Health Care Reform & Our Future Larry Van

Health Care Reform & Our Future Larry Van

Health Care Reform & Our Future Larry Van Horn, Ph.D, MPH, MBA Associate Professor of Management & Economics Executive Director for Health Affairs The Owen Graduate School of Management A Divided America This is important because Americans appear unwilling to take on financial liability for this program extension. My 25 minute objective

Give you some perspectives on how to think about health care reform. Based on immutable laws of economics Give you my thoughts on what impact the changing political landscape will have. Cover what this may mean for providers Not make you cry.

A disclaimer things you need to know about me A bitter evil little man Just a simple country economist My political agenda is simple. Pay for what you consume. My belief: the topic of health care reform is clarified when you focus on the math. Health Care Reform

Most substantive piece of legislation to affect the health care industry since the passage of Medicare in 1965. Goal: Increase the scope of insurance coverage and access to a greater number of Americans and reduce cost. The Problem the Uninsured About 45 47 million uninsured 11 million have income below the

poverty line. 12 million have incomes in excess of 300% of the FPL ($66,000). 5 million have incomes in excess of 500% of the FPL ( $110,000) 10 million are not US citizens. 25% are eligible for Medicaid but havent signed up. Source: The Problem - Cost Health care is currently around

17.5% of our GDP and forecast to grow to 25% by 2025. We spend about $8000 per person. Rate of growth in health care costs has outstripped other goods and services most every year for the past 25 years. Sovereign Debt MEDICARE is everything! The current Medicare trustees

report states that we are currently 37 TRILLION dollars short on our current obligations. Since 2001 Benefits have increased by 15.5% Add Medicaid and other entitlements and we end up 54 TRILLION dollars short. To put this in perspective the US GDP is about 14 trillion. August 2010 CMS Trustee

Report Medicare is now projected to be solvent for an additional 12 years. Long Run shortfall now only $30T. BUT: CMS Chief Actuary Richard Foster (T)he financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range. . . or the long range. . . . I encourage readers to review the illustrative alternative projections that are based on more sustainable assumptions for physician and other Medicare price updates.

CMS Actuary Report on Health Care Reform: Richard Foster Yes it will cover an additional 34 million people. It will increase spending by $311B About 14 million people would lose their employer coverage by 2019 as smaller employers terminate coverage and workers who currently have employer coverage become enrolled in Medicaid; The estimated reductions in the growth rate of health spending "may not be fully achievable" because "Medicare productivity adjustments could become unsustainable even within the next 10 years, and over time the reductions in the scope of employersponsored health insurance could also become an issue New fees and taxes on medical device makers will "generally be passed through to health consumers in the form of higher drug

and devices prices and higher premiums It is reasonable to expect that a significant portion of the increased demand for Medicaid would be difficult to meet, particularly over the first few years" April 22, 2010 What is in the bill Medicaid: Increased enrollment by 16 million with eligibility at 133 percent of the FPL and essential benefits defined by Secretary of

HHS. Federal subsidies for increased insurance coverage for 16 million adults via subsidies up to 400 percent of FPL. 65% of US population What is in the bill - cont. Basic benefits: Requires the Secretary of Health and Human Services to define and annually update the benefit package

through a transparent and public process services considered essential to basic health that would be required in all health insurance plans offered through health exchanges and more commercial The secretary shall appears than 1,000 timesplans in the bill targeting the individual and small

group markets. What is in the bill - cont. Annual fees on health insurance sector: $8 billion in 2014;

$11.3 billion in 2015-2016; $13.9 billion in 2017; $14.3 billion in 2018 For subsequent years, the fee shall be the amount from the previous year plus the annual rate of premium growth for each plan. The Insurance Industry The administration and congress hates the insurance industry & the principle of insurance

No ability to limit coverage based on preexisting conditions. Limitations on the ability to underwrite Age 3x, smoking 1.5x Federally determined scope of benefits Federally determined MLR. Cap on deductibility of executive compensation as a business expense. Summary Comments on Bill Will increase access / perceived access (and expectations).

Does little to address cost at the micro level (affordability to patients). Does little to address cost at the macro level. 57 Trillion debt due to Medicare / Medicaid Does not break the trend of healthcare cost inflation outstripping other goods and services. Where we go from here 4 problems.

Political problem Legal problem Cost problem Cultural problem The political problem

Repeal No There will be a house vote next week It will not be brought forward in the senate The Gabrielle Giffords effect An air of conciliation Will temper partisan positioning John Boehner is not Newt Gingrich The political problem

GOP efforts to defund provisions Most components dont kick in until 2014 Expensive political posturing in preparation for 2012. The political problem Items likely to draw attention 1099 reporting provision FSA use for over the counter medications

Elimination of the funding for CLASS Restriction of funds for abortion The Legal Problem We have seen a number of federal rulings questioning the constitutionality of the individual mandate Some have argued that these judges have ruled consistent with the political party which appointed them. This will be settled years from now in

the Supreme Court. Will hinge on the interpretation of the commerce clause The Cost Problem Holtz-Eakin and Ramlet, Health Affairs June 2010 The cultural problem We feel comfortable consuming healthcare and miraculously having insurance [other peoples

money] pay for it. We dont value much of what we consume in excess of the cost. Consider the well child visit. We dont feel comfortable making cost part of the conversation around tradeoffs. If we increase quality cost will magically drop. The Truth A Math Problem

CBO Analysis Current law will raise outlays from 20% GDP to 30-40% GDP over 30 years, BUT: Long-term normal tax rate yields revenue of 18-22% GDP In 2020 the deficit will be 5.6% of GDP roughly $1.3T, $900B of that will be interest. We as a country cant seem to handle the truth

Number needed to pay my dear mom Knee Replacement Cost $20,000 Aetna Medicare Advantage Cost to mom = $0, $45/ visit Number of Median workers total Medicare payroll deductions required to pay for my moms knee? PRICELESS? NO 23 Median working

Americans entire Medicare payroll tax deduction necessary to fund. What does the future hold? Achieving the fiscal consolidation necessary to avert a downgrade will test social cohesion and may involve rewriting the social contract between governments and their people, People have to decide what level of pain they are willing to accept to have a healthy economy. Moody's managing director of sovereign

risk Mar 15, 2010 So what does that mean? Cant close budget shortfalls through reducing prices paid to providers. Can and probably will change eligibility criteria for public programs but we must .. Ration scope of benefits and take costs out of system Acute v. Chronic Elective v. Emergent Significantly increase productivity of medical practice.

Significantly reduce the intensity of medical treatment We will end up paying more for healthcare services, higher taxes, for fewer benefits. Next few years Focus in health care going forward is on taking out cost out of the system Declining reimbursements, and shifting payor mix. Commercial book of business will erode as employers move to exchange and pay penalties. Stronger hospitals will get stronger, weak will get

purchased All providers will seek cover, hedge risk, through employment. CMS will tinker with alternative payment models. ACO models and bundled payment place a premium on continuum of care. May 19, 2010-- Former Federal Reserve Chairman Paul Volcker, a top outside adviser to President Barack Obama,

In the United States, we dont seem to me to share the same sense of urgency as countries such as Ireland. The time we have is growing short and there are serious questions, most immediately about the sustainability of our commitment to growing

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