A Perfect StormA Practical Solution?

Paying for Health Care 2005

EPIC FORUMFaculty House, Madison Room

November 29, 2005

Richard N. Pierson Jr.

The Perfect Storm:• Escalating numbers of Uninsured

• Escalating costs of Medical Care

• The Insurance Industry faces:• increased costs,• restricted coverage, lead to,

• The Insurance Death Spiral

• System Failures, Economic results:• Personal bankruptcies, medical basis• Closure of factories (GM, Ford)• Medicaid reductions: (MS, TN, PA, MA)

Getting the attention of….• Welfare agencies?• Justice activists?

• AARP?• Medical Societies? Hospital Associations?• Community Chests?

• Business owners?• The general Public!• Lobbyists?• Legislators?

Get Care

Bills not paid

Fixed costs of healthcare services not met

Deficit!

Cost shift

Higher premiums

More uninsured More underinsured

COST SHIFTING: NO END IN SIGHTThe “Insurance Death Spiral”

Number of Uninsured Americans

1980 1985 1990 1995 2000

45

40

35

30

25

20Source: U.S. Census Bureau

(Millions)

Who are the Uninsured?

• 80% are in working families, BUT: Insurance is not offered (Walmart ...), or Employee refuses, or Preexisting conditions, or…..

Resulting in• Delay in services Uninsured suffer more, die younger

• Patient Pays 35% OOP, 65% from “Charity”(!)• Total Cost: (estimated) $65 to 135 billion annually

SOLUTIONS require that (Institute of Medicine 2004)

1. Health Care must be Universal

2. “ “ “ “ Continuous

3. Affordable, to individuals and families

4. Sustainable for Society

Must control HealthCare Inflation

Encourage effective services, Public Health

5. Enhance Societal Health and Well-Being

How We Got Here ?A Short History

• For Profit : The American Way ! • The Great Conversion: 1990-2005 Let many flowers bloom!

– 520+ Insurers compete, by denying care – Incentives to providers: increase care!

– Return on Investment! Profits increase

• Health Care was Not-for-Profit • Blue Cross 1935

• Kaiser Permanente, WW II

• Military Medicine: DOD, VA, Fed. Employees

• MediCare / MediCaid 1965

The Costs of Health Care

• Utilization: Over? Under? Mis? Who decides?

• Incentives for prevention? • Public Health vs Profit Health?

• Or, The Common Good. – Schools, roads, fire, Police…

• The few sick are very expensive• End-of-life care

• Radically Improving, Expensive, Technology

• Overheads and Profits increase– Hospitals 40% - Physicians 14%

– Pharmaceuticals 17% - Insurance 31%

You’re not paying for Joe Smith’s care.

You’re paying for a nurse, plus ….

• Neonatal intensive care unit

• Trauma unit

• Emergency department

• Surgical unit

• Primary care

• Specialty care

These are Fixed and shared services

Implications of Fixed costs

• It is much more cost effective to invest in only what we need.

• Trying to save money by keeping patients out of the hospital is like trying to save money on schools by keeping kids home for the day

• Once a facility or service is up and running, we pay for it - whether it is used or not (Your Hospital Expansion)

Health care services: How much does our population

need?

• 7% have diabetes

• 25% have high blood pressure

• 5% have heart disease

Certain amount ofDisease in any population

Services available are determined bygroup needs over time

Source: Agency for Healthcare Research and Quality MEPS, 1999

Healthy

Who uses it?

Health care at any one time

SickestSick

Healthy

Sick

Sickest

Who supports it?

12%

12%

76%73%13%

14%

HealthySickestSick

Healthy

Sick

Sickest

All of Us will likely Be Among The Sickest At One

Or Many Points in Our Lives

User Supporter

Source: Agency for Healthcare Research and Quality. MEPS, 1999

CostPer year

When you’re really sick, health care is very expensive

Sickest Sick

$38,000

$1,000

$6,900

Healthy

0

6,000

5,267

US

Canad

a

Fran

ce

Austra

lia

UK

Ger

man

ySource: OECD, 2004

Dollars per Capita

Note: Figures adjusted for purchasing power. Data for Australia, Japan -2001

Health Care Spending - 2002

Japa

n

2,736

2,931

2,504

2,160

2,160

2,077

0

40

34

US Canad

a

Fran

ce

Austra

liaUK

Swed

en

Source: OECD, 2004. Data for 2001, 2002

38 35 31 29 35

Renal Transplants

No. per million population

0

100

12.8USCan

ada

Fran

ce

Ger

man

yDen

mar

k

Japa

n

Source: OECD, 2004. Data for 2002

9.7 9.7 13.3

13.8

92.8

No. per million population

CT Scanners

0

20

5.8US Can

ada

Fran

ce

Austra

lia

UKGer

man

ySource: OECD, 2002. Data for 2000 or most recent year

Per Capita Japa

n

6.5 6.4 6.4 6.5 5.4

16

Physician Visits

How do

we finance health care ?

Health Care Financing Today

• Fragmented - No health policy guaranteeing coverage to all.

• Complicated - needing a massive, expensive, bureaucracy to manage.

Deficit: What to do

• Close down

• Cut staff

• Shift the deficit to the private insured !!!!

0

27

3.1%M

edic

are

Non-p

rofit

Blues Com

mer

cial

Carrie

rsSource: Schramm. Blue Cross Conversion. Abel Foundation. CMS.

Inve

stor

-

owne

d Blu

es

16.3% 19

.9% 26.5%

Private Insurer’s High Overhead

0

400

Insurance Overhead - 2002

364

52 73 73 116 155

US

Canad

a

Fran

ce

Austra

lia

Nethe

rland

s

Ger

man

y

Source: OECD, 2004

Dollars per Capita

Note: Figures adjusted for purchasing power. Data for Australia-2001

GROWTH SINCE 1970

HC Administrative Costs

69%

31%Clinical Care

Administrative Costs

New England Journal of Medicine 8/03

Who’s paying the Health Care bill?

Source: NEJM 1999; 340:109; Health Affairs 2000; 19(3):150

60%20%

20%taxpayers

Private employers

Individuals

We all payBut we don’t all have coverage

{Medicare, Medicaid.Public employees,tax subsidies}

Summary so far

• We all pay the bill: higher premiums • higher taxes

• Most of the health care dollar is spent on services that we pay for, used or not

• Financing is piecemeal and unpredictable

• We have no effective way to control costs

• If we don’t act this will only get worse

Whatto

Do?

Continue what we have now?

• Payment for care is based on the individual in the here and now

• Piecemeal financing, from many sources

• No guaranteed coverage for everyone

• No mechanism for containing overall costs

Should health care be regarded as a consumable?

“The American Way”

HEALTHCARE

A PUBLIC GOOD?

Something we all need

But cannot provide for ourselves(E.g. : roads, schools, police and fire

protection)

Public Good

NHP: an Investment Model

• Assumes healthcare is a public good. Invests in the needed services for the whole population

• Pays for people who are sick now

• Pools money, pays for health care

directly

Single Payer Healthcare systemsthere are several models

• Sweden, Norway, Denmark, Canada ,Finland, Iceland, Australia, Taiwan, and …. have single payer financing

• Single publicly financed risk pool that pays for health care directly

• Everyone has access to privately delivered, publicly financed health care services

• Public can buy extra health insurance for services not covered by public plan.

Fundamental Features of Universal Systems

• Everyone Included

• Public Financing

• Public Stewardship

• Global Budget

• Public Accountability

• Public agency processes and pays bills

What would a national health program look like?

• Everyone receives a health care card

• Doctors and hospitals remain independent, non- profit. Negotiate fees and budgets with NHP

• Free choice of doctor and hospital

• Local regional agencies allocate expensive technology (Certificate of Need)

• Progressive taxes go to Health Care Trust Fund

• Treats health care as a commodity by making a goal selling more heart bypasses, drugs, etc.

• Puts money into treatment, not prevention (flu vaccine, immunizations, diabesity, hypertension)

• Provides insurance incentives to avoid covering the sick (risk selection), delayed care

The Market doesn’t always work

“Market” and quality health care are often at odds.

Questions we need to ask:

• How are we going to pay for it?

• How much health care services does our population need?

• How much will it cost?

• How much do we already have?

• How can we get more for our money?

Change in Spending in a Single Payer Program

Change in Spending in a Single Payer Program

-6 -4 -2 0 2 4 6

Elimination of Cost Sharing (5.1%)

Home Health (0.8%)

Increased Utilization by the Poorly-Insured (2.4%)

Increased Utilization by the Uninsured (3.2%)

Percent ChangeSource: Health Care for All Californians Act: Cost and Economic Impacts Analysis, Lewin Group, January 19, 2005

Emphasis on Primary Care (-1.8%)

Reduced Fraud (-0.4%)

Bulk Purchase of Drugs and Equipment (-2.8%)

Hospital Administrative Savings (-1.9%)

Physician Office Savings (-3.6%)

Insurer Administrative Savings (-5.3%)

NET SAVINGS (-4.3%)

Additions

Savings

FOUR Reform Strategies Which one to Choose? IOM 2004 (in order of increasing costs)

1. Major Public Program Expansion New tax credit, Medicare from 55

2. Employer and Individual Mandate

3. Individual Mandate + Tax Credit (“Moral Hazard”; individual responsibility)

4. Single Payer

WHY IS NATIONAL HEALTH INSURANCE POSSIBLE IN THE U.S.?

• Market forces do not address fundamental problems of cost, choice, access and quality.

• Everyone will be affected: the uninsured,

the underinsured, and the rest of us, (we are

already paying the bill!)

• Employers want to be relieved of the burden of rising health care costs.

The Institute of Medicine says:

• Between the heath care we have and could have, lies not just a gap but a chasm

• The American health care delivery system is in need of a fundamental change

• The challenge is the enormity of the change required

• We’ve tried and failed with incremental reforms for 100 years (Common Sense: “You cannot cross a chasm in two jumps”)

• The time has come for single-payer National Health Insurance - an improved Medicare-for-All.

Physicians for a national health program (PNHP) say:

SOME RELATED ISSUESMalpractice Insurance

• Is not directly addressed; however accounts for

<3% of healthcare costs

• BUT, Matters intensely to hospitals and physicians

• NHI removes costs of subsequent care and defensive medicine, leaving “pain and suffering”

Medical Errors• A separate costly, painful fact of complex care.

• Must be addressed through professional organizations

Single-Payer WILL fix

• Overhead costs of approvals-paperwork (large administrative staffs)

• Profits by competing “ROI” industries

Specialty hospitals, Insurance companies

• PHARMA budgets• Direct-to-consumer advertising(Canadian prices identify large profit-margins)

Single-Payer WILL NOT fix

• Unregulated competition: hospitals, doctors,

healthcare companies

• Fraudulent billing

• Unregulated facility growth: specialty hospitals

• (Certificate of Need is required.)

• National Recessions (Canada, UK, Japan)

WHO WILL be in CONTROL?

• National Commissions, Regional offices

• *States (Provinces): different needs, resources

• IOM, AMA, specialty societies, JCAHO, Nurses, Social Workers, Pharmacists, IHI, NBME, FSMB, elected governments.

• Citizen involvement: the Oregon experiment

PATHWAY 1 to a better system

• Recover non-profit model, institutional providers

• Recruit leaders:

• Public: Church, Service, Chambers….

• Professional: Societies and organizations

• Business: Many

• Academic: Economists, Sociologists, Medical

• Foundations: Many

PATHWAY 2

Change the laws for insuring Healthcare

• Federal Legislation - A contested scene

• State Legislation - ME, VT, NJ, OR, MA,

(23 states have considered legislation)

Enter the Political Process!

PATHWAY 3

Identify The OppositionThe “Medical-Industrial Complex” is a powerful force

• Health Insurance Industries are for-profit

• Managed care companies are for profit

• Pharmaceutical Industries are most profitable

• Some Medical Professional SocietiesCon: AMA, Surgical societiesPro: APHA, AAFP, APedA, APsychA,

ACP

I NEED TO HEAR FROM YOU

• What do YOUR constituents need to hear?

• Whom have we offended?• Necessarily• Unnecessarily

• Where will we find allies?

THANK YOU

Right Wing Think Tanks 2003 budgets, million dollars

• Heritage Foundation 31.5• American Enterprise Institute 17.5 • Cato Institute 15.6• Manhattan Institute 10.7 • Hudson Institute 9.3 • Fraser Institute 6.1• National Center for Policy Analysis 4.5• Discovery Institute 4.2• Pacific Research Institute 4.1 • Association of American Physicians 0.25