The U.S. Health Care System: What Can be Learned?

1. The U.S. Health Care System: What Can be Learned? Bruce J. Fried, PhD Director, Masters Degree Program Department of Health Policy & Administration School of Public Health University of North Carolina at Chapel Hill June 6, 2008

2. Goals for Today • To describe the central elements of the US health system and trends in financing • To analyze the extent to which the goals of the health system have been met • To predict future directions for the health system • To identify lessons from the US experience

3. Access to Care Three Health System Goals Quality of Care Contain costs Can we achieve all three of these goals at the same time?

4. The Paradoxes of the US Health System • An excellent system for those who access to the system • A poor system for those without access • An uncertain system for many

5. A central point:The US does not have a single health care system The US has multiple systems, each with its own goals and patient population

6. Multiple Systems • Medicare: a system for the elderly and people with certain disabilities • Private insurance system for people under 65 • Medicaid: A System for some poor people • The Veterans Health System • The military health care system • The Indian Health Service • A non-system for people under 65 without insurance • Dispersed public health system, mostly on the state level

7. Differences Among States • The states have systems that vary in complexity and priorities. • Large variations across states in: • Policies • Payment systems • Health care usage patterns • Illness burden • State and federal contributions to healthcare costs

8. Health System Financing Where does the money come from?

9. The Major Health Financing Mechanisms • Out-of-pocket payment • Private Health Insurance • HMOs • Preferred Provider Organizations (PPOs) • Point-of-service Plans • High Deductible Health Plans • Conventional Health Plans • Public Health Insurance • Medicare • Medicaid • Children’s Health Insurance Plan

10. Private Insurance • Private insurance includes a wide variety of health plans and providers • Commercial insurance companies, Blue Cross/Blue Shield, self-insurers, and managed care organizations (MCOs) all offer private health insurance • Private insurance is financed most commonly by premium sharing between employers and individuals, or by individuals alone

11. Basic Types of Private Insurance by Funding • Self-funded • Group insurance • Individual insurance

12. Private Health Insurance: Some Basic Concepts and Definitions

13. Managed Care Managed care is a very general term referring to an organized effort by insurers and providers to use financial incentives and organizational arrangements to provide health care services efficiently at lower costs. Examples: Pre-authorization for care Restrictions on care (for example, placing limits on the number of doctor visits) Financial incentives to physicians to practice more efficiently Restricting access to a small set of providers (Adapted from Williams and Torrens, 6th Edition, p. 125)

14. Adverse Selection • People with higher than average risk of needing health care are more likely than healthier people to seek health insurance. • Adverse selection results when these less healthy people disproportionately enroll in a risk pool. • The ultimate outcome of adverse selection is a “death spiral.”

15. Community Rating • A method of setting health insurance premiums under which all policy-holders are charged the same premium

16. Health Maintenance Organization (HMO) • Patients get almost all care (primary and specialty) from a group of physicians and other practitioners • The HMO agrees to take full responsibility for its patients’ care • The HMO is paid a fixed, regular fee per patient (capitation payment).

17. Preferred Provider Organization (PPO) • Providers join together to form a PPO • The PPO physicians agree to provide services at a discounted, fee-for-service rate to the plan’s enrollees • Point-of-Service (POS): PPO enrollees may obtain services from non-PPO providers, but at higher co-payments.

18. High-Deductible Health Plans • These insurance plans have low premiums but high deductibles • Philosophy is that high deductibles will cause consumers to use care more efficiently • Costs are shifted to the consumer • These plans are usually coupled with tax-advantaged Health Savings Accounts • Because deductibles are so high, many people go without care

19. Methods of Paying for Health Services • Fee-for-service • Capitation • Prospective Payment (for example, DRGs)

20. Trends in the Cost of Care

21. Estimated Hospital Expenditures by Source (total = $571 billion) Source: CMS, 2006

22. Estimated Physician Expenditures by Source (total = $400 billion)

23. Estimated Dental Expenditures by Source (total = $82 billion)

24. Estimated Nursing Home Expenditures by Source (total = $ 115 billion)

25. Government Public Health Expenditures by Source, 2004 • Total: $51 billion • Private Sources: $0 • Public Sources: $56 billion (Federal = $9 billion; State & Local = $47 billion

26. Total health expenditures in the United States were $1,309 billion in 2000 and $1,878 billion in 2004, a 43% increase.

27. What is Causing the Increases? • Rising wages in the health care sector. • Technology • Consumer demand for less restrictive plans (movement from HMOs to PPOs) • Legislation (BBRA, prescription drug) that increases Medicare spending. • Drugs

28. Estimated Prescription Drug Expenditures by Source (total = $188 billion)

29. Factors Contributing to Growth in Prescription Drug Spending

30. A Closer Look at the Reason for Prescription Drug Increases • Shift in payment from out-of-pocket to 3rd parties • An aging population • More prescriptions per person • Drug prices (CMS)

31. Key Trend Cost-shifting to patients is occurring at all levels of the health system.

32. Trends in Employer-Based Health Insurance The level of employer-sponsored coverage is declining in all 50 states. In 2005, three out of five employers (60 percent) offered health insurance coverage, down from 69 percent in 2000.

33. Percentage of Firms Offering Health Benefits: 2000-2007 Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-2007

35. Key Trend Many employers are getting out of the business of providing health insurance. For those continuing to offer insurance, patients are paying a higher proportion of the total premium, and paying higher co-payments and deductibles.

36. Public Insurance Programs Medicare Medicaid Children’s Health Insurance Program Veterans Administration Indian Health Service

37. Medicare • Basics • Medicare is a federal program that covers individuals 65 and over, as well as some people with specific diseases and disabilities. • Administration • Medicare is a single-payer program administered by the government; single-payer refers to the idea that there is only one entity (the government) performing the insurance reimbursement function.

38. Medicare Gaps • Many gaps in Medicare coverage • Incomplete coverage for skilled nursing facilities • Incomplete preventive care coverage, and no coverage for dental, hearing, or vision care. • Consequences of incomplete coverage • The vast majority of enrollees obtain supplemental insurance: “Medigap” • Overall, seniors pay about 22% of their income for health care costs despite their Medicare coverage. Source: The Kaiser Family Foundation

39. The Problem of Costs in Medicare • From 1950 to 2004, the percentage of Americans ages 75 and older rose from 3 percent to 6 percent. The number is projected to reach 12 percent by 2050 • A small number of sick people account for most health care expenditures. According to one report, 10 percent of patients accounted for 69 percent of health expenditures.

40. Options to Reduce Medicare Expenditures • Beneficiary premiums and cost-sharing • Scaling back tax cuts (so more general revenues available) • Reduce provider payments • Reduce Medicare benefit package • Increase age of eligibility • Change Medicare from defined benefits to defined contribution

41. Other Cost Containment Strategies for Medicare • Hospital and physician payment mechanisms • Disease management and clinical practice guidelines • Cost-shifting to consumers

42. Medicaid • Medicaid is a program designed for the low-income and disabled. • By federal law, states must cover very poor pregnant women, children, elderly, disabled, and parents. • Childless adults are not covered, and many poor individuals make too much to qualify for Medicaid. • States’ Autonomy • States have the option of expanding eligibility if they so choose

43. Medicaid Administration • The states and the District of Columbia are responsible for administering the Medicaid program. • Effectively, 51 different Medicaid programs in the country. • Financing • Medicaid is financed jointly by the states and federal government through taxes. • Every dollar that a state spends on Medicaid is matched by the federal government at least 100% • In poorer states, the federal government matches each dollar more than 100% • Overall, the federal government pays for 57% of Medicaid costs.

44. Medicaid Concerns • Difficulty finding providers that accept Medicaid due to its low reimbursement rate • Increasing costs and Medicaid managed care • While a national program, there is variation in benefits among states

45. Paying for Health Care A mix of methods

46. Hospital Payment • Since the early 1980s, hospitals are reimbursed by a prospective payment system based on Diagnosis Related Groups (DRGs) • Pay-for-Performance • Financing medical education

47. Physician Payment: Many Variations • Fee-for-service • Capitation • Salary • Resource-Based Relative Value Scale (RBRVS) is a system used to determine how much money medical providers should be paid. It is currently used by Medicare and nearly allo HMOs.

48. Provider Incentives by Type of Payment • Fee-for-Service: Over-treat • Prepayment: • Decrease costs by under-treating • Unload high-cost patients • Focus more on prevention • Salaried providers: No financial incentive for productivity

49. Hospital Responses to Reduced Revenues • Two out of three CEOs report their hospitals are making money, but only one-third report margins in excess of 4 percent. • Reduce costs: shorter lengths of stay • Alternatives to emergency departments • Outpatient care: Sixty-three percent of all surgical operations in community hospitals in 2003 were performed on outpatients, up from 51 percent in 1990 and 16 percent in 1980.

50. Trends A System Under Stress