Transcript Health Care Challenges: An Actuarial Perspective

Lessons Learned — US Health Care Experience
Perspectives from an Actuary
Anna M. Rappaport, F.S.A.
18 February 2003
Focus: US Healthcare System and
The Role We Play
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Agenda

Environment
Observations
Lessons Learned
What Next?
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Environment
US sources of coverage
Private

Employer plans
finance most
health care for
employed
Government

About 45% of care is
government financed
–Medicare: Americans
over age 65
–Medicaid: Poor - low
assets and income
–Military and some
veterans
–Government employees
Insurance & HMOs


Risk transfer
Administration
Some individual coverage, but expensive and hard to get if in poor health
Over 40 million uninsured Americans
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Environment
How US health care is financed
Private


Range: fully
insured to self
insured
Fee for service
replaced by
negotiated
arrangements;
e.g., fee
schedules,
discounts
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Common to both


Fee for service =
traditional method of
payment
Some providers take
risk
HMOs paid on
capitation basis - $/per
month/per person
covered
– Physician groups,
hospital systems also
can be capitated
Medicare

–

Traditional
plans;
Physicians paid
based on
schedules, fixed
payment to
hospitals based
on diagnosis
Medicare +
choice = risk
contract
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Environment
Forces driving health care in the US
More new
technologies
Consolidation
Most savings
maximized
Employee
contributions
decrease
Medical errors
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Aging workforce
Prescription
drug costs
Many providers
unprofitable,
unstable
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Environment
Prevention vs. cure
Methods of
Payment
Types of
Practitioners
Treatment
Settings
Care
Guidelines
Decision Making
and Information
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Environment
Canada, UK health systems

Government provided coverage for all

Resource strains on both systems

Wait for care can be considerable

Private supplemental benefits are provided in addition to
government system (supplemental benefits are growing)

Discussions with users shows
– Diversity of opinion
– Some feel systems are great, others feel they are not
doing well
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Environment
Society of Actuaries: troubled health care project - why?
HC
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PENSION
PAY
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Environment
Health care as a percentage of GDP
16%
14%
14%
12%
10%
10%
9%
7%
8%
7%
8%
6%
6%
7%
1980
1998
4%
2%
0%
U.S.
Canada
Japan
U.K.
Source: Table 1333, 2001 Statistical Abstract of the United States
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Environment
Health care as a percentage of GDP
16%
14%
12%
U.S.
10%
Canada
8%
Japan
6%
4%
U.K.
2%
H.K.
0%
1994
1995
1996
1997
1998
Source: Table 3.6, Hospital Authority Statistical Report 2000-2001, Hong Kong Special Administrative Region
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Agenda
Environment
Observations

Lessons Learned
What Next?
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Observations
Some key facts about the money

Hospital care = biggest expenditure (34%)

Increases in costs “compound”

Health care costs have increased much more rapidly than
the cost of living

Typical employee benefits insulate employees from costs

Money drives treatment patterns

Most expensive is not best

Fewer than 10% of the covered population account for a large
proportion of the claims

Claims increase with rising age

Traditionally, very high claims in last year of life
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Observations
Large claims significantly drive cost
3%
$150/person
19%
50%
25%
35%
53%
$20,000/person
10%
5%
% of Employees
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% of Claims
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Observations
Cost trends drive projections
Expected cost impact based on $100 million annual health care spending
Illustrative Health Care Trend (in millions)
$220
@ 15.0%
@ 11.0%
@ 7.0%
$201
$200
$180
$175
$169
$160
$152
$152
$141
$140
$132
$120
$115
$100
$100
2003
$111
$107
2004
$137
$115
2005
2006
– the cumulative five
year difference
would equal $83m
or $17m per year
If trend were
reduced from 15%
to 7%
$132
$123
$123
If trend were
reduced from 15%
to 11%
2007
2008
– the cumulative five
year difference
would be $157m
or $31m per year
NOTE:
(1) Assumes level enrollment over five years
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Observations
Aging and health care
Some experts recognize need for better integration of chronic
care and for integrated management
“Reimbursement for clinical care in our state and
country is designed for an acute care model and
chronic care is very much an after thought. There
needs to be a shift in the paradigm of care we offer
to the frail elderly.”
…. from a geriatric physician
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Health care benefit trends
Aging and health benefit costs
Relative Cost by Age
Relative Costs by Age and Gender
3.00
2.50
2.00
1.50
1.00
0.50
0.00
20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+
Age
Male
Female
Average employer cost = 1.0
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Observations
Aging and health care issues
CHRONIC
CARE
INTEGRATION
WOMEN
ALONE
COST
OF AGING
CARE
SETTINGS
ACUTE
CARE
LONG-TERM
CARE
SUCCESS
MEASURES
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END-OF-LIFE
CARE
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Observations
Research is not adequate
Often looks at
treatments in isolation;
e.g., December 2002
study on blood
pressure drugs
Rarely considers
economic and other
non-medical issues
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Much research is financed
by providers, drug
companies; e.g., conflict of
interest
Largely focuses on conventional
Western medicine
Small samples produce
inconsistent findings; e.g.,
new study on use of
hormones for mid-life
women
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Observations
Alternative medicine
Definition: What is it?
Alternatives: What are
they? What is best?
Research: A woeful lack
Holistic health centers:
Very limited in the US
Public acceptance: High
but limited data and
payment by insurance
plans
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Observations
A changing paradigm
FEE FOR SERVICE
MANAGED CARE
– Managed care based on controls, contracting, defined provider
networks
– Managed care sometimes used capitation
– Managed care did not work
MANAGED CARE
CONSUMER DIRECTED
– Give the consumer more power
– Give the consumer an economic stake in the result
– Restructure payments and delivery to fit
– Will it work?
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New Ideas: More Consumer Influence
Consumerism is a continuum
Tiered Copays
Hospital, MD,
RX
Consumerist
Benefit
Designs
Consumer
Directed Health
Plan
Increasing Consumerism
Network
Delivery System
Models
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New Tiered
Network Models,
High-Performance
True Defined
Contribution
(Vouchers)
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Agenda
Environment
Observations
Lessons Learned

What Next?
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Lessons Learned
Actuaries could play a bigger role
Situation


Actuaries have
largely been
involved with
insurance and
benefits
System not working
well - U.S. society
searching out
solutions
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Barriers


Unclear what
“successful”
treatment is
Data is not userfriendly
Opportunities


Many opportunities
for cost-benefit
analysis
Align interests of all
parties
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Lessons Learned
Preventive care can have biggest payoff
Opportunities



Pre-natal care-very
big payoff
Public health,
sanitation have very
big payoff
Individuals can
influence their
health
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Barriers

But, insurance and
benefits focus on
paying for acute
care
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Lessons Learned
What is paid for drives behavior
Consumer Behavior
Provider Behavior
Examples:
During 1960s and 1970s,
design of benefits and
insurance drove care into
hospital
During 1990s surgery
moved out of hospital
Example:
Providers learn how to
“game” the system
(reconfiguration of
diagnoses)



Fraud is also an issue
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Lessons Learned
Accepted practices can change radically
TWO RECENT EXAMPLES


Hypertension study - older cheaper treatment is just as good,
often better than new much more expensive drugs
Hormone study - drugs routinely used actually increase risk
LONGER TERM


50 years ago - US women stayed in hospital one week +
for childbirth
Today - often go home same day
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Agenda
Environment
Observations
Lessons Learned
What Next?
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
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Focus: US Healthcare System and
The Role We Play
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What Next?
How much care should we deliver?
? ?
? ?
Who makes
the decision?
Will everyone be
covered by the
same system?
How much care
is family
expected to
provide?
Guidelines
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What Next?
How much care should we deliver?
Guidelines for medical practice/payment
Life style
drugs
Variable drug
reimbursement
In patient/
out patient
Cosmetic
Surgery
Diagnostic
tests
Elective
surgery
Transplants
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Generic drug
formularies
Maternity
stays
Medically
necessary
Coronary
by-passes
End-of-life
care
Hip
replacements
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What Next?
How much will it cost?
Providers
 Nurse
 Nurse practitioner
 Contracted providers
 Specific hospitals
Payment Methods
 Unlimited fee-for-service
 Fee schedules
 Bundled fee schedules
 Capitation
Who decides on provider and payment method?
 Who controls quality?
 Who sets the price?

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What Next?
How much will it cost?
Issue in many countries:
The role of
 Government
 Employer
 Individual
Is participation in the
system mandated?
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Do the sicker people
pay more or does
everyone pay?
What is the share of the
individual in cost and
how is it paid?
 Premium
 Co-payment
 Payment for uncovered
items
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Agenda
Environment
Observations
Lessons Learned
What Next?
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Appendix
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Basic Concepts
Prevention vs. cure
 Better to keep well: greater payoff for preventive
and early care
 Maternity care: prenatal care = healthier babies =
lower costs
 Some systems focus resources heavily on
sickest patients
Methods of payment
 Fee-for-service: pay for specific services offered
 Capitation: pay fee for covered person per month
 Salaried providers: in public system, may pay salary with
no direct link to units of care or numbers of patients
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Basic Concepts
Types of practitioners
 Accreditation and licensing requirements
 Physicians, nurses, physical therapists, etc.
 Specialists vs. generalists
(Challenge to manage care in face of specialization)
Decision makers and decision input
 Roles: patient, physician, guideline setters
 Information sources
 Second opinions
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Basic Concepts
Treatment settings and system organizations
 Health maintenance organizations
(HMO): prepaid total care
 Preferred provider organization
(PPO): contracted network
 Care guidelines
–
–
–
Specified by medical community
Definition of what financing program pays for
Specified by managed care organization
In-hospital vs. outpatient care
 Pharmaceuticals
 Group practice vs. individual practice

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