic downturn

Aging

+

chronic illness

+

disability

↓

Health and social

care financing problem

Focus responsibility and most of limited goverment budgets on

those with substantial and complex needsand needing help

→  additional social support →  personal care budgets

Support rest of care-demanding population and their carers by

facilitating self-care, with budget limited funding that complements

people’s own resources

-> PHI REP disability adjuster

-> additional LTCI (+ HSA?)

LT budget costs driven by

complex medical care and multi-problem social

care

Growth of healthcare

demand: slow by private funding?

RATIONALE: basis for expanded LTCI or single national payer

Slide 14

Deregulate PHI products, fix community rating, trial of prospective equalisation

with new risk adjusters

Slide 15

PHI regulation Australia 2014 Regulation Impact on insurer costs, product

innovation or patients 1. Overlaps of PHIAC with ASIC, ACCC,

APRA, ATO, state regs

Compliance costs

Risk-averse behaviour

2. Restrictions on FEDs Increased copays by patients-> OOPs up

3. Hospital benefits paid Regulated second tier at 85% of state rates

Hospitals can pass on differences as copays ->

OOPs up

4. Product differentiation Regulated, innovation retarded

5. CR requirement on hospital policies to carry

REP contribution

Floor price for every HP -> product price

6. Community rating in current form Sustains more small funds than needed

7. Risk adjustment Restricts affordable stop-loss products

Restricts loyalty bonusus and member incentives

for better health behaviour

Slide 16

Medicare Select: Dutch version 2006-14

§  Dutch NHE grew at same rate pre-2006 §  PHI funds concentration ratio: 93% in 4 funds §  PHI margins: increased §  Hospital efficiency: more elective surgery §  Doctors: small gains in transparency §  Member churning initially: now defaulters §  Drugs: some efficiency gains §  Prospective risk equalisation formula:

generous, stopped in 2012 §  Germany rejected Dutch approach

Slide 17

Funding issues

Insurance issues

What should be uniform

(basic) public care?

What should be income-related and preference-

related care?

1.What is the preferred method of

redistribution of the

healthcare cost burden?

Taxes NOT

Expenditures

2.What type of risk-adjusted

subsidy?

1.  What form of insurance is

efficient if higher

benefits require higher

individual payments?

2.  What REP?

3. What mix of insurance and

incentives?

Reform of PHI: two core issues

Key questions

AND

Slide 18

Regulated PHI Impedes

innovative PHI product design

What role for health-based risk adjustment (HBRA) in prospective risk equalisation, and with what risk adjusters?

Reinsurance pool Retrospective

risk equalisation with little

incentive to cover care

outside hospitals

Unconditional flat PHI rebate

No incentive to PHI funds to improve the

health outcomes of high risks

Deregulated PHI: prospective risk equalisation

HINT: Predictability of medical expenditures at the individual patient level using disability measures = 29-51% (Kronick et al 2000)

Slide 19

HBRA

Prospective risk-adjusted

payment reflecting

comorbidity AND disability of PHI enrollee

CMS-HCC risk adjustment1 •  Age •  Gender •  Disability status of

community residents who are disabled beneficiaries aged under 65 years

•  Disease •  LTC community and

institutional residents (LT>90 days)

Original reason for entitlement * Age •  Disability •  ESRD •  Disability + current ESRD

Frailty adjustment factor (organisational level) * Functional limitations based on 6 ADLs in community residents over 55 years)

Slide 20

Get serious about visible, continuing waste in hospital use

Slide 21

Reduce 33% hospital share of NHE by 10% in 3 years = $6 billion/year

§  About 20% of all ACS admissions to acute hospitals are potentially preventable by better primary care

§  About 10-15% of all readmissions to hospitals are potentially

preventable by - pro-active care management in nursing homes and

home care - IT-driven coordination of the transitions of care of the

patient §  Of the 10% of patients admitted to hospital for an overnight

stay who experience an adverse event, about 3-5 percentage points of those events (i.e., 50% of all AEs) are potentially preventable by best practice guidelines and incentives for better transparency.

Slide 22

3. Sustaining carers and personal responsibility: medium term reforms using LTCI & super

Slide 23

Efficiency gaps: home health care

Slide 24

Carer burden Australia: NSPAC Dec 2013

Data: 2011–12 Barriers to Employment for Mature Age Australians Survey, 3,007 respondents aged between 45 and 74 years.

Slide 25

Carer burden Australia: subsidy targets

“[A]nalysis of data from all respondents showed that the carers who were most likely to have a current illness, injury or disability themselves were •  women, •  people aged 45–54 years, •  carers who were not working, and •  people earning less than $20,000 per year.”

Slide 26

1. Sustain existing informal carers

2. Assist people to stay at home

3. Consumer directed choice

4. Expand funding sources in retirement

Expand respite services, TCP Expand carer options for workforce participation Carer credits (12% SG) to carer super accounts1

NDIS support of permanent disability New Integrated Home Support Program Increased # Home Care packages

Super-funded HRSA :home/NH/respite care Super-funded LTCI

Expanded personal care budgets Increase IEC to enable self care and choice of high quality care

Incentives for home care and carers, plus LTCI rebate

Slide 27

Gaps that a new LTCI could fill

GAP POTENTIAL SOLUTIONS

1. Minimal subacute care of aged & chronically ill leaves 50% in hospital beds

New LTC insurance covering care outside hospital and NH, transitional care

2. Inadequate capital investment for high-care residential care

New LTC insurance for such places, relieving Budget demands of $6 billion in 2022 (Hogan)

Slide 28 In-home supportive LTCI: $240/year GOAL:“Humana developed Points of Caregiving with its LifeSynch subsidiary; the program is available for Humana members and non-members for $20 a month with a one-year agreement ($240 a year), a cost quickly offset by the time and energy saved by the caregiver. Collaborative and consultative process, SeniorBridge’s licensed, clinical professionals conduct an in-depth assessment of each individual’s needs, preferences, strengths, support system and resources in consultation with all concerned parties then present a recommended care plan. Some of the services in a care plan : Professional Oversight and Coordination by Care Managers: Regular home visits to monitor how your loved one is feeling, medications and the general environment Customized interventions for mood and behavioral problems Help managing health finances and advocacy for access to insurance benefits and community resources Coordination of home modifications or alternate housing Hourly and Live-In Caregiving by licensed home health aides: Companionship Meal preparation and light housekeeping Shopping, errands and transportation Personal care including bathing and hygiene assistance Help transferring Private Duty Nursing Licensed RNs, or LPNs/LVNs who provide skilled care including: Wound Care Injectable Medications, Tube Feeding and Tracheotomy Care, Ventilator, End of life Palliative Care

Slide 29

The height of technical felicity is to combine sublime simplicity with just sufficient ingenuity to show how difficult it is to do.

After Piet Hein

How much of this conjecture is doable??