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The Health Care Landscape Before and After the ACA. Bill Evans University of Notre Dame. Two Goals. What are the issues that any health reform proposal must address? How did the ACA deal with these issues? . What must health care reform address?. Access

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the health care landscape before and after the aca

The Health Care Landscape Beforeand After the ACA

Bill Evans

University of Notre Dame

two goals
Two Goals

What are the issues that any health reform proposal must address?

How did the ACA deal with these issues?

what must health care reform address
What must health care reform address?

Access

Cost (both the level and rate of change)

Medicare

Tax equity

problems for small firms
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
what must health care reform address1
What must health care reform address?

Access

Cost (both the level and rate of inflation)

Medicare

Tax equity

expenditures on health care
Expenditures on Health Care
  • Actual, 2010
  • $2.6 trillion on HC
  • $8,402 per capita
  • 17.9% of GDP
  • Projected, 2021
  • $4.7 trillion
  • $14,102 per capita
  • 29.6% of GDP
slide10

87% more than Canada

143% more than UK

average annual premiums covered workers 2011
Average Annual Premiums Covered Workers, 2011
  • Individual plan
    • $5,429 total
  • Family plan
    • $15,073
bang per buck
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
are high expenditures a bad thing
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
medical successes
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

if you want to cut costs where
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
if you want to cut costs where1
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
per capita medicare spending by hospital referral region 2006
Per Capita Medicare Spending by Hospital Referral Region, 2006

$9,000

to

16,352

(57)

7,500

to <

8,000

(53)

5,310

to <

7,000

(75)

8,000

to <

9,000

(79)

7,000

to <

7,500

(42)

Not Populated

what must health care reform address2
What must health care reform address?

Access

Cost (both the level and rate of inflation)

Medicare

Tax equity

medicare
Medicare
  • 2010
  • 47 million recipients
  • $524 bill. exp.
  • 3.2% of GDP
  • 16% of fed. budget
  • 2040
  • 87 million recipients
  • 6% of GDP
medicare sources as of gdp
Medicare Sources as % of GDP

Unfunded portion

Of Medicare

Will equal 2% of

GDP

future problems
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
what must health care reform address3
What must health care reform address?

Access

Cost (both the level and rate of inflation)

Medicare

Tax equity

tax preferred status of health care
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
tax benefit of ephi
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
without tax advantage
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

inequalities
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
patient protection and affordable care act

Patient Protection and Affordable Care Act

An outline and some likely outcomes

overview
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
coverage expansions achieved through
Coverage expansions achieved through

Individual mandate (tax of 2.5% of AGI)

Pay or play -- employer mandates

Expand Medicaid to include higher income groups

coverage expansion continued
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

why is coverage mandatory
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
impact on uninsured
Impact on Uninsured

Reduce uninsured by 32 mil. in 2019 (60%↓)

Leaves another 23 mil. uninsured

Hispanics will be over-represented in the uninsured

balance sheet cbo 2010 2019
Balance Sheet – CBO 2010-2019
  • What the program buys
  • Expand private $ 464
  • Expand public $ 434
  • Small firm credit $ 37
  • Total $ 935
  • How it is paid for
  • ↑ taxes $ 454
  • ↓Mcare/caid $ 368
  • Other $ 255
  • Total $1077
  • $142 billion ↓ deficit

In Billions of $

does it reduce the deficit
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
medicare board of trustees
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.”

more general point
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

what is missing

What is missing?

Cost controls

slide47

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
winners
Winners
  • Uninsured
    • affordable high-quality insurance now available
  • Workers at small companies
    • Now have access to group market
    • Heavy subsidies for low income
slide49

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
losers
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
where is the uncertainty
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
pay or play
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?

small firms
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….

slide55

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
slide56

$

Obese

Not Obese

A

C

B

Age

Age1

Age2