Rising Health Care Costs: Can we Move Towards Higher-Value Care?

1. Rising Health Care Costs:Can we Move Towards Higher-Value Care? Katherine Baicker Professor of Health Economics Harvard School of Public Health

2. Lower Costs vs. Higher Value • Rising costs and uninsurance have made reform a priority, but should be focused on value, not just costs • Higher spending driven not by changes in number of physician visits or hospitalizations, but by intensity of treatment • Many payment schemes encourage quantity, not quality • Dulled incentive to develop cost-saving technologies • Appeal of cost-saving quality improvements • Self-financing plans to cover the uninsured • Health-improving reductions in spending • Elimination of waste, fraud, and abuse • But is this the right metric? • Worthwhile reforms that improve value may or may not save money

3. Ample Evidence of Inefficient Spending • International evidence: • Spend much more than OECD trading partners without commensurately better outcomes • Domestic evidence: • Areas where we spend more are not areas with best outcomes

4. Quality Variation Even within Medicare Source: Dartmouth Atlas of Health Care

5. Variation in Medicare Spending Source: Dartmouth Atlas of Health Care

6. Higher Spending Does Not Necessarily Lead to Higher Quality Source: Baicker and Chandra (Health Affairs 2004)

7. Some Causes of Inefficiency • Public side: • Medicare reimbursement primarily based on quantity, not quality • Resources for the uninsured spent on inefficient modes of care • Private side: • Biases in tax subsidy of employment-based insurance • Barriers to well-functioning insurance markets • Information on prices and quality often not available

8. Consequences of Inefficient Spending • Health care dollars not allocated to highest value uses • Reimbursement rates drive health consumption decisions • Rising ranks of uninsured break down risk-pooling and lead to inefficient care for uninsured • Slower wage growth • Rising health insurance premiums have reduced wage growth by as much as 25% in the past five years • May exacerbate job-lock • Increasing pressure on taxpayers to finance government-provided insurance • Rapidly rising deadweight loss • Current path of spending growth is unsustainable

9. The President’s Proposal • Standard Deduction for Health Insurance • Anyone covered by a private policy would get standard deduction (regardless of source or premium) • Replaces current exclusion of employment-based insurance • Goal of eliminating biases in the tax code and improving efficiency • Affordable Choices Initiative • Goal of giving states extra flexibility and resources to cover hard-to-insure poor and chronically ill • Ongoing efforts to expand access to information and affordable insurance

10. Evaluating Effects Uninsured • How many fewer uninsured people? Individual purchasers • Effect on non-group market? People insured through jobs • Effects on number covered, generosity of plans? Budget • Overall effect on budget? • Distribution of benefits? • Effect on growth of health spending? Quality • Effect on value of care and insurance?

11. Other Proposals • Reforming tax-treatment of health insurance plays major role in many (Republican) candidates’ proposals • Variants include refundable tax credit • Clearly only one piece of puzzle • Many cost-containment proposals focus on low-hanging fruit, but can’t count on covering uninsured, saving lives, and saving money • Focusing on combination of value-improving strategies that have system-wide effects likely to generate most bang for the buck

12. Focus on Changes with System-wide Effects • Interventions that affect the care received by some groups likely to have “spillover” effects • Insurance coverage – extent and type • Use of high-intensity interventions • Information • Use of “best practices” • Few individual interventions likely to produce better health at lower cost • Doesn’t mean there aren’t many worthwhile interventions • Probably willing to pay more if getting a lot more health for it