ANNA RAPPAPORT CONSULTING STRATEGIES FOR A SECURE RETIREMENT SM Health Care Today: Filling in the...

ANNA RAPPAPORT CONSULTING

STRATEGIES FOR A SECURE RETIREMENTSM

Health Care Today: Filling in the Big Picture

John Marshall Law School

April 28, 2006

Anna Rappaport presentation at John Marshall Law School April 28, 2006 2

“The Present and Future Organization of Medicine”

“Today medicine stands at a crossroad. No one can fully grasp the content of medical science and medical art or forsee the path which the newer knowledge will follow more than a decade hence. No one can fully comprehend the present position of medical practice in society or anticipate the form it is destined to take.”

From the Milbank Memorial Fund Quarterly, Vol. 12, No. 2, 1934


Stakeholders

Patients/Families

Employed

Patients/FamiliesRetired

Patients/FamiliesDisabled

Patients/Families

UnemployedPublic

Provi

dersEm

ployers

Insurers

Regulators


Agenda

Filling in some facts Mercer survey highlights Defining the future landscape


Filling in Some Facts

How the US compares Reasons for higher spending in the US Claims distribution: A few people account for most of the

cost Illness and injury as contributors to personal bankruptcy Negotiating prices: how the Amish drive down costs Medical errors and the tort system


How the US Compares

9.1% 9.6%

7.8%

6.1%

7.7%

14.6%

10.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Source: “Health Spending in the United States and the Rest of the Industrialized World,” Health Affairs, Volume 34, Number 4, page 905

US Spending is Higher — % of GDP 2002


Reasons for higher spending in the US

Higher incomes and higher medical prices are major factor Price example – 2002 average cost of hospital day

– U.S. $2,434– Canada 870– Less in other OECD countries

Malpractice is not a major factor in difference – cost of defending claims in 2001 = .46% of total health spending

Supply issues: “Surprisingly, Americans have access to fewer health care resources than people in most other OECD countries measured in three major categories: hospital beds per capita, physicians and nurses per capita, and MRI and CT scanners per capita.”

Source: “Health Spending in the United States and the Rest of the Industrialized World,” Health Affairs, Volume 34, Number 4, pages 903-906


Typical Claim DistributionFew People: Majority of the Cost

53%

25%

35%

50%

3%

5%

10%

19%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% Claimants % Cost


Implications of Claim Distribution

Big difference between different buyers Anti-selection = big issue Voluntary individual market solutions don’t work Risk adjustment key for future

Big question: who will pay for the high cost claimants?


Illness and Injury as Contributors to Personal Bankruptcy

Study focuses on links between personal medical costs and bankruptcy

Studied sample of 1771 bankruptcy filings in 2001 28% of filers reported illness or injury as cause for

bankruptcy Estimate that 1.9 to 2.2 million Americans (debtors and

dependents) experienced medical bankruptcy The overwhelming majority of uninsured medical debtors

had found coverage to be unaffordable of effectively unavailable

Source: Himmelstein, David and others, “Illness and Injury as Contributors to Bankruptcy, 2005,” Health Affairs – Web Exclusive Market Watch


Negotiating Prices: How the Amish Drive Down Costs

Amish and Mennonite are generally uninsured Elders negotiated with Heart of Lancaster Regional Medical

Center (community spent $5 million/year at center) Result:

– Total hip replacement: negotiated $16,578 vs.$37,260 national average

– Adult appendectomy: $5,527 vs. $19,957 – C-section: $5,000 vs. $13,458

50% payment required in cash up-front Elders pledged that community members would not sue for

malpractice

Source: Millman, Joel, “How the Amish Drive Down Medical Costs,” Wall Street Journal, February 21, 2006


Medical Errors and the Tort System

34% of public were personally involved in a situation where a preventable medical error occurred

Consequences to the public experiencing errors– 16% significant loss of time– 16% severe pain– 11% long term disability– 8% death

Reforming the tort liability system will not solve a major part of the health care cost problem as malpractice payments represent only 0.5% of total health spending – US is fairly similar to UK, Canada and Australia in malpractice spending

Sources: (1) Kaiser Family Foundation, “Trends and Indicators in the Health Care Marketplace,” Exhibit 7.17; (2) “Health Spending in the United States and the Rest of the Industrialized World,” Health Affairs, Volume 34, Number 4, page 910


Trends in Employer Plans: Mercer’s 2005 National Survey of Employer-Sponsored Health Plans

About the Survey Largest and most comprehensive annual survey Established in 1986, national probability sample used since

1993 2,999 employers participated All employers with 10 or more employees are surveyed; size

groups examined separately in this presentation include:- small employers – 10-499 employees - large employers – 500+ employees- jumbo employers – 20,000+ employees

Source: Mercer Health & Benefits, LLC, “2005 National Survey of Employer-Sponsored Health Plans”



Total health benefit cost increase slows for the third straight year

All Employers18.6%

16.7%17.1%

12.1%

10.1%

8.0%

2.5%

0.2%

6.1%7.3%

8.1%

11.2%

14.7%

10.1%

7.5%6.1%

-1.1%

2.1%

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005



Strategy will be significant or very significant

StrategySmall

EmployersLarge

EmployersJumbo

Employers

Care management 31% 62% 81%

Consumerism 34% 55% 71%

Data transparency 27% 35% 54%

High-performance networks 26% 33% 51%

Collective purchasing 29% 25% 24%

Scaling back benefits/shifting cost to employees 21% 24% 17%Source: Mercer Health & Benefits, LLC, “2005 National Survey of Employer-Sponsored Health Plans”


Employers see care management, consumerism as top cost management strategies for the next five years


Percent of large employers offering program

Program 2005 2004

One or more disease management programs 67% 58%

Health risk assessment 46% 35%

Behavior modification program 30% 21%

Nurse advice lines 64% 59%

Health advocate services 37% 31%

Complex case management 65% ----

Catastrophic case management 66% 59%

End-of-life case management 40% ----



Growth in use of care management programs



ActionAll

EmployersLarge

EmployersJumbo

Employers

Provided access to website on health conditions 41% 69% 84%

Provided access to website on provider quality and cost 40% 49% 53%

Provided utilization modeling tool to help with plan selection 17% 21% 47%

Replaced copayments with coinsurance 10% 22% 50%


Actions taken to promote consumerism



Consumer-directed health plans concentrated among jumbo employers in 2005

Percent of employers offering plan

2005 2004 2003

All employers 2% 1% <1%

Small employers (10-499) 2% 1% <1%

Large employers (500+) 5% 4% 1%

Jumbo employers (20,000+) 22% 12% 9%



29%28%29%

35%38%

41%46%

21%21%23%28%

31%35%

40%

1993 1995 1997 1999 2001 2003 2005

Offer coverage to pre-Medicare-eligibleOffer coverage to Medicare-eligible


Decline in retiree medical coverage levels off in 2005

Large Employers



47%44%

35%

27%28%

5%

45%

32%

27%

19%21%

5%

10-499 500-999 1,000-4,999

5,000-9,999

10,000-19,999

20,000 ormore

Pre-Medicare-eligibleMedicare-eligible

Number of employees



Offer retiree coverage in 2005, by employer size


Moving into the Future: Defining Key Issues

QUALITY ACCESS

COST

Choose two — You can’t have all three!Future of employer role depends on total health care system issues


Lessons Learned

The payment system often drives the patterns of care– Ex: if care is paid for in the hospital and not out of the

hospital, care will shift– Ex: if care is paid for if job related and not otherwise,

there will be job related problems Liability system can influence patterns of care—sometimes

improving quality but maybe leading to unnecessary care Costs can increase beyond anyone’s expectations High-cost claimants drive market possibilities Technology can lead to marvelous results, but it also can

cost a lot Sometimes people focused on the latest technology forget

the basics


Big Questions

What rights does the public have to health care? Who will define the risk pools? How do we reduce the number of uninsured? How can we keep costs under control? What role will employers take in financing and providing

health care? What role will state and federal government take in

regulating, financing and providing health care? How will those without employer coverage gain access to

care? How will resources be allocated to public health, acute care

and chronic care?


Big Questions (continued)

How will decisions about individual care be made? What control/management systems will be in place? What will be the role and who will control academic medical

centers? How will managed care evolve? What systems will be used to control that excessive care is

not provided? What is appropriate care at the end of life? Who can make decisions about end of life care and

choosing when to die? Will insurers be allowed to underwrite individuals without

any restrictions? Will risk adjustment methods be developed?


Big Questions (continued)

What liability will be imposed on providers, insurers? What limits will there be on liability? Where will early retirees without employer coverage get

their coverage? Who will define standards for quality of care? Who will set/negotiate prices? Will providers be allowed to charge different prices to

different customers?


Appendix: Additional Data


National Health Expenditures

Percentage of GDP1993 13.4%

2003 14.9

2006 16.0*

2014 18.7*

*Estimate

Per Capita1993 $3,353

2003 5,670

2006 6,830*

2014 11,045*

Source: “US Health Spending Projections for 2004-2014,” Health Affairs, Feb. 2005


Uninsured

A growing problem– 44.7 million – 2003– 40.0 million – 1999

Consequences– 47% postponed seeking care because of cost

(compared to 15% of insured)– 37% did not fill a prescription because of cost

(compared to 13%) Result of uninsured not getting care

– 57% painful temporary disability – 19% long term disability

Source: Kaiser Family Foundation, “Trends and Indicators in the Changing Health Care Marketplace” (Exhibits 7.1, 7.6, 7.7)


Nursing Home Costs

Average $74,000/year Average stay is 2.5 years 11% of 65 year old men and 28% of women will need more

than five years of care at home or in a facility Among benefit claimants with a three year benefit limit, 8%

will exhaust benefits in policy

Source: Jonathon Clements, “Getting Going,” Wall Street Journal. Feb. 22, 2005

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