Transcript The Causes and Policy Implications of Rising Health Care Spending

Health Reform Plans:
McCain vs. Obama
William H. Dow
University of California - Berkeley
October 20, 2008
1
Many Variants of Republican Ideology:
McCain has embraced extremes
Libertarians
Fiscal conservatives
Pro-Market
MINIMIZE
Govt Intervention Tax/Transfers
X
X
X
X
Conservatives are not monolithic, but different flavors of
conservatives tend to have similar policy views favoring
smaller government in sectors such as health care.
2
Heterogeneous Views of Government
(Blendon, NEJM Jan 24 2008)
Government vs. private insurance
providing medical coverage
Repub.
Dem.
Govt better
21%
41%
Govt worse
60%
36%
3
McCain and Obama Focus on
Different Health Care Problems
• Obama’s goal: universal health insurance.
• McCain:
– Reducing uninsurance is desirable, but not
paramount.
– Main priority is to reduce health care cost
growth. Why?
• Current cost trends are unsustainable.
• Addressing cost growth necessary for sustainable
decreases in uninsurance.
• Huge inefficiences in health care hurt government
budget, employers, and private individuals.
4
Heterogeneous Views of Uninsured
(Blendon, NEJM Jan 24 2008)
Problem that many Americans do not
have health insurance
Repub.
Dem.
Very serious 55%
94%
5
National Health Expenditures
National Health Expenditures as a Percentage of GDP
National health expenditures have risen dramatically and are projected to continue rising.
Percentage of GDP
25%
20%
15%
10%
5%
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Source: Department of Health and Human Services (Centers for Medicare & Medicaid Services)
and Council of Economic Advisers.
2020
2025
6
Public Budgets
Relative stability of past spending masks underlying shift towards entitlement
spending and unsustainable growth in Medicare spending
7
Source: Budget, 2007 [CEA]
Social Security and Medicare Costs
% GDP
14%
Medicare
12%
10%
8%
6%
Social Security
4%
2%
0%
2000
2010
2020
2030
2040
2050
2060
2070
2080
8
Source: CEA
Private Budgets
Employer-Provided Health Insurance Premiums for
Family Plans (1988-2005, adjusted for inflation)
$12,000
$10,000
Employee Share
Employer Share
$8,000
$6,000
$4,000
$2,000
$0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: Kaiser Family Foundation/Health Research and Eductaion Trust [CEA]
9
How Can We Slow Spending and
Reduce Inefficiences?
• No magic bullet.
– One-time fixes only of limited help (liability reform).
– Health IT, primary care, comparative effectiveness: both
campaigns embrace. Can reduce inefficiencies, but very
hard to assess if will reduce spending.
• New technologies are main cost drivers.
– Government has been unwilling to ration care, and
insurers have been unable.
– Republicans have embraced the potential role of
consumers: with more cost-sharing, they could make
better choices, demand lower prices, and induce costreducing technologies.
10
RAND Health Insurance Experiment
• Large 1970s experiment randomizing people to insurance plans with
cost-sharing ranging from none (“free care”) to 95% (high deductible).
Results:
• Free care enrollees spent 45% more than high deductible enrollees.
– Both “unnecessary” and preventive care was reduced
• Average health levels no worse after 5 years.
– But cost-sharing harmed health of those poor and sick at baseline. Longterm health effects unknown.
• New estimates: if switched insureds from current plans to those with
higher cost-sharing, we could reduce spending 5% in short-run. Big
unknown is how much long-run costs would drop.
11
Tool to remove bias against costsharing: reform tax law
• Employer-sponsored insurance (ESI) premiums
are exempt from income+payroll taxation
– Anomaly from World War II price control policy
• This is a “tax subsidy” for buying expensive
insurance, and biases away from cost-sharing.
• McCain: proposes to eliminate this tax distortion.
Could raise $200 billion/year, AND improve
efficiency AND improve equity.
12
Estimated Average Federal Health Tax Expenditure
3,000
2780
2640
2,500
2,000
2134
Mean Benefit: $1,511 / fam ily
1,500
1448
1231
1,000
725
500
102
292
0
Less than
$10,000-19,999
$20,000$10,000
$29,999
Data Source: Lew in Group, 2004;
Mean Benefit CEA calculation using CPS, Aug 04
$30,000$39,999
$40,000$49,999
$50,000$74,999
$75,000$99,999
$100,000 or
m ore
Fam ily Incom e
13
McCain plan
•
Similar cost containment ideas as Obama (health IT, primary care, P4P,
etc.) but less budgetary commitment.
– [No “Connector” to reduce admin costs… but savings are unclear, and could
easily add a Connector]
•
Eliminate current tax exclusion: to encourage consumerism, reduce costs
– [Less radical step possible: only partially remove exclusion]
•
Replace tax exclusion with flat $2500/person or $5000/family credit for
qualified insurance.
– [Too small for many low-income, sick. Could instead be larger for low-income.]
•
Guaranteed Access Plan: insurance for high risks. Partly paid through
insurer assessments.
•
Allow insurance to be sold across state lines…which would reduce rating
regulation.
– [Could use risk adjustment to instead reduce premiums for high risks]
14
Final Thoughts
• Differing underlying values and beliefs
• Many spurious arguments on all sides
– Both out of ignorance and disingenuous
– Be sophisticated in evaluating arguments!
• Scope for compromise?
– Major federal reform may require 60 Democrats in Senate.
– But common ground on many minor reforms.
• But: More important long-run policies are upstream
anyway.
– E.g., education: Can improve health more, thus lower long-run
costs; can reduce inefficiencies; can reduce inequities.
15