Unformatted text preview: Health Policy Health Policy Government Involvement in the Government Involvement in the Health Care Market
• As health insurer As direct provider of services • Government Involvement in the Health Care Market
• Financier of research and monitoring public health Tax policy • Government Involvement in the Health Care Market
• Regulator Government Involvement in the Health Care Market On what grounds is On what grounds is it justified? Justification Justification
• Externalities Market failures Income (resource) distribution • • If the government does get If the government does get involved in the health care market….. For what purpose? PUBLIC HEALTH If the government does get If the government does get involved in the health care market….. What are inputs to public health? Determinants of Health Determinants of Health
• Lifestyle • • • Public health Medical care Random effects • Risk perceptions • Risky behaviors Three goals of a public Three goals of a public health delivery system • • • Right amount of care To right amount of people Costs equitably distributed Trends in Health Coverage for the Nonelderly Population, 2002 and 2003 Source: Kaiser Family Foundation, Health Insurance Coverage in America, 2003 Data Update, November 2004, Table 1, p.28 U.S. Health Dollar Where it came from 2004 Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group National Health Expenditures as a Percent of GDP Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group Annual Increase in National Health Expenditures Per Capita In 2004, per capita health spending growth dropped to 6.8% after peaking at a 12year high of 8.0% in 2002, while CPI growth rose from 1.6% in 2002 to 2.7% in 2004.
Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group Distribution of National Health Expenditures, by Type of Service, 1994 and 2004 Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group Relative Contributions of Different Types of Health Services to Total Growth in National Health Expenditures, 19942004 Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group Hospital Care Inflation Rate Compared to Health Care and CPI 19982003 Annual Percentage Change in National Spending for Selected Health Services, 19942004 Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group Number of Non Elderly Uninsured, 19942003 Source: Kaiser Family Foundation, Health Insurance Coverage in America, 2003 Data Update, November 2004, Figure 1, p.11 Age Distribution: Changes in Health Insurance Coverage Rates, Children and Nonelderly Adults, (Percentage Point Differences), 20022003 Source: Kaiser Family Foundation, Health Insurance Coverage in America, 2003 Data Update, November 2004, Figure 22, Table 2 and Table 3 Health Insurance Coverage of the Nonelderly by Poverty Level, 2003 Source: Kaiser Family Foundation, Health Insurance Coverage in America, 2003 Data Update, November 2004, Figure 2, p. 11 Distribution by Race Hourly Wage Summary Facts: Summary Facts:
• • Government provides ~44.4% of all health care in the U.S. In 2004 national health care expenditures made up approximately 16% of GDP, up from 13.7% in 1994 Medical care cost have been increasing at an alarming rate Hospital costs make up the largest percent (30.4%) of national health care expenditures Inflation in the health care sector has far exceeded CPI for the past 10 years – primarily driven by inflation in the inpatient hospital care sector and prescription costs • • • Summary Facts:
• • Approximate 12.2% of the population are uninsured and 7.8% of children The majority of these individuals (45.5%) are 1824 years, members of minority groups, employed less that 35 hours per week, earning less than $10.00 per hour, What has accounted for the increase in What has accounted for the increase in per capita medical care expenditures?
• Demographics (2%) Income (5%) • • Spread of insurance (13%) “Cost disease” in services sector (5%) • What has accounted for the increase in per capita medical care expenditures?
• Administrative expenses (13%) Inflation in factor prices or “economic rents” (3%) New technologies and resulting over consumption of medical care (59%) • • Diffusion of new technologies Diffusion of new technologies
• New and better treatment options Diffusion of new technologies Change in treatment options: • • What is the marginal value of What is the marginal value of more health care? Do people who receive more care live longer and fare better than those who don’t? Is new technology resulting in better outcomes? Do people who receive more care live longer and fare Do people who receive more care live longer and fare better than those who don’t?
• • • Comparison studies of “insured” and “uninsured” patients Comparison studies of “private” and “state” physician care Comparison studies of “more intensive” and “less intensive” treatment options Is new technology resulting in better outcomes? The value of new technologies The value of new technologies
• • Average value of technology Marginal value of technology
• • • Is technology on net valuable? • What is the impact of more care on mortality and morbidity?
Overprovision of care? Root problem in health care cost inflation? Explanations for overuse of health care Explanations for overuse of Explanations for overuse of health care
• • New technologies available • New technologies and medical ethics • Genetic testing? Demandside explanation • Moral hazard and over insurance: patients are sufficiently well insured, they pay very little for additional care and therefore consume medical care until the net marginal benefit is zero. Explanations for overuse of health care
• Supplyside explanation • Supplier induced demand and the “medical arms race” • Providers wish to maximize their income and therefore induce excessive amounts of care • Threat of medical malpractice suits Solutions to over consumption of Solutions to over consumption of medical care?
Basic problem is one of separation of insurance and provision of care
Providers decide on treatment Insurers pay the bills Solutions to over consumption of Solutions to over consumption of medical care?
If patients and providers could agree on prices and limits to their care use BEFORE they were sick they would only contract for socially desirable amounts of care No knowledge of probability of illness Socially desirable optimal insurance coverage Attaining optimal insurance Attaining optimal insurance markets in the health care industry How does insurance work in other markets? Optimal health insurance Optimal health insurance markets?
• Optimal insurance markets • But, adverse selection can occur in health care markets • Risks are large enough, and neither the insurer or insured know the individual’s probability of experiencing a particular medical condition • Selection of health insurance based on prior knowledge of risk condition; • sick find more generous health insurance policies more attractive and drive prices up; • healthy individuals seek policies with less complete coverage and lower premiums. Optimal health insurance Optimal health insurance markets?
• But, experience rating, risk selection, and market failure • Occurs when insurers know much more about an individual’s expected spending than the person does (family history screening, required medical screening, insurance history) • Resulting price discrimination based on expected costs of care • Possible refusal of care Solutions to health insurance Solutions to health insurance market failures Three solutions to the problem of Three solutions to the problem of risk selection:
• • • Contracts for more than one year Mandatory pooling on a basis other than risk, e.g., employer or state of residence Risk adjustment policies • Taxes on, or rebates to, insurers who insure “healthier” or “sicker” individuals so that incentives to select individuals based on health risks are minimized Solutions to overprovision of care
Logic: Increase the choice that people have over different insurance policies, particularly policies that will limit the amount of care provided, and increase the financial returns from choosing less expensive health insurance. Cost containment in health care Healthcare Costs Healthcare Costs
• Premium • Deductible • Payment for insurance policy on a per month basis (withheld from Social Security for Medicare) • The amount annual medical expenses that a health plan member must pay before the plan will begin to cover expenses
• • Copay Example: $500 deductible you pay the first $500 of medical expenses before health plan begins paying the expenses • A dollar amount which is applied per service rendered
(per office visit, per confinement, per emergency room visit) Cost containment in health care Cost containment in health care
• • Health Maintenance Organizations (HMOs) • Care supplied by a group of affiliated physicians; • Patients who use HMOs physicians get care at some minimal copay; • No reimbursement for using providers outside HMO Preferred Provider Organizations (PPOs) • Wider network of physicians; • Patients pay minimal copay if they stay within the PPO; • Patients get reimbursed at a significantly lower rate if they go outside the network. Solutions to overprovision of care Point of Services Plans (POSs) Point of Services Plans (POSs)
• When you enroll in a POS plan, you are required to choose a primary care physician to monitor your health care. This primary care physician must be chosen from within the health care network, and becomes your "point of service". The primary POS physician may then make referrals outside the network, but then only some compensation will be offered by your health insurance company. • Point of Services Plans (POSs) Point of Services Plans (POSs)
• POS plan attempts to combine the freedom of a PPO with the lower cost of an HMO. • You are not limited to only HMO network providers, but copayments for nonnetwork care are high, and there is a deductible for nonnetwork care • For network care, copayments are low & there is no deductible • Annual outofpocket costs are limited • Getting referrals for specialists may be difficult Costs increase Health Maintenance Organization (HMO) Point-of-Service Plan (POS) Preferred Provider Organization (PPO/Indemnity) Hospitalization Copayments $0-$200 Depending on the treatment $0-$200 if you use an HMO provider 10%- 50% of the bill Deductible None None for HMO For PPO and Indemnity options, between 10%-50% For HMO: Primary Care Physician (PCP) from the network For PPO: Any network provider Annual Deductible Doctor Primary Care Physician (PCP) from the HMO network’s provider Any PPO network provider Physician Copayments $5 to $15 depending on the HMO plan. $5 to $15 if you use a network (HMO or PPO) physician $10 to $40 depending on the PPO plan Specialists Referral Referral You may choose any PPO network specialist These plans are gaining in These plans are gaining in popularity Evidence of the effectiveness of Evidence of the effectiveness of managed care in limiting costs Evidence of the effectiveness of Evidence of the effectiveness of managed care in limiting costs Shortrun effects 10% cost saving Slower cost growth Fee for service lowercompetitive effects No evidence of health impact Longrun effects No evidence of longterm cost savings No evidence of health impact Government involvement with the Government involvement with the health care market
For the Poor (means tested) For the Elderly (entitlement program) Public Health Care Programs Public Health Care Programs
Medicaid Medicare Medicaid Medicaid
Dominant public program for financing basic health and longterm care services for lowincome Americans Medicaid Entitlement Program Medicaid Entitlement Program
• • • • Jointly funded by federal and state funds • Rich states 50/50 cost sharing • Poor states 80/20 cost sharing Administered by the states Eligibility not tied to TANF benefit receipt State flexibility: • Eligibility criteria • Benefit package • Payment policies Medicaid Entitlement Program
• Covers only 46% of poor and near poor • Half Medicaid beneficiaries are children • Most generous states cover 60% of their low income population • Less generous states cover 40% of their low income population Medicaid Enrollees and Expenditures on Benefits, by Eligibility Category, 2003 Children historically represent the largest eligibility group of Medicaid beneficiaries. Source: Kaiser Commission on Medicaid and the Uninsured estimates based on Congressional Budget Office and Office of Management and Budget data, 2004. Table 3.32 Medicaid Beneficiaries by Age, Sex, and Race, 1998
Medicaid beneficiaries are disproportionately female and non-white. Age
Unknown 7.4% 21-64 29.9% 65 and Over 11.5% Sex
Unknown 8.7% White 43.1% Race
Asian 2.5% Black 24.2% Under 21 51.2% Male 36.2% Female 55.1% Native American .8% Unknown 15.5% Hispanic 15.6% FY 1998 Note: Percentages may not sum to 100 because of rounding. Source: CMS, Office of Research, Development and Information: Data development by Planning and Policy Analysis Group. Personal Health Expenditures by Type of Service and Percent Medicaid Paid, 2000
Total personal health spending in 2000 was $1,130.4 billion; Medicaid accounted for 17% percent. $412 Billion Medicaid pays 17% $286.4 Billion Medicaid pays 7% $121.8 Billion Medicaid pays 17% $92.2 Billion Medicaid pays 48% $60.0 Billion Medicaid pays 4% $39 Billion Medicaid pays 4% $36.7 Billion Medicaid pays 65% $32.4 Billion Medicaid pays 18% $31.2 Billion Medicaid pays 0% $18.5 Billion Medicaid pays 0% Source: CMS, Office of the Actuary, National Health Statistics Group. Medicaid Entitlement Program
• • • • Covers only 46% of poor and near poor Half Medicaid beneficiaries are children • Only 23% are adults in families with children Distribution of beneficiaries does not match distribution of expenditures • 67.7% goes to the elderly and disabled • Mainly acute and longterm care Expenditures dominated by hospital and longterm care facility expenditures Medicaid Spending Growth Medicaid Spending Growth
→1988-1992 saw an increase in Medicaid spending of 22% per year →1992+ this growth slowed somewhat →2000+ has taken off again What accounted for Medicaid What accounted for Medicaid Spending Growth 19881992?
• Enrollment Growth • Delinking of eligibility AFDCMedicaid
• • 1988 Medical Catastrophic Act • Late 1980s legislation • Expansion of SSI eligibility
• low income elderly and disabled • Recession
• Learning disabled, AIDS, substance abuse, etc. More low income individuals Medicaid Payment per Enrollee by Acute and LongTerm Care, 2003 Source: Kaiser Commission on Medicaid and the Uninsured estimates based on Congressional Budget Office and Urban Institute data, 2004. Medicaid Spending for Long-Term Care, 1992-1998
Home and community-based services are a growing share of Medicaid’s long term care spending.
$70 Home and Community Care Spending $60 Real Spending in Billions
$59.1 Institutional Care Spending $50
$49.1 $52.8 $40 $30 $20 $10 $43.8 14.9% 18.6% 20.5% 25.3% $0 1992 1994 1996 1998 Selected Fiscal Year
Notes: The data are expressed in 1998 dollars. Total Medicaid LTC expenditures consist of spending on institutional LTC and home and community care. Institutional LTC spending includes expenditures for nursing facilities, and public and private intermediate care facilities for the mentally retarded. Home and community care spending consists of expenditures for personal care, home health, and home and community-based waivers. The percentages (e.g., 14.9 percent, 18.6 percent, etc.) represent the proportion of total Medicaid LTC spending that is home and community care spending. Source: CMS, Office of Research, Development and Information: Data development by Planning and Policy Analysis Group, data from 1992, 1994, 1996, and 1998 HCFA 64, 2000. Medicaid Spending Growth Medicaid Spending Growth
• Utilization Growth • Disproportionate Share Hospital (DSH) Payments Other Factors • Population growth • Expansion of services covered • Subsidy of hospital to cover indigent population health care costs • Inflation in health care prices pushing up Medicaid reimbursement rates • Growth in nursing homes and longterm care needs of the elderly • Why the expenditure slowdown Why the expenditure slowdown in 1992?
Medicaid growth averaged only 9.5% per year from 1992-1995 Medicaid Expenditure Slowdown Medicaid Expenditure Slowdown
• • DSH Payments • 1991 and 1993 legislation • Capping DSH payments • Setting reimbursement rates Other Factors • Slowing in medical price inflation Medicaid Expenditure Slowdown Medicaid Expenditure Slowdown
• • Enrollment • TANF rolls declined Spending per enrollee • Managed care? Dimensions of Medicaid as of 2005 Dimensions of Medicaid as of 2005
• • • • Medicaid is still America’s Largest Single Health and Longterm Care Program $329 billion in 2005 2.6 percent of US GDP Coverage for over 53 million low income persons Dimensions of Medicaid as of 2005 Dimensions of Medicaid as of 2005
• Medicaid enrollment has increased by one third from 2000 through 2004 Dimensions of Medicaid as of 2005 Dimensions of Medicaid as of 2005
• Major Challenges
• • • • Spending is expected to increase a least 7.6 percent to 8.4 percent over the next decade
Enrollment Demographic changes Medical inflation • Effects on States vs. State Fiscal Capacity • Eligibility rules outdates and complex Dimensions of Medicaid as of 2005 Dimensions of Medicaid as of 2005
• Guiding Principles for Reform
• • • • • Modernization Personal Responsibility Embrace Market Solutions Create alternatives for long term care Focus on Sustainability and Affordability Medicare Program Medicare Program
Major public health care program for the elderly (1965), the disabled, and people with endstage renal disease (1972) Medicare Financing Medicare Financing
• • Part A (Hospital Insurance) Accounts for 2/3rds of the program costs • • • Funded by “Hospital Insurance Trust Fund” Hospital Insurance Trust Fund funded by a 2.9% payroll tax on all wage/salary income CAPPED Entitlement program: All 65+ elderly are eligible to receive benefits if they (or their spouse) are on Social Security • Inpatient care, skilled nursing, home health care, hospice Medicare Financing
• • Part B (Supplemental Medical Insurance) Accounts for 1/3rd of program costs
• Physicians, outpatient, lab services, ambulatory care • • Funded by “Supplemental Medical Insurance Trust Fund” Supplemental Medical Insurance Trust Fund is funded by beneficiaries and general revenues
• Beneficiary premiums approximately $50/month Medicare Financing Medicare Financing
• Part D (Prescription Drug Coverage)
Voluntary Prescription Drug Program • Prescription drug, biological product, or insulin product Paid through premiums and general tax revenue Costs • Premium of $35/month, Deductible $250 annually Reduction in Drug Costs • 25% off costs from $251 to $2250, 100% annual drug costs from $2251 to $5100, copayment of $2 for generic drugs and $5 for brandname prescriptions • • • Medicare Medicare
Part A: Hospital Insurance (2/3rds) Hospital insurance trust fund – capped payroll tax Part B: Supplemental Medical Insurance (1/3rd) Supplemental medical insurance trust fund – contributions + general funds Part D: Supplemental Prescription Drug Coverage Beneficiary Premiums + ...
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- Fall '06
- Centers for Medicare and Medicaid Services