Average Annual Growth Rate of Health Consumption Expenditures, 2000-2011 Total Per Capita 10% 9% 8.1% 8% 7.1% 7% 6% 4.6% 5% 3.7% 4% 3% 2% 1% 0% 2000-2005 2006-2011 SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary. Last updated June 2012. 24
Average Annual Growth Rate of Health Spending and Enrollment for the Privately Insured, 2000-2011 Health Spending Enrollment Per Capita Health Spending 10% 9.1% 8.9% 8% 6% 4.9% 3.9% 4% 2% 0% -0.2% -1.0% -2% 2000-2005 2006-2011 25 SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary. Last updated June 2012.
Average Annual Growth Rate in Medicare Health Spending and Enrollment, 2000-2011 Health Spending Enrollment Per Capita Health Spending 10% 8.6% 9% 8% 7.2% 6.5% 7% 6% 5% 4.1% 4% 3% 2.4% 2% 1.4% 1% 0% 2000-2005 2006-2011 26 SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary. Last updated June 2012.
Average Annual Growth Rate for Medicaid Health Spending and Enrollment, 2000-2011 Health Spending Enrollment Per Capita Health Spending 10% 9.3% 9% 8% 6.6% 7% 5.9% 6% 5% 3.8% 4% 2.5% 3% 2.0% 2% 1% 0% 2000-2005 2006-2011 27 SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary. Last updated June 2012.
Average Annual Growth Rate of Health Consumption Expenditures, Historical and Projected Total Per Capita 10% 9% 8.1% 8% 7.1% 7% 6.1% 6% 5.2% 4.6% 5% 3.7% 4% 3% 2% 1% 0% 2000-2005 2006-2011 2012-2021 28 SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary. Last updated June 2012.
Average Projected Annual Growth Rate for Health Spending by Payer, 2012-2021 Health Spending 2012-2021 10% Enrollment 8.5% 9% 8% Per Capita Health Spending 7% 6.1% 6.0% 6% 5.0% 4.7% 5% 3.6% 4% 2.9% 3.1% 3% 2% 0.9% 1% 0% Medicare Private Medicaid SOURCE: Centers for Medicare and Medicaid Services, Office of the Actuary. Last updated June 2012. 29
ACA Didn’t Forget Costs • Health plan competition in the marketplaces • Medicare payment controls • Excise tax on high-cost employer plans • Accountable Care Organizations • Medical home demonstrations • Bundled payment demonstrations • Dual eligible demonstrations • State Innovation Models • Readmission incentives for hospitals 30 URBAN INSTITUTE
Private sector is also experimenting • So far, private insurers have not done as well controlling spending as the public sector • Private insurers do not seem to have the leverage to drive provider prices down – Recent IOM geographic report show private prices are more variable than public prices across areas – MedPAC “cost shifting” analysis makes the point also • But, new ideas are being explored – ACOs, PCMHs, bundled payments, capitation – (AHIP MAP) Results, of course, are uncertain 31 URBAN INSTITUTE
2009 MedPAC analysis shows financial pressure contains costs 2007 Financial High Pressure (non- Low Pressure (non- Characteristics Medicare margin <1%) Medicare margin >5%) Non-Medicare margin -2.4% 13.5% Standardized Cost per $5,800 $6, 400 discharge Medicare margin 4.2% -11.7% Hospitals under less pressure from non-Medicare payers (including the uninsured) have higher costs. This makes Medicare payments look low, but not really 32 URBAN INSTITUTE
33 33
Evens after ACA, Medicare can and should contribute more to deficit reduction • Many Medicare ideas have been put forward – CBO options, Bipartisan Policy Center, House budget • Berenson, Holahan & Zuckerman (BHZ, 2013) – Complex problems require a range of options – Preserves current benefits and protections – Share costs among current and future beneficiaries, plans, providers and taxpayers 34 URBAN INSTITUTE
Overview of BHZ Medicare Ideas • Beneficiary: Restructure cost sharing, create a buy-in option in age of eligibility raised to 67 • Plans and Providers: reform MA payments; restore drug rebates for duals; reduce teaching hospital, SNF, home health and lab payments • Taxpayers: Raise payroll tax by 0.5% (in 2017) • Net of SGR repeal: $596B (2013-22) 35 URBAN INSTITUTE
Access for publically insured could be at risk with aggressive spending controls • MedPAC uses access as one of the factors when considering payment adequacy • So far, Medicare access looks good relative to Medicaid and even private patients; could change • Medicaid is a different story – rates are much below Medicare, especially for physician services; reduces access to physicians and increases dependence on EDs – ACA temporarily increases Medicaid primary care rates but the effects are far from certain 36 URBAN INSTITUTE
Cannot just focus on federal costs • Unless health spending slows, costs could get shifted to program beneficiaries and providers • Ignores systemic problems related to prices, independent of the unit of payment – Multi-payer nature of system and weak position of private and public and payers limit negotiating power • Could alter fundamental incentives of private market by changing the tax treatment of employer premiums, but uncertain outcomes – Limit tax exclusion before considering elimination 37 URBAN INSTITUTE
Conclusions • Private growth per person faster that public sector growth; continues in projections • A great deal of public and private sector activity to control costs but the jury is still out – Early indications look positive. Projections would change. • Health care system is complex and simple fixes are likely to have unintended consequences 38 URBAN INSTITUTE
White Presentation The Structural Spending Slowdown Chapin White Center for Studying Health System Change Symposium on Sustainable U.S. Health Spending Altarum Institute Washington, D.C. July 30, 2013 cwhite@hschange.org
The Big Questions Recent slow growth in Medicare spending – recession-driven blip, or – structural change Effects of ACA – spending rebound, or – further tightening of the screws Long-term projections – dire, or – unclear, maybe not so bad Center for Studying Health System Change – www.hschange.org
Medicare is Structurally Different Today Structural changes – provider payment policy was: blank check is: penny-pinching price-setter – cost reimbursement tight prospective rates – usual, customary, reasonable SGR Center for Studying Health System Change – www.hschange.org
Medicare Excess Growth has Slowed 6.0% 5.0% 4.0% 3.0% 5-year moving 2.0% average 1.0% 0.0% 1975 1980 1985 1990 1995 2000 2005 2010 -1.0% -2.0% -3.0% Source: Author’s calculations using CBO (Feb 2013 Medicare baseline). Notes: Excludes Part D, excess relative to potential GDP, assumes MEI fix to SGR. Center for Studying Health System Change – www.hschange.org
ACA Further Tightens the Screws Productivity adjustments – slows Medicare price growth affects all providers except physicians 1 pctg point below inflation permanent Payment reforms – post-acute bundling – value-based payment modifiers – readmission penalties – ACOs Center for Studying Health System Change – www.hschange.org
Medicare Slowdown Projected to Continue 6.0% 5.0% Projections 4.0% 5-year moving 3.0% average 2.0% 1.0% 0.0% 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 -1.0% -2.0% -3.0% Source: Author’s calculations using CBO (Feb 2013 Medicare baseline). Notes: Excludes Part D, excess relative to potential GDP, assumes MEI fix to SGR. Center for Studying Health System Change – www.hschange.org
Broader Effects of ACA More people will be covered – increases ―demand ‖ BUT … Medicaid enrollment Constrain Exchange enrollment Provider Cadillac tax Revenues Spillover effects of Medicare cuts Center for Studying Health System Change – www.hschange.org
What About the Long Term (2024-on)? Will Medicare spending growth rebound? – CBO: yes – OACT: yes volume growth will spike up providers will exit the program in droves Hunh? Center for Studying Health System Change – www.hschange.org
The Assumed Long-Term Rebound Source: Author’s calculations using CBO (Feb 2013 Medicare baseline, and 2012 LTBO). Notes: Excludes Part D, excess relative to potential GDP, assumes MEI fix to SGR. Center for Studying Health System Change – www.hschange.org
The Assumed Long-Term Rebound 6.0% 5.0% Projections 4.0% 5-year moving 3.0% average 2.0% 1.0% 0.0% 1975 1985 1995 2005 2015 2025 2035 -1.0% -2.0% -3.0% Source: Author’s calculations using CBO (Feb 2013 Medicare baseline, and 2012 LTBO). Notes: Excludes Part D, excess relative to potential GDP, assumes MEI fix to SGR. Center for Studying Health System Change – www.hschange.org
Wrapup Medicare is structurally different today ACA further tightens the screws Health care growth has been unsustainable – that means the trend will change – the question is ―when? ‖ Maybe ―wh en ?‖ is now Long-term projections very uncertain Center for Studying Health System Change – www.hschange.org
References White, C. 2013. "Contrary To Cost-Shift Theory, Lower Medicare Hospital Payment Rates For Inpatient Care Lead To Lower Private Payment Rates." Health Affairs 32(5), 935-43. White, C. 2013. "Medicare Spending Limits: Issues and Implications." Online: http://www.kff.org/medicare/upload/8428.pdf. He, F., and C. White. 2013. "The Effect of the Children’s Health Insurance Program on Pediatricians’ Work Hours." Medicare & Medicaid Research Review 3(1), E1-E33. White, C., and J. D. Reschovsky. 2012. "Great Recession Accelerated Long-Term Decline of Employer Health Coverage." National Institute for Health Care Reform, Number 8, Online: http://www.nihcr.org/Employer_Coverage.pdf. White, C., and P. B. Ginsburg. 2012. "Slower Growth in Medicare Spending — Is This the New Normal?" New England Journal of Medicine 366(12), 1073-75. White, C. 2008. "Why Did Medicare Spending Growth Slow Down?" Health Affairs 27(3), 793-802. Center for Studying Health System Change – www.hschange.org
Networking Break 51
III. A New Basis for Forecasting Long-Term Health Spending: Federal Budget Implications ▲ Gene Steuerle , Richard B. Fisher Chair & Fellow, Urban Institute – Presenter ▲ Charles Roehrig , Director, Altarum Center for Sustainable Health Spending – Presenter ▲ Thomas Getzen , Emeritus Professor of Risk, Insurance & Health Management, Temple University - Presenter ▲ Joanne Kenen , Health Editor, POLITICO – Moderator 52
Better Ways of Estimating and Steuerle Presentation Projecting Health Spending Growth C. Eugene Steuerle Richard B. Fisher Chair & Institute Fellow The Urban Institute Altarum Institute Symposium on Sustainable U.S. Health Spending: Public Sector Imperative, P rivate Sector Urgency Pew Charitable Trusts Washington, DC July 30, 2013
Annual Changes in National Health Expenditures per Capita versus Median Household Money Income per Household Member, 1980-2011 Median Household Income per Member Cumulative Change, 1980-2011: Constant 2010 Dollars 1,000 National Health Expenditures per Capita Median Income/Household Member: +$4,000 800 National Health Expenditures/Capita: +$5,800 600 400 200 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 -200 -400 -600 Source: CMS National Health Expenditure data and U.S. Census Current Population Survey, Annual Social and Economic Supplements
Relationship between Excess Cost Growth and Health Spending's Initial Share of the Economy Health Spending's Share of Economic Growth = 30% 9 8 7 Excess Cost Growth (%) 6 GDP Growth = 4% 5 4 GDP Growth = 2.5% 3 2 GDP Growth = 1% 1 0 10 12 14 16 18 20 22 24 26 28 30 Health Spending's Initial Share of GDP (%)
Excess Cost Growth vs. Health Spending’s Share of Per Capita Economic Growth Health Spending's Initial Share of GDP = 18% Population Growth = 0.9% 6 5 Excess Cost Growth (%) 4 3 2 1 GDP Growth = 1% 0 20 25 30 35 40 45 50 Health Spending's Share of Per Capita Growth (%)
Excess Cost Growth vs. Health Spending’s Share of Per Capita Economic Growth 90 Health Spending's Share of Per Capita Growth (%) 80 GDP Growth = 1% 70 GDP Growth = 2.5% 60 50 GDP Growth = 4% 40 Health Spending's Initial Share of GDP = 18% 30 Population growth = 0.9% 20 10 0 0 1 2 3 4 5 6 7 8 Excess Cost Growth (%)
Health Spending Share of Income Growth: 30 Percent Is this an Asymptote? Is it Sustainable? Charles Roehrig Director, Center for Sustainable Health Spending July 30, 2013 www.altarum.org
Overview ▲ There is evidence for a 30 percent(ish) asymptote in the health spending share of real per capita GDP growth – If so, health spending is roughly on a GDP+1 path and slowly moving toward GDP+0 – The cumulative share is slowly moving from18 percent toward 30 percent ▲ The 30 percent share of income growth is mathematically sustainable but stresses the federal budget. ▲ Note: The 30 percent share is not Planck’s constant – it could be driven up or down by factors such as the aging population and federal budget constraints. But it does provide a meaningful baseline for speculation about future health spending growth. 65
Raw historical shares are chaotic, primarily because of business cycles. 66
Eliminating business cycles from the denominator (GDP growth) reduces the noise considerably. But business cycle effects remain in the numerator (health spending growth). Note: PGDPsm = smoothed potential GDP 67
Removing business cycle effects from both the numerator and denominator creates a much more stable picture. Did we hit a 30 percent asymptote between 1985 and 1990? Note: business cycle effects on health spending were estimated using a regression model that employs the Getzen lag structure and is a variant of that used in the Kaiser Family Foundation study http://kff.org/health-costs/issue-brief/assessing-the-effects-of-the- economy-on-the-recent-slowdown-in-health-spending-2/ 68
Combining managed care and its backlash into a single period suggests that the share has been close to 30 percent for over 20 years. While not exactly the equivalent of Planck’s constant, it seems to be a reasonable assumption for baseline projections. 69
Excess Spending (GDP+?) ▲ From the Steuerle real per capita growth formula: – Health = GDP*(1 + α) = GDP + α x GDP – The ―ex cess‖ growth rate is α x GDP – α is equal to the share of growth (30%?) over the cumulative share (18% currently) minus one ( = 0.7) ▲ Assuming long run real per capita annual economic growth of 1.5 percent going forward, and a 30 percent health share of growth: – Underlying health spending trend is now GDP+1 – 2025 trend will be GDP+0.8 – 2050 trend will be GDP+0.5 70
The historical trend provides no clue as to a leveling-off point. 71
The 30 percent asymptote is a basis for identifying how the curve levels off. See http://www.altarum.org/forum/post/us-health-spending-share-gdp-where-are-we-headed 72
Is 30 Percent Sustainable? ▲ Previous studies have examined sustainability in terms of excess growth rates. – For any fixed positive excess growth rate, there is a point in time at which the health spending share of GDP growth rises to 100 percent and beyond! It has been suggested that the level of excess growth becomes unsustainable at this point in time. There is also a point where a fixed rate is a mathematical impossibility. ▲ Focusing on the share of GDP growth rather than excess growth avoids both of these sustainability limits. ▲ However, a given fixed share (e.g., 30 percent) may not be sustainable in terms of federal government financing. – Between now and 2035, the 30 percent asymptote implies average growth of about GDP+0.8 – Is this financially sustainable for the federal government? 73
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GDP+0.8 on the Triangle of Painful Choices Tax revenues, and 0.8 defense/non-health spending are expressed as a percentage of GDP. Spending on social security and interest is 6.3 percent of GDP in all scenarios. Health spending growth is expressed relative to GDP growth. The smaller triangle represents historically high tax revenues, historically low spending for defense/non- health, and health spending growth below GDP+1. 75
Getzen Presentation Cyclical and Structural Growth in U.S. Health Spending L a g s and Long Run Growth Curves Thomas E. Getzen iHEA and Temple University Altarum Symposium, Washington DC, 30 July 2013
Real Spending (mostly) = Labor U.S. Employment 1990 - 2011 150000 140000 Health Employment (x10) Total Employment (000's) 130000 120000 110000 Recession officially begins 100000 90000 80000 1 9 9 0 1 9 9 5 2 0 0 0 2 0 0 5 2 0 1 0
Health Care is a complex and inertial System.
Table 1. Growth in Real Health Expenditures (%) as function of lagged GDP growth: U.S 1960 - 2010 rgdp 0 rgdp -1 rgdp -2 rgdp -3 rgdp4 3 rgdp -5 ∆Deflator 0-1 ∆Deflator 1-2 Time constant R 2 US - Total -.36 -.22 -.00057 .034 .16 .13 .12 .24 .30 .23 .762 NHE
Finnish Recession
What this this means for projections: Adjustment for Lags Improves Accuracy
No Lag
With Lag
NHE v base annual
NHE annual growth components
Excess 1960 to 2010
A Tale of Two Necessities • Housing – Rapid Response, Anticipation – Amplifies boom/bust business cycle • Health Care – Slow to change, delayed response – Smoothes out cycles, dampens shocks
Going from Business Cycles to The Long Run: • Decades • Generations • Centuries
Dynamics Adjustments are made slowly, with short-run adjustments made within 5 years, and long- run adjustments made over the next 25 years.
The 30 percent asymptote is a basis for identifying how the curve levels off. See http://www.altarum.org/forum/post/us-health-spending-share-gdp-where-are-we-headed
What bends the curve? • Use 1950+ to predict 2020- • Medical Technology what is the marginal benefit of new Rx? • Income effects will long run wage growth be 0%, 1% or 2%? • OTHER? (population, aging, obesity— not so much )
IV. Roundtable: Are We On a Sustainable Path? What Factors are Most Relevant? ▲ Uwe Reinhardt , James Madison Professor of Political Economy, Princeton University ▲ David Cutler , Otto Eckstein Professor of Applied Economics, Harvard University ▲ John Holahan , Institute Fellow, Health Policy Center, Urban Institute ▲ Joanne Kenen , Health Editor, POLITICO – Moderator 96
Reinhardt Presentation ARE WE ALREADY ON A SUSTAINABLE PATH OF HEALTH SPENDING? Uwe E. Reinhardt Princeton University ALTARUM CENTER FOR SUSTAINABLE HEALTH SPENDING Symposium on Sustainable Health Spending: Public Sector Imperative, Private Sector Urgency July 30, 2013
I. GROWTH OF HEALTH SPENDING IN THE O.E.C.D. COUNTRIES
As other speakers at this symposium have amply shown, there unquestionably has been a visible reduction in the annual growth of health spending (= health care incomes) in the U.S., starting gradually in 2002 and accelerating after 2008. But the U.S. is not alone in this rapid deceleration of health spending (income) growth.
http://www.oecd.org/els/health-systems/health-spending-continues-to-stagnate-says-oecd.htm
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