Health System Reform: Why Now?

Why Colorado? Who’s Next?

Len M. Nichols, Ph.D.Director, Health Policy Program

New America Foundation

Hot Issues in Health Care Legislative Conference Colorado Springs, Colorado

November 17, 2006

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2

Overview

• Introduction to Health Markets• Sources of extreme stress • Why the national debate is stuck (for now)• Competing Visions• States as

– Laboratories– Catalysts

• How Colorado could inspire the nation

3

Are Health Markets “Different?”

• Information asymmetries– Clinician-patient– Consumer-insurer

• Third-party payment– Moral hazard

• Voluntary insurance purchase– Adverse selection

• Expenditure distribution skewed – Risk pooling necessary– Competing definitions of “fair” risk pool

4

Linked Problems

• Low Value for Dollar

• Uneven quality

• Inequitable access to care

5

Compared to Other Countries

• #1 in spending, share of GDP, per capita

• #37 (by WHO) on overall system performance, next to Slovenia and Costa Rica– Life expectancy, child survival, fairness,

responsiveness, health outcomes

6

Medicare Quality and Spending Correlation

Source: Baiker and Chadra, Health Affairs we, April 7, 2004

7

US Overuses interventionist technological procedures

8

Institute for Healthcare Improvement’s Ventilator Associated Pneumonia

program

• Known how to eradicate VAP since ’99• 14 hospitals have• 6 more have made great progress

• Why hasn’t every hospital nationwide done this?

9

Percent of median family income required to buy family health insurance

7.7

19

02468

101214161820

1987 2005

Source: Author’s calculations, using KFF and AHRQ premium data, CPS income data.

10

Family health insurance premium as percent of wages

17.9

22.4

33.2

26.4

33

47.8

0

5

1015

20

25

3035

40

45

50

1998 2004

MeanMedian25th percentile

Source: author’s analysis of KFF premium data, BLS wage data

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Labor Market Realities

Occupation Family premium/Median wage

Physician 7.9%

History professor 14.8%

Secretary 30.9%

Carpenter 25.6%

Cook 50.0%

Source: KFF premium and BLS wage data, 2004.

12

Premium Payments v. GDP Growth Rate

0%

2%

4%

6%

8%

10%

12%

14%

1999 2000 2001 2002 2003

esigdp

Source: NIPA, BEA/Commerce Dept.

13

Employer Health Insurance Payments / Corporate Profits

0%

20%

40%

60%

80%

100%

1998 1999 2000 2001 2002 2003

esi/pre-tax esi/post-tax

14

Some Coverage Trends (percent of under-65 population)

1987 1993 2004

Employer 70.1% 64.3% 62.4%

Medicaid+SCHIP 8.7% 12.9% 13.4%

Uninsured 13.7% 16.0% 17.8%

Source: EBRI, December 2005.

15

Result of our incremental approaches

• Health insurance as we know it is out of reach of a growing share of our workforce

• We tolerate a stunning amount of mediocre performance

16

Linkages Among Problems

Cost

Quality

Access

17

Political Gridlock and Fear

• R’s don’t want real reform discussions – universal coverage threatens tax cuts (#1)– Serious cost-growth containment requires enhanced

government role

• D’s don’t know what they want– Some want to use UC to get power– Others fear and want to avoid it to get power– Others fear any solutions which unions don’t like

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Visions of Problems

• Right:– High costs caused by moral hazard (too much insurance

coverage)– Coverage expansion will require unimaginable taxes

• Left– High costs caused by market forces, market power/high

profits, adverse selection • Center

– Problems LINKED, must be addressed simultaneously, for technical and political reasons

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Competing Policy Visions

• New Wild West, with tax breaks – Individual consumers will drive efficiency

• Musty Cocoon of Single Payer– Elite control will drive efficiency

• Brave New World– Mandates, smart regulation, combined buying power

will drive efficiency

20

President’s Proposals

• Encourage non-group purchase of HSA-eligible insurance – Premium + OOP from HSAs deductible – Payroll tax credit for HSA contribution

• Support passage of AHPs + federal override of state regulation of insurance markets

• Malpractice reform• HIT and transparency exhortations

21

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What Do We Need?

• Political Space to Begin the Conversation– Moral case

• Proof we are all in the same community– Economic case

• Delivery system “culture of value”

• Credible policy design– 3 dimensions of credibility

• Stakeholders, politicians, people

23

Health System Culture of Value • Information infrastructure to support quality improvement

• Malpractice safe harbors and value-enhancing incentives (for all)

• Comparative technology assessment as countervailing power between medical technology and coverage/use decisions– Raise the bar at the FDA– Raise the bar for procedural interventions as well

• Create Health Home, pay Host to guide us through system, teach/learn evidence base with us

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Credible Policy Design• Individual and Shared Responsibility

– Individual purchase requirement – Purchasing pool

• Risk pooling/market rules• Administrative economies of scale

– Subsidies for lower income– Financing sources

• Culture of Value– Evidence-based limits on collectively financed benefits

• Preservation of liberty and choice

25

0

10

20

30

40

50

60

70

80

90

ENTR SC PG Cons UP Disaff Cons D Disadv D Liberals

Pew Typology: Support for government guarantee of health insurance, even if taxes must be raised

Pew Center for Research on People & the Press: 2005

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States as Laboratories

• No inpatient coverage– Utah, West Virginia

• Limited inpatient coverage– Arkansas, New Mexico, Tennessee

• Piggyback on state’s purchasing power– West Virginia, Oklahoma

• Encourage offers within purchasing pools– Montana

• Adding Adults– Wyoming, Pennsylvania

27

States as Catalysts

• Maine– Build it, capture savings, hope they’ll come

• Illinois– Cover all kids, cover all citizens?

• Vermont– Bipartisan, insurance home and subsidies for uninsured

• Massachusetts – Bipartisan, individual mandate, subsidize lower

income in smaller firms, hard budget constraint

28

Why Colorado Should Do This

• Ich Bien Ein Coloradan

• It would confound the cynics

• It would inspire the Just

• It would concentrate minds in Washington

29

What Can Colorado Do Alone?

• Agree to work across party lines• Create sustainable structures

– Efficient markets– Transparent information systems– Subsidies and benefits for target population– Build in budget safeguards

• Agitate for Federal partnership