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The Health Care Landscape Before
and After the ACA
Bill Evans
University of Notre Dame
1
Two Goals
• What are the issues that any health reform proposal
must address?
• How did the ACA deal with these issues?
2
What must health care reform address?
• Access
• Cost (both the level and rate of change)
• Medicare
• Tax equity
3
4
Percent of Firms Offering Health Insurance
100%
95%
98%
50-199
200+
% Offering Insurance
87%
80%
72%
60%
46%
40%
20%
0%
3-9
10-24
25-49
Firm Size
5
Uninsured Non-Elderly by Work Status of Family Head, 2007
Non-worker,
Part-year, 11.0%
part-time
worker, 4.1%
Part-year,
full-time
worker,
11.5%
Fullyear,parttime worker,
6.6%
Full-year,fulltime worker,
66.7%
6
Problems for small firms
• Large firms typically self insure – act as their own
insurance company
• Small firms must purchase insurance in the market
• Much higher cost
–
–
–
–
Do not benefit from large insurance pools
Higher administrative costs
Pay profits
Adverse selection
7
What must health care reform address?
• Access
• Cost (both the level and rate of inflation)
• Medicare
• Tax equity
8
Expenditures on Health Care
• Actual, 2010
• Projected, 2021
• $2.6 trillion on HC
• $4.7 trillion
• $8,402 per capita
• $14,102 per capita
• 17.9% of GDP
• 29.6% of GDP
9
Per Capita $ on Health Care, 2007
$8,000
87% more than Canada
$7,290
143% more than UK
$6,000
$4,763
$4,417
$3,895
$4,000
$3,424
$2,992
$2,581 $2,581
$2,000
$0
US
NOR
SWZ
CAN
IRE
Country
UK
SPN
JPN
10
Average Annual Premiums Covered Workers, 2011
• Individual plan
– $5,429 total
• Family plan
– $15,073
11
Price Changes, 1999 to 2010
160%
Price Changes
138%
120%
80%
40%
31%
26%
Overall inflation
Mean family
income
0%
Health insurance
premiums
12
Bang per buck??
• US ranks 25 of 29 countries in life expectancy
– 4.3 years shorter than Japan (highest)
– 2.4 years shorter than Canada
• 24th worst of 28 countries in infant mortality
– More than twice the rate of Japan (lowest)
– About 30% higher than both Canada and UK
13
Are high expenditures a bad thing??
• A key driver of health care costs is technology
• New technologies are effective but expensive
• Many technologies NOT available 30 years ago are
commonplace today
– MRIs/CT scans, angioplasty, anti-psychotropic drugs,
hip/knee replacements, neo-natal intensive care, treatments
for AIDS, statin drugs
• Health care is the ONLY industry where a growing
fraction of GDP is considered BAD
14
Medical Successes
• ARVs reduced AIDS mortality by 70%
• NICU’s reduce neonatal mortality among very low
birth weights infants by 42%
• Lipitor reduces LDL by 39-60%, reduces all cause
mortality by 12%
• 30-day survival rates for heart attack patients
admitted to the hospital fell 17% 1995-2006
15
Where would you rather be treated
for a disease: US or elsewhere?
16
5-year Cancer Survival Rates
Country
US
UK
Dnmk.
France
Swed.
Switz.
Breast Cervical
(Female) (Female)
82.8
66.7
70.6
80.3
80.6
79.6
69.0
62.6
64.2
64.1
68.0
67.2
Colon
(Male)
Lung
(Male)
61.7
51.0
39.2
49.6
51.8
52.3
12.0
7.0
5.6
8.7
8.8
10.3
Prostate Thyroid
(Male) (Female)
81.2
44.3
41.0
67.6
64.7
71.4
95.9
74.4
71.7
77.0
83.7
78.0
17
30-Day In Hospital Mortality Rate for Acute
Conditions
6%
5.4%
5.2%
5%
4.3%
4%
3.3%
3%
2%
1%
0%
AMI
Ischemic stroke
U.S.
OECD
18
If you want to cut costs, where?
• Administrative/overhead
– 3% in Canada (single payer)
– 1.5% in Medicare
– 8-30% in US system overall
• Chronic conditions
– Spending is heavily concentrated in a small % of
population
19
Percent of Total Health Care Expenses by
Different Percentiles of Population, 2002
97%
% of total expenditures
100%
80%
80%
64%
60%
49%
40%
22%
20%
0%
1%
5%
10%
20%
50%
Percentiles of population
20
If you want to cut costs, where?
• Administrative/overhead
– 3% in Canada (single payer)
– 1.5% in Medicare
– 8-30% in US system overall
• Chronic conditions
– Spending is heavily concentrated in a small % of
population
• Unnecessary/end of life care
– ¼ of Medicare $ are in last year of life
21
Per Capita Medicare Spending by Hospital Referral
Region, 2006
$9,000 to 16,352 (57)
8,000 to < 9,000 (79)
7,500 to < 8,000 (53)
7,000 to < 7,500 (42)
5,310 to < 7,000 (75)
Not Populated
22
What must health care reform address?
• Access
• Cost (both the level and rate of inflation)
• Medicare
• Tax equity
23
Medicare
• 2010
• 2040
• 47 million recipients
• 87 million recipients
• $524 bill. exp.
• 6% of GDP
• 3.2% of GDP
• 16% of fed. budget
24
Medicare Sources as % of GDP
Unfunded portion
Of Medicare
Will equal 2% of
GDP
25
Future problems
• Rising costs
• Rising number eligibles
• People are living longer
– Older people spend a lot more on health care
• Falling fraction of people to tax
26
Medicare Enrollment
100
Millions of People
87.0
79.2
80
62.3
60
40
20
28.4
34.3
39.7
46.8
20.4
0
1970 1980 1990 2000 2010 2020 2030 2040
Year
27
Remaining Life Years at Ages 65 and 75
20
18.0
18
17.2
At age 65
Remaining Years
16.4
16
14
18.7
15.2
13.9
12
10.4
14.3
10.9
11.0
11.2
11.3
11.4
12.0
At age 75
10
8
6
1950
1960
1970
1980
1990
2000
2005
Year
28
Per Person Health Care Spending, 2004
$30,000
$25,691
$25,000
$20,000
$16,389
$15,000
$10,778
$10,000
$5,000
$7,887
$5,210
$2,650
$3,370
0-18
19-44
$0
45-54
55-65
64-75
75-84
85+
Age group
29
Ratio: 20-64 Population/Medicare
6
5.5
4.7
5
4.5
4.3
Ratio
4
4.0
3.2
3
2.6
2.5
2030
2040
2
1
0
1970
1980
1990
2000
2010
2020
Year
30
What must health care reform address?
• Access
• Cost (both the level and rate of inflation)
• Medicare
• Tax equity
31
Tax Preferred Status of Health Care
• EPHI a tax-free fringe benefit
• WW II era program
• Greatly reduces costs of HI to consumers
– But encourages more generous coverage
• Has encouraged the growth of EPHI
– Few had insurance before the benefit
– Now 170 million have EPHI
• Helps solve the problem of adverse selection
32
Tax Benefit of EPHI
• A family w/ $70,000 in income
• 37% marginal tax rate
– 25% federal
– 4% state
– ~8% Social Security and Medicare
• Want to purchase $12,000 policy in AFTER TAX
DOLLARS
33
Without tax advantage:
• Receive $19,047 in income
• Pay 37% or $7,047 in taxes
• $12,000 left over for health insurance
• Net benefit of tax deduction is $7,047
34
Inequalities
• Costs Fed. Govt. $250 billion/year
• Tax break only available to those w/ ins.
– More likely high wage workers
• Tax benefit greatest for high income as well
– Paying higher marginal rates
• Regressive tax
– Benefits are much higher in upper income groups
35
Patient Protection and
Affordable Care Act
An outline and some likely outcomes
36
Overview
• Mainly a coverage bill
• Builds out from existing system
– Tries to fill in the gaps in coverage
• Large scale insurance industry reform
– Community rating
– Eliminate pre-existing conditions
37
Coverage expansions achieved through
• Individual mandate (tax of 2.5% of AGI)
• Pay or play -- employer mandates
• Expand Medicaid to include higher income groups
38
Coverage expansion (continued)
• Provide tax credits for the low income in individual
market
• Tax credits for small firms to provide insurance
• Establish health insurance exchange where people
can purchase group insurance
39
Why is coverage mandatory?
• Insurance industry reform
– Community rating
– eliminate pre-existing condition clauses
• If adopted under current system
– Costs for low risk would rise – they would exit
• Mandatory coverage forces low cost users into the
system, helps subsidize high cost users
40
Impact on Uninsured
• Reduce uninsured by 32 mil. in 2019 (60%↓)
• Leaves another 23 mil. uninsured
• Hispanics will be over-represented in the uninsured
41
Balance Sheet – CBO 2010-2019
• What the program buys
• How it is paid for
•
•
•
•
•
•
•
•
Expand private
Expand public
Small firm credit
Total
$ 464
$ 434
$ 37
$ 935
↑ taxes
↓Mcare/caid
Other
Total
$ 454
$ 368
$ 255
$1077
• $142 billion ↓ deficit
In Billions of $
42
Does it reduce the deficit?
• $40 billion in savings was due to CLASS act
– Long term care programs
– Takes in revenues for 6 years before any benefits paid out
– Financially not viable and has since been dropped
• Rosie scenario about future Medicare cuts
– 27% fee cut set to go into effect in Jan of 2013
– Automatic reductions in fees if growth is too high
43
Medicare Board of Trustees
“It is important to note that the actual future costs of Medicare
are likely to exceed those shown by the current law
projections…We recommend that the projections be
interpreted as an illustration of the very favorable financial
outcomes that would be experienced if the productivity
adjustments can be sustained in the long run.”
44
More general point
• It was necessary to do something about the future
costs of Medicare
• ACA did attack these costs – but – the savings were
then paid out in benefits
• If the concern is the overall fiscal health – we have
not improved
45
What is missing?
Cost controls
46
• Add 32 million people to the market with excellent
insurance coverage
• Modest attempt at cost controls
– Accountable Care Organizations
• No effort to change supply
– Should increase price
– Could be a lot worse
• With Medicare/Caid cuts, may discourage some providers from
participating in program
47
Winners
• Uninsured
– affordable high-quality insurance now available
• Workers at small companies
– Now have access to group market
– Heavy subsidies for low income
48
• Hospitals/Rx/Medical Technology
–
–
–
–
Insure 32 million more people
Sicker than average group (holding age constant)
With insurance, they will start to use services
Evidence:
• Stock prices of these firms increased every time bill moved closer
to passage
• Market is evaluating the bill as helping suppliers
49
Losers
• Medicare advantage
– Frozen reimbursements levels
• Small group market – this portion of market will not
exist in a few years
• Workers with high cost plans
• Tanning salons
• Generic drug manufacturers
• State budgets in some states
50
Where is the uncertainty?
•
•
•
•
•
How will Medicare cuts impact providers?
Can ACO’s reduce growth of costs?
What is a qualified plan?
Can exchanges constrain costs?
How many people will get subsidized coverage?
– Will not necessarily change who has coverage – but will
change who pays for it
51
The end
52
Pay or play
• Firms w/ >50 employees must offer qualified health
insurance or pay $2000 tax/employee
• Tax incentives/credits for small firms to provide
insurance
• Language is that firms must pay “fair share”
• Economists believe workers pay for insurance in the
form of lower wages
• Will firms pay or play?
53
Small Firms
• Small firms not subject to pay/play mandate
• Face extremely high cost of providing HI
• Workers face much lower wages if they receive HI
from firm
• Gov’t now provides high subsidy rate for low-income
uninsured
• As a result….
54
• May make sense for small firms with low wage
workers to
– drop coverage
– have workers pick up subsidized insurance via exchange
• Workers would get
– Wage hile
– Reduced health insurance costs
• Increase federal costs of program
55
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Obese
Not Obese
A
C
B
Age1
Age2
Age
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