FINANCING OF MEDICINE

1. SUSANA A. ALFONSO, M.D., M.H.C.M. ASSISTANT PROFESSOR June 9, 2011 FINANCING OF MEDICINE

2. LEARNING OBJECTIVE • Describe what comprises healthcare costs and the trend • Describe the value of healthcare in the United States • Describe who the major payors of healthcare are in the US and where the money comes from • Define a self insured payor • Describe the competing incentives in healthcare

3. Source: Aaron Catlin et al., “National Health Spending in 2006: A Year of Change for Prescription Drugs,” Health Affairs (January/February 2008). Used with permission from Karen Quigley, Harvard School of Public Health. Lecture “Payment Systems the Big Picture” 09/08.

4. Average health spend per capita ($US PPP) Source: K. Davis, C. Schoen, S. Guterman, T. Shih, S. C. Schoenbaum, and I. Weinbaum, Slowing the Growth of U.S. Health Care Expenditures: What Are the Options?, The Commonwealth Fund, January 2007, updated with 2007 OECD data

6. Mortality Amenable to Health Care Mortality from causes considered amenable to health care is deaths before age 75 that are potentially preventable with timely and appropriate medical care Deaths per 100,000 population* International variation, 1998 State variation,2002 Percentiles * Countries’ age-standardized death rates, ages 0–74; includes ischemic heart disease. See Technical Appendix for list of conditions considered amenable to health care in the analysis. Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2006. Data: International estimates—World Health Organization, WHO mortality database (Nolte and McKee 2003); State estimates—K. Hempstead, Rutgers University using Nolte and McKee methodology.

10. What is the Commonwealth Fund?? • “The Commonwealth Fund is a private foundation that aims to promote a high performing health care system that achieves better access, improved quality, and greater efficiency, particularly for society's most vulnerable, including low-income people, the uninsured, minority Americans, young children, and elderly adults.” http://www.commonwealthfund.org/About-Us.aspx (accessed 11 January 2010)

11. = Quality/Cost VALUE

12. Where does the money come from? Who pays for this?

13. US National Health Expenditures by Source of Funds, 2006 Total National Health Expenditures = $2.1 trillion, 16% of GDP 5% 17% 14% 16% 35% 13% Source: Aaron Catlin et al., “National Health Spending in 2006: A Year of Change for Prescription Drugs,” Health Affairs (January/February 2008). Used with permission from Karen Quigley, Harvard School of Public Health. Lecture “Payment Systems-The Big Picture” Lecture 09/08.

14. What is Medicare?? • Insurance program for • People aged 65 and over • People under age 65 with certain disabilites • People of all ages with ESRD • Two parts: A and B • Part A pays for Hospital Services-most people do not have to pay extra for this • Part B pays for physician services-most people do have to pay extra for this US Department of Health and Human Services. Medicare Eligibility Tool. http://www.medicare.gov/MedicareEligibility/home.asp?dest=NAV%7CHome%7CGeneralEnrollment&version=default&browser=IE%7C8%7CWindows+Vista&language=English (Accessed on 12 January 2010).

15. Medicare Part C • Include Hospital and Physician services • Administered by private companies for Medicare • PPO, HMO, private FFS • AKA Medicare Advantage plans • Proven to be lucrative for private companies Medicare Consumer Guide. http://www.medicareconsumerguide.com/medicare-part-c.html (Accessed 12 January 2010)

16. Medicare Part D • Insurance coverage for prescription drugs • Everyone eligible for Medicare is eligible for this • May pay a penalty if you originally opt out then try to opt in • Requires supplemental premium US Dept of Health and Human Services http://www.medicare.gov/pdp-basic-information.asp#whompdc (Accessed 12 January 2010).

17. Funding • Payroll Tax (2.9%) • General Revenues • Premiums • Out of Pocket

18. Medicaid • Provides medical benefits to low income groups • Federal guidelines but state specific requirements • Categorically needy: low income families, children, pregnant women • Medically needy: Have too much income to be categorically needy-aged, blind, disabled, children, pregnant women • Special Groups: Medicare beneficiaries, working disabled Medicaid at a Glance 2005. http://www.cms.hhs.gov/MedicaidGenInfo/Downloads/MedicaidAtAGlance2005.pdf (Accessed 12 January 2010)

19. Funding • State spending with Federal “match” based on per capita income • Disparity exists between needs and federal dollars • Some say richer states that can afford to spend more receive more matching dollars

20. Health Insurance Coverage by Type of Insurance: 2007 • Type of Health Insurance # Covered % Pop • Private • Employment-based 177.4 M 59.3 % • Private, individual 26.6 M 8.9 % • Public • Medicare 41.3 M 13.8 % • Medicaid 39.5 M 13.2 % • Military 10.9 M 3.7 % • Uninsured 45.7 M 15.3 % Source: US Census, CPS. Total US Population is 299 million. Used with permission from Karen Quigley, Harvard School of Public Health. “Payment Systems-The Big Picture” 09/09.

21. Funds Flow in the US Health System Employee/Individual Premiums Employer Premiums Individuals OOP Taxes Government Medicaid Medicare Private Insurance/HMOs Administrators Intermediaries Health Care Organizations (MSO, PHO, IPA…) Health Care Providers Used with Permission from Karen Quigley, Harvard School of Public Health, “Payment Systems-the Big Picture” Lecture 09/08.

22. Insurance Companies • Based on Risk • Private and non-profit companies • All have to make money to stay viable • Aetna and United both for proft • Kaiser and Blue Cross/Blue Shield non-profits

23. For Profit CEO Compensation • United Health GroupCEO: William W McGuire2005: 124.8 mil5-year: 342 mil • Forest LabsCEO: Howard Solomon2005: 92.1 mil5-year: 295 mil • Caremark RxCEO: Edwin M Crawford2005: 77.9 mil5-year: 93.6 mil • Abbott LabCEO: Miles White2005: 26.2 mil5-year: 25.8 mil • AetnaCEO: John Rowe2005: 22.1 mil5-year:57.8 mil • AmgenCEO: Kevin Sharer2005:5.7 mil5-year:59.5 mil http://blogs.webmd.com/mad-about-medicine/2007/08/ceo-compensation-who-said-healthcare-is.html (Accessed 13 January 2010).

24. Self Insured Employers • Large employers choose to bear the financial risk of health insurance for their employees • “Insurance” company acts on behalf of employer to administer the plan for a flat % • IBM-enormous healthcare/wellness investment of $79M (2004-2007) yielded savings of $191M • Cisco • Emory http://www-03.ibm.com/press/us/en/pressrelease/28728.wss (Accessed 13 January 2010)

25. Cisco-Hardware manufacturer • “Cisco Systems' sleek new on-site health clinic looks more like a pampering day spa than a medical facility for the company's employees and their dependents.  Patients sign in on wireless tablets. They chat with their doctors in private "care suites," anterooms equipped with large, high-definition screens where they can view and discuss their vitals and medical information before entering the exam room. Comfortable padded exam tables, a choice of robes or gowns and an en suite bathroom help salve any indignities that await.” • The clinic, which opened for patients Nov. 24 at the networking equipment-maker's San Jose headquarters, is part of the company's new $38 million LifeConnections Center, which also includes an employeechild care center that can accommodate 400 children and a 48,000-square-foot gym. • The Cisco clinic is staffed with four family-practice physicians and an internist, and the center hopes to add a pediatrician. It also offers physical therapy, acupuncture, chiropractic services, health coaching and a pharmacy operated by Walgreens.  http://stanford.wellsphere.com/healthcare-industry-policy-article/the-cisco-medical-clinic-company-medical-assistance-and-consults-on-site/538311 (Accessed 13 January 2010).

26. Emory • 28,000 covered lives • $77M in healthcare costs in 2003 • $133M in 2008 (58%) • Currently considering Medical Home for its employees • $4750 per covered life-(employer contribution only) + approximately $600 per covered life + OOP expenses

27. Monopoly Money • Who has the incentive to lower cost? • Patients • Employers • Government • Payors who bear the financial risk

28. LEARNING OBJECTIVE • Describe what comprises healthcare costs and the trend • Describe the value of healthcare in the United States • Describe who the major payors of healthcare are in the US and where the money comes from • Define a self insured payor • Describe the competing incentives in healthcare

29. References • The Commonwealth Fund: A private organization working toward a high performance health system. http://www.commonwealthfund.org/Charts-and-Maps/ChartCart/View-All.aspx?charttopic=Mortality++Life+Expectancy&page=4 (Accessed 11 January 2010).